So often homeowners in danger of foreclosure are confused by the process and what options are available to them. Given the large number of Stockton foreclosures, I am frequently asked questions to explain the foreclosure process and whether a short sale is the right option. Any homeowner in danger of foreclosure should contact their attorney and accountant to fully understand the legal and financial implications.
A definition of foreclosure is the legal process used by lenders to terminate all rights, title, and interest of the trustor or mortgagor in real property by selling the property and using the sale proceeds to satisfy the liens of creditors.
There are two ways to foreclose by trustee’s sale and by judicial process. Any trust deed or mortgage with a power-of-sale clause may be foreclosed non-judicially by a trustee’s sale or judicially by a court procedure. Without the power-of-sale clause, the only remedy a lender has is a judicial foreclosure by a court proceeding. Most trust deeds and mortgages in California include the power-of-sale clause, so the lender may choose either type of foreclosure method.
Usually the lender will elect to foreclose on the loan using the trustee’s sale because it is the quickest and easiest method taking approximately four months. First, the lender notifies the borrower of default and requests the trustee to record a notice of default. The trustee must wait at least three months after recording the notice of default before advertising the trustee sale. Then the trustee advertises a Notice of Sale once a week for three weeks (21 days) and posts a notice of sale on the property. If the borrower chooses to take action to avoid the foreclosure either through loan modification or short sale, they must start the process before or during this period to allow ample time to avoid the pending foreclosure. During this time the trustor may reinstate the loan up to five business days prior to the trustee’s sale. After that, the trustee holds the sale and issues a trustee’s deed to the highest bidder. A trustor has no right of redemption after the trustee sale.
If a lender chooses to review the file for loan modification or short sale, this does not stop the foreclosure proceedings. However, during the review process, the lender may postpone trustee sale dates in order to pursue a resolution.
If a lender chooses to foreclose a trust deed or mortgage with a power of sale using a trustee sale, no deficiency judgment is allowed if the proceeds do not satisfy the debt and all costs. Since trust deeds are used almost exclusively in California to secure loans, the only security for a beneficiary is the property itself. Any other personal assets of the borrower in default are protected from judgment under a trust deed. Additionally a lender cannot get a deficiency judgment against a borrower if the loan is a purchase money loan secured by either a trust deed or a mortgage. Any loan made at the time of a sale, as part of that sale, is known as a purchase-money loan. This includes first trust deeds and junior loans used to purchase the property.
However, a deficiency judgment is allowed on hard money loans. A hard money loan is one made in exchange for cash, as opposed to a loan made to finance the purchase of a home. Typically, a hard money loan refers to junior loans used to take money out for consumer purchases, home equity loans, debt consolidation, and even a refinance. In other words lenders of hard money loans can and will seek payment from the borrower even after a foreclosure has taken place.
If you are a homeowner facing foreclosure in Stockton you may want to consider a short sale. We process more Stockton short sales than any other agent. Please call us at 209-471-6516 to discuss your options.