What Happens During a Foreclosure?

What Is a Forclosure?

A foreclosure is a legal process that allows a lender to recover the amounts owed by selling or taking ownership of a property that was used as security, or collateral, for a loan. The security most commonly used is the borrower’s home. Under California foreclosure laws, there are typically two stages in a foreclosure, (i) the notice stage and (ii) the auction stage.

Notice Stage

This is the beginning of any foreclosure. At this point, the homeowner/borrower has missed one or more payments and has probably received a few letters or telephone calls from the lender notifying the homeowner/borrower that he or she is in default. The lender begins the foreclosure process by recording a “Notice of Default” with the County Recorder’s Office. If the default is not cured, then after 90 days, the lender may record a “Notice of Sale,” giving notice of a date (at least 21 days later) on which a public auction will be held to sell the property.

Auction Stage

At this point, almost four months or more have passed since the lender recorded the Notice of Default, and the default has not yet been cured. At this time, the property may be sold at a public auction. Third party bidders are required to pay for the property in cash, or some other cash equivalent acceptable to the trustee holding the sale, such as a cashier’s check, while the lender who has commenced the foreclosure may use the amount of indebtedness as a “credit bid.”

What happens after a foreclosure?

After a foreclosure, the party who purchased the property at the public auction now owns the property. If you are still living in the property, whether you previously owned the property or if you are a renter, then you can be evicted. Recently, California laws have changed regarding evictions after a foreclosure, so it may be wise to see an attorney to know your rights.

What to do?

If you find you are having trouble with your mortgage payments, or if your home is in foreclosure, unfortunately, there is no easy foreclosure fix. However, you do have rights and there are options available to you, some which may help you avoid foreclosure. Here are some simple steps which may help your problem:

  1. Contact the lender. Lenders generally do not want to own your home. They are in the business of making loans, not buying and selling homes. By contacting your lender early, you might be able to try to work out a solution with your lender.
  2. Do not refuse calls or throw away default notices from your lender. Ignoring this problem will not make it go away. The more you get behind in your payments, the harder it will be to solve the problem.
  3. Know your rights. Read your loan documents, or better yet, speak to someone knowledgeable on the subject, such as a real estate lawyer.

Note that California legislators have recently passed new laws that may extend the time before your home is sold in a foreclosure auction or give a borrower additional rights. If you’d like to learn whether these rights apply to you, or if you’d like to learn more about foreclosures in general, whether you are being foreclosed upon or are looking to purchase a foreclosed home, feel free to contact our office to set up an appointment.