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The following information is shared in the
expectation that it will provide a path for those caught in that
difficult situation, and assist in resolving their particular
financial problem.
The Foreclosure Process in California
The California home-buying process usually
involves the use of the deed of trust, which by its legal definition
involves three parties; the trustor (borrower), the beneficiary
(lender), and the trustee (neutral third party receiving the right
to foreclose). The deed of trust usually includes a "power of sale"
clause that gives the trustee the legal right to enforce collection
of the debt. Collection of the debt is ultimately enforced by the
right to sell the house when the borrower fails to make their
mortgage payments. Defaulting on one's loan causes the start of
foreclosure, the process by which the lender takes over the home in
order to recover the their principal investment. Once the house is
either sold at auctioned or "repossessed" by the lender, it is sold
and the former owner must vacate at the discretion of the new owner.
When there is a power of sale clause in the deed of trust the
non-judicial process of foreclosure is used. In non-judicial
foreclosure the trustee must meet a few requirements before he or
she sells the property. In comparison to a judicial foreclosure,
Non-judicial foreclosure is quick because the trustee does not have
to obtain a court order to foreclose, nor is court supervision
required in order to sell the house, as is required in the judicial
foreclosure process. The judicial process of foreclosure is used
when a power of sale clause is not in the deed of trust.
In California, the timeline of non-judicial
foreclosure begins when the trustee files a notice of default. This
is a letter which is sent to the owner/trustor notifying him or her
of their default of the loan. This notifies the owner of the intent
of the lender to follow through on their right to collect on the
debt. The copy of the notice, which is recorded at the County
Recorders Office of the appropriate county, is mailed to the address
of notice as per the deed of trust. Recording of the notice of
default can vary greatly depending on the beneficiary. In can occur
anywhere between a week to many months after one misses their first
mortgage payment. The step that follows next is that stage of the
foreclosure process in which there is a filing of the Notice of
Trustee's Sale. No sooner than ninety (90) days after the trustee
records the notice of default, the Trustee must publish a notice of
trustee's sale in the local paper and simultaneously file that
notice with the county recorder's office. No sooner than twenty days
(20) after the notice of trustee sale is filed, the home may be sold
at public auction for the amount of the debt plus foreclosure costs.
If no one bids at the auction, the lender assumes ownership of the
property, and may dispose of that property to recover their cash
investment.
What You Can Do to Avoid or Stop the Foreclosure
Process
The first and most important step that one can
take in preventing the loss of one's home through the foreclosure
process is to "communicate, communicate, communicate"! This first
step, along with a few others, is detailed below.
Negotiate with the lender. The lender will always
work with a client of theirs if the client takes the initiative to
communicate any financial hardships that may have caused the
default. Negotiate with the lender for a payment adjustment in order
to make up for the missed payment or payments. It is imperative that
you act quickly in order to prevent the sale of your home, because
once the foreclosure process begins you only have 120 to 140 days
before your house is sold. Contact your lender to explain your
situation and work out a way for you to keep your house. You have
the most time and the best chance of being able to negotiate a
solution before the trustee files the notice of default. If
foreclosure has already begun you must contact the lender during the
90 day period before the notice of trustee sale is posted and filed.
One of the most common causes of failure to
communicate is that many homeowners facing foreclosure avoid
contacting their lenders because they are upset or embarrassed. Many
times the homeowner mistakenly belie the lender will not help them
because they feel that the lender prefers to foreclose. In reality,
the opposite is true. Banks and other lenders are primarily in the
business of earning money by collecting interest on loans that they
have made. Their net income is derived by having a specific process
in place in order to invest and receive the interest payments. They
find it cumbersome to go through the foreclosure process, and
usually are not well equipped to manage foreclosed properties.
Because of this, most lenders are willing to work with homeowners
because foreclosure is more costly for them. It forces them to
allocate time and resources to an unprofitable activity. Contact
your lender immediately! Do not ignore phone calls and letters from
your lender. If you do not inform your lender of your situation, it
will be will assumed that you do not intend to pay and the process
will go forward.
It is important to prepare well before you
contact your lender. You must gather all documents supporting your
income and expenses, as well as all loan account information. When
you call ask to speak to someone in the customer service department,
be upfront about your circumstances and be prepared to discuss your
financial situation in detail. Your lender needs to know clearly
your financial situation in order to determine whether they are able
to offer a solution. Your lender should be able to then offer you
one of the following options:
Loan modification: this is when the lender agrees
to modify the terms of the loan. As an example, the lender may agree
to extend the term of the loan or lower the interest rate of the
loan. This option helps you catch up on unpaid payments by making
your monthly payments affordable. Loan modification may be
appropriate if you have recovered from a financial problem and can
afford to make your loan payments if they are adjusted. Repayment
plan: This option allows you to catch up on unpaid payments by
adding a portion of the late payments to your regular monthly
payments. A repayment plan may be suited for you if you have
recently recovered from a short- term financial problem and are now
able to resume making your regular monthly payments but need time to
catch up on the unpaid payments.
Reinstatement: This is when you are able to pay
off the entire balance of the unpaid payments by a specific future
date. Reinstatement may be appropriate if you know and can prove to
your lender that you will soon be receiving a quantity of money that
will allow you to bring your loan account current.
Forbearance: This is when the lender agrees to
temporarily reduce or stop your loan payments with an agreement on
another plan to bring the loan account current. This option stops
the foreclosure process and is combined with other options, often
reinstatement.
If you are uncomfortable with negotiating with
your lender by your-self or if you want to better understand of what
options you have, contact a reputable foreclosure assistance
counseling agency. When selecting an agency to work with, choose one
from the U.S. Department of Housing and Urban Development's list of
approved housing counseling agencies. Beware of phony "counseling
agencies" that approach you with the promise to advise you on your
situation, provided that you pay a large fee!
Borrow money from family or friends. Many people
tend to shy away from this as their first option. One would think
that this option would be the most common-sense place to start. Many
people completely eliminate this as a means to gather the funds
necessary to bring the loan current simply because they are
embarrassed to ask. They do not want family or friends to know that
they have encountered financial difficulties, so they look
elsewhere. Family or friends many times are te ones that are most
committed to lending a helping hand. If they are able, they are very
likely to be very willing to help out. Oftentimes because of
embarrassment, they are not approached until it is too late in the
foreclosure process, and are unable to obtain funds quickly enough
to help out. Obviously, there are situations where the family
members or friends are not approached because
there are already strained relations, or they want to avoid causing
any discomfort to their inner circle of friends or family.
One of the best things that I can recommend to
you is that you approach the request for assistance in a very
businesslike manner. By that I mean, you should look to secure their
interest just as you would expect if you were the one providing the
funds to someone else in trouble. The greater degree of security
that you can offer them in protecting their funds, the greater
probability of successfully obtaining the funds necessary to stop
the foreclosure.
Borrow from institutional lenders. A third option
is to borrow from institutional lenders to bring up back payments.
This can be done by refinancing, or simply by borrowing against the
equity in the home. These lenders will primarily consider equity
when determining approval of a loan. Equity is defined as the
difference between the fair market value of the home and what is
owed on the mortgage. Refinancing is when you take out another loan
in order to pay off the existing mortgage. When refinancing to avoid
foreclosure, you may be able to obtain a lower interest rate, a
longer payment period, and/or a lower monthly payment which would
make your mortgage payments more affordable. Usually lenders that
become aware that you have fallen behind in the mortgage payments
will shy away from lending to you, so if you expect to borrow from
an institutional lender, you must act very quickly before your
credit reflects any late payments. If the lender is aware that you
are in default, they will probably refuse to lend, or offer an loan
with much higher interest rate to account for the borrower's
inability to meet their financial obligations.
Borrow from private party lenders. There are
individuals that have funds to invest and are looking for a higher
return on their investment than can be obtained by depositing their
monies with savings institutions. These individuals are expecting a
high rate of return on their cash investments, and understand that
the loan that they are funding is a high-risk loan. Usually, once
the homeowner falls behind in their mortgage payments, it is
increasingly difficult to borrow money. These private lenders
usually consider the equity in the property when making the loan.
Because the borrower is behind in their payments, the lender cannot
look upon the borrower's ability to repay in a timely manner as the
primary basis for qualification. The lender looks for the security
of their investment to the ability to recover it based on the
property's market value and what is owed by the borrower on the
property. Almost without exception, these loans carry a much higher
interest rate than the normal home loans obtainable at banks or
other lending institutions. They are, however, many times the only
option left to a homeowner in foreclosure
File for Bankruptcy
There are two chapters dealing with personal
bankruptcy; Chapter 13 and Chapter 7. The main difference between
the two chapters is that Chapter 13 helps individual debtors pay off
their debt with court supervision and protection while Chapter 7
eliminates, or in legal terms, liquidates, the debtor's debt. Based
on this simplistic definition alone bankruptcy may seem like the
simplest and best solution to your financial problems. However when
considering filing bankruptcy be aware that it is not an action that
simply frees you from your debt, it is a complex legal process that
has weighty financial consequences. For most debtors it is not the
best option and should be considered as a last resort after all
other options have been investigated or attempted. Individual
financial circumstances are so different that you should seek the
counsel of a financial planner or accountant and a bankruptcy
attorney in order to discuss your particular financial situation and
the implications of a bankruptcy. If you do not have an established
relationship with an attorney, I would recommend that you get two or
three opinions.
6. Sell the Home. Many times, the best solution
for someone that has fallen behind in their payments is to sell the
home, and thereby recoup 100% of their equity minus selling costs.
Unfortunately, many homeowners get caught up in the emotions of the
hardship and overlook the realities of their financial
circumstances. Almost as if with blinders on, they stagger about
hoping for a magic solution, sometimes waiting until it is to late
to come up with a rational plan. If a homeowner can reasonably
assess their finances and determines that they cannot carry the
financial load, they might be much better off selling the property
and preserving the bulk of their equity until they are again able to
become homeowners, if they so wish. They must act quickly so that
their credit is not ruined by the failure to make their mortgage
payments on time, or by using the bankruptcy process just to
forestall the sale of the home. Don't let your equity be eaten up by
the high costs inherent in loans made to those in distress. Sell the
home and preserve the most important or valuable part, namely the
Equity!
Unfortunate circumstances befall many of us as we
go through life. Protect your financial health by being proactive
when these problems occur. As long as you act quickly and take steps
to preserve your assets, you should be able to avoid going into
foreclosure. If you do go into foreclosure, following these
guidelines should minimize the pain of the process. Seeking
assistance promptly from professionals in taxation, law, and real
estate will improve your chances of handling the process well.
For other real estate related articles or
information, visit
Diamond Bar Real Estate
Nef Cortez has been dealing in real estate and
foreclosures for over 29 years. For free foreclosure lists please
visit
Diamond Bar Real Estate
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How
to Save Your Home from Foreclosure