The foreclosure process usually starts after a homeowner defaults on a loan or mortgage payment. That’s because most loans are secured by a deed of trust, which generally includes a built-clause stating that, in case of default, the lender has the right to proceed with foreclosure.
It’s not always understood that a similar clause in most mortgage agreements stipulates that even a secondary lender with secured mortgage interest can initiate foreclosure proceedings. So, for example, if you have three loans against your property, any of the three mortgage holders has the right to foreclose on their loan if and when payments aren’t made.
But this doesn’t mean every lender starts foreclosure proceedings when a payment is missed. I’ve seen lenders go for years without foreclosing on a defaulted loan. Also, missing a payment doesn’t mean you automatically give up the right to live on the property. There’s no obligation to leave until you receive legal notice to vacate the premises.
Notice of Default
In general, the foreclosure process starts when the lender and County Recorder serve you with a “Notice of Default.” (While this can happen after the homeowner misses one payment, many lenders wait until after a couple of payments are missed.) Since this document sets out your rights and responsibilities during the foreclosure process, it’s important that you read it very carefully.
The Notice of Default officially notifies you that you have 90 days from receipt of the notice to “cure” (redeem or make yourself current on payments). This can include having to pay all the money in which you are arrears, as well as other allowable costs the lender may have incurred.
If you make yourself current, the Notice of Default is withdrawn and you’re back in good standing. If not, you face foreclosure of your property.
Sometimes a lender will accept less than the amount stated in the notice (on the principle that some payment is better than none). So there is always the possibility that you can negotiate terms with the lender and have the default notice cancelled.
After foreclosure gets underway
If you’re unable to make yourself current after the initial right-of-redemption period, the lender can post a Notice of Sale (as noted, not before 90 days have passed from the time the Notice of Default was issued). The Notice of Sale states that the lender (or “trustee”) can sell the home at auction within 21 days. According to the California Courts website, the Notice of Sale must, among other things:
- Be sent to you by certified mail.
- Be published weekly by a newspaper in the county where your home is located (for three weeks before the sale date).
- Be posted on your property, as well as in a public location (for example, the local courthouse).
During this time, you can try to make up payments, but the lender is not required to honor those payments after the right-of-redemption period has passed.
If the house is sold
At the trustee sale, a buyer purchases the property and the deed is transferred to the new owner. This effectively makes you a “de facto” tenant. You can leave the property willingly or negotiate some other terms in order to stay. I’ve seen numerous examples of new owners entering into rental agreements with the prior owners that allows them to stay in the house. I’ve also seen situations where the new owner, wishing to avoid a lengthy eviction process, negotiates a payment to the prior owner so that he or she will depart in a timely and peaceful manner. (This is known as “cash for keys.”)
If you choose not to cooperate, the new owner can start the eviction process—which includes sending you a notice to vacate. Attempting to fight this in court can be difficult, time-consuming and expensive for both the new owner and the former owner.
Foreclosure is a complicated and occasionally highly emotional process. If you find yourself facing foreclosure, seek legal advice or assistance. A skilled attorney can offer the best guidance for finding the solution that works best for you.