With all this talk about mortgage forbearance and foreclosures being kicked out in another six months, I think it’s time to talk about what a foreclosure actually is, how long they take, and what you should be really aware of.
First and foremost, let’s talk about what a foreclosure actually is. More specifically, I’m talking about rules in the state of California.
DISCLAIMER: I am not an attorney or foreclosure expert. these rules change wildly from state to state and situation to situation. If you’re in foreclosure, make sure you also consult with your real estate attorney, tax specialist, and other local foreclosure experts.
Also, what is discussed in this post is a “high level” overview of what a foreclosure actually is. However, it is not 100% meant to give you the formula of how to deal with it so make sure you also go do your own research. Let’s start with the two types of foreclosures—the non-judicial foreclosure and the judicial foreclosure.
Non-judicial vs Judicial Foreclosure
The difference between the two is rather simple. On the non-judicial side, when you start missing payments, the bank activates the clause in your grant deed that allows them to start the process of re-possessing your home to get their money back.
On the other hand, the judicial side has to do with a bankruptcy or a lawsuit of some kind. It’s the type where a judge smacks that gavel and says something like, “You have to forfeit this property to pay off this person over here for whatever amount is owed.” So for this specific blog and video, we’re going to focus on the non-judicial side of the equation.
Four Steps of the Non-judicial Foreclosure Process
With the non-judicial foreclosure, there are four steps that you have to go through.
Step 1 – The lender must reach out to you
The very first thing that your lender must do when you start missing payments is to directly reach out to you in writing that you’ve missed this payment. Most people are well aware that they have missed a payment. However, this step prevents a mistake from truing to tragedy. Nonetheless, they must reach out to you formally to start the entire process.
Step 2 – The start of the foreclosure process
After reaching out to you, the next thing your lender needs to do is provide you with options. They can give you the option of counseling or creating a repayment program just to name a few. However, even though they’ve sent you that first notice, the foreclosure process will only officially begin 30 days after it was sent. This is supposed to give you more time to do something after receiving that first letter.
During these 30 days, you can reach out to them to put together a repayment plan of some kind. You can also tell them you’re working on selling the house. Whatever it is that you tell them, you’ll have at least 30 days regardless. In some cases, you can also ask for another 14 days on top of the first 30, especially if you’re already trying to work out something.
Step 3 – The Notice of Default
But let’s just say you go through those first 30 days and nothing is successful. That’s the time when your lender will file what’s called a Notice of Default. You’ll also get a copy of this in writing from the County Recorder’s Office.
From its name, The Notice of Default is a 90-day default notice which means you have 90 days to cure your defaulted amount and pay what you owe. Otherwise, they’re going to send your house to the foreclosure auction and start the process to sell your house to recoup what they’ve lent you.
One huge note that’s really, really important is because the Notice of Default is recorded in the public record in the state of California, a lot of people have access to that data. By a lot of people, I mean realtors, flippers, wholesalers, developers, and anyone in the general public. You’re most likely going to get hit up by everybody and their mother trying to buy your house and “get you out of foreclosure.” So just know that that’s coming.
Then, once you’ve received that Notice of Default, you have 90 days to “cure it.” If you can’t, you have the option of putting together a repayment program or selling it yourself. However, they’re often less likely to want to work with you this time. If that’s the case, your other options will be going through a bankruptcy of some kind, or borrowing money. But whatever you’ll choose to do, you’ll have that 90 day period.
Step 4 – The Notice of Trustee Sale Period
Now, let’s just say you’ve gone through the 90-day Notice of Default, your initial 30 days after your lender first reached out to you, and also possibly, the 14-day extension. After which, you’re now in what’s called the Notice of Trustee Sale period.
It is basically a 21-day period when your lenders are going to set an auction date for your house. They will then go to the county courthouse and auction the house off to whomever shows up. The process is exactly what you think it sounds like. However, it’s honestly not that simple.
I used to work in the short sale and the Notice of Default world. At that time, I used to help people sell their houses when they have these Notice of Defaults and Trustee Sales. What I can tell you is that a lot of people can kick these out through petitions or through various bankruptcy filings. To be honest, the actual auction date is really easy to get delayed and pushed out. So before you freak out and say 21 days is 21 days, think of it as the rule in general but also think that you can still do something to get that delayed.
The foreclosure process is long but it can take even longer.
Now that we’ve gone through what the process of the foreclosure looks like and how long it actually takes, there are a few more things I want to share from my own experiences working in the foreclosure world.
When it comes to how long the process usually takes, I’ve actually had cases where I’ve spoken to people who have been somewhere between the Notice of Default and Notice of Trustee sale for TEN YEARS. It’s insane when you think about it. Not to mention that they’re also NOT making mortgage payments in that amount of time.
So keep this in mind when listening to people talk about a “wave of forclosures.” We’re likely talking about something close to six months, once all the paperwork has been filed, and the gavel actually drops on that trustee sale.
Of course there’s another change in the rules brought about by Senate Bill 1079 which will change the entire foreclosure buying process. I also did another video on that which you can watch here. But as a summary, Senate Bill 1079 has changed who’s eligible to buy foreclosures, in what quantity and for what purpose. The process is brand new and we have yet to see how it actually goes, if properties will go through that successfully or not.
Should we be worried about a foreclosure wave?
Ultimately, my takeaway is it is really not that easy to take a house through the foreclosure process in California. More importantly, even if it actually happens, it still doesn’t happen quickly. Like what I’ve said, it’s not uncommon for people to be in this state for three to five years. Also, the amount of equity that we all have in our houses collectively has never been higher. So the likelihood that someone needs to short sale or is going to simply walk away from a property that has a couple of hundreds of thousands of dollars of equity, when they could alternately put it on the market, is very low.
So when people are concerned about a wave of foreclosures, at least locally here in California, I don’t see it. The number of underwater properties is at an all-time low, interest rates are at an all-time low and thus, creates a lot of ability for people to transact on those properties. Ultimately, even when the foreclosure moratorium is lifted here in the United States and in California, I still don’t see us getting crushed by a wave of foreclosed properties.
I hope my video and blog on the foreclosure process has helped you.
If I can give you more context on the process of buying or selling your home, please do not hesitate to reach out. My information is below.
Here’s to all your success!