What is Foreclosure?
Foreclosure is the process by which your lender can legally sell your property at public auction if you fall behind on your payments and don't bring your loan current within a specified period of time.
Foreclosure can be conducted through the court system (judicial foreclosure), or without going to court at all (nonjudicial foreclosure). Most California foreclosures are nonjudicial. Your lender avoids the court system altogether by having a trustee (a third party) follow a specific series of notification procedures, then sell your property.
It is important NOT to panic just because a foreclosure has started. Foreclosure is NOT a single event, but a legal process that takes time. Therefore, you have time to bring your mortgage up to date and avoid foreclosure.
The Foreclosure Timetable
Many borrowers believe that the foreclosure process is designed to hurt rather than help them. This is untrue. Because courts do not oversee the process of foreclosure, the trustee is required by state law to follow strict procedures before conducting a sale of your property. The process has evolved over time to protect the borrower-not the lender.
A nonjudicial foreclosure is made up of five basic steps:
- Notice of Default or "Election to Sell"
- Reinstatement Period
- Notice of Trustee's Sale
- Redemption Period
- Trustee's Sale
If the foreclosing party does not follow each of these steps, they may be required to start the foreclosure process over again. This can buy you the time you need to reinstate your mortgage.
Foreclosure Documents
- Promissory Note: The document in which you promised to repay the money loaned to you. The note specifies the amount you borrowed, the interest rate and the conditions of how the loan is to be repaid. This document is typically only one or two pages long and should be fairly easy to understand.
- Deed of Trust: Since your house cannot be deposited in the bank as collateral for repayment of your loan, the deed of trust is created to represent your lender's interest in the property. The deed of trust creates a lien (legal claim) against your property, which is enforceable until you repay the loan. Almost all deeds of trust have a "power of sale" clause, which gives your lender the right to foreclose against the property without suing you in court.
Again, the law protects you. These documents must be filled out to and recoded to exact standards. Any error made by the foreclosing party, no matter how small, can be grounds to stop or reset the foreclosure clock. This can buy you crucial time.
