The beautiful state of California has become overwhelmed the past couple years with mortgage defaults and foreclosures due to our failing economy. With the unemployment rate in this state well above 10% the chances of the housing market stabilizing soon is very unlikely. It is extremely important for borrowers who are struggling to pay their mortgage payments to take the time to fully understand the foreclosure process and the consequences that come along with this event.
This can be one of the most devastating financial events to happen in ones lifetime and the majority of people do not even know how it works. So because of this it is no surprise why some borrowers have no clue what to do if their monthly payments have become unmanageable. You must study this process and learn strategies if you want to prevent this event from happening. Questions about this process are being asked all the time and with homes auctioned off daily here in California, we will try to answer some of the common questions we get regularly. We will discuss strategies to prevent foreclosure, how long it takes until auction, consequences of this event, and the different ways lenders can pursue this action.
What if I cannot afford monthly mortgage payments?
If you found that you can no longer afford your monthly payments or have already become delinquent on your mortgage, it is crucial to seek assistance from your lender immediately! The first thing that any mortgage professional and even your lender will suggest you do is to apply for a loan modification. A loan modification may allow you to catch up on any missed payments by rolling the past due amount into the loan, lower current interest rate, get out of an adjustable rate mortgage or subprime loan, or possibly even get the loan amortized to a 40 year term to keep the monthly payments extra low.
But in order to accomplish this the borrower must be able to prove that they have a financial hardship and can afford the home, but just not the original loan they have been given. Even though home values here in California are only a percentage of what they were just a couple of years ago, these banks will not offer a modification based off this fact. Many times people believe that they will qualify for this assistance just because they have lost equity in their home, but this is not the case. You MUST show a financial hardship that has made it difficult to manage your payments such as a job loss, income reduction, divorce, death in family, high medical bills, etc.
There are a few excellent non-profit organizations that will help you fight to stay in your home. Thousands of borrowers across the nation have been able to get the help they need from organizations that do not cost a dime! Two of these firms we have found very reliable and do a great job communicating with their clients are HOPE NOW and Neighborhood Assistance Corporation of America (NACA). in our forum here on Loansafe.org we have a section dedicated to NACA clients and the service they provide. You will find NACA employees there to help with any questions you may have.
However, many times the lender will decide that even with a lower payment the borrower cannot afford the home. When denied for a modification the borrower must seek another way to prevent foreclosure and the devastating consequences that come along with it. Many professional suggest a short sale or deed in lieu as your next option, and although there will be negative affects that come along with these, they are not nearly as bad as foreclosure.
If you are unable to stop this event from happening, it is best to know how long it will take and the process lenders follow to complete the foreclosure. It is also important to be aware that this can either happen through the non-judicial or judicial foreclosure process.
Judicial process: In order for a mortgage lender to foreclose on a property using the judicial foreclosure process, they must go through the court system to prove that the borrower is in default. The mortgage lender will contact their attorney to pursue court action against the homeowner. First the attorney will determine whether or not the mortgagor can repay the debt and get out of default. If the borrower cannot, the attorney will then file with the courts a lis pendens or “pending lawsuit.” The purpose of filing the lis pendens is to prove that the borrower is in default and to also notify the public about the claim that has been filed.
Once the court finds the borrower to be in default and that the claim is valid, a judgement will be issued for outstanding balance of the mortgage along with all of the fees associated with this process. Now, with the judgement the courts will also set up a sherrif’s sale by issuing a writ (statement authorizing the judicial officer to go about the sale). The sherrif’s sale must take place in a public area and will be open to anyone who wishes to bid on the home. This can take place in front of the courthouse or even on the front lawn of the home being auctioned. At the auction the property will be sold to the highest paying bidder, and is to be paid in full or have a significant amount for the down payment.
With this type of foreclosure the lender may pursue a deficiency judgement and under certain circumstances the homeowner may have twelve months to redeem the home.
Non-judicial process: Unlike judicial foreclosures, the non-judicial foreclosure process will not be processed through the courts. This process will be done when a power of sale clause is present in a deed of trust or mortgage. The clause pre-authorizes the sale of the home to repay the loan if the borrower defaults on their mortgage.
Generally, once the borrower has missed a certain amount of payments (this amount of time will vary depending on state) they will be declared in default and the lender will send them a Notice of Default (NOD). If the homeowner fails to repay the amount of debt owed along with all fees they have acquired, a Notice of Sale will be sent to the homeowner and recorded with the counties public records. At this time a sale date will be set to auction off the home, and at the sale the home will be sold to the highest bidder.
Foreclosure notices you may receive prior to the auction:
Notice of intent to Accelerate: This notice usually comes after just a couple of months of missed payments. The letter is more of a scare tactic warning the borrower of their past dues and that foreclosure proceedings may begin if they fail to bring the loan current.
Notice of Default: Once a borrower has not made a payment for a certain amount of time (usually about two to three months) the mortgage lender will file a “Notice of Default.” This notice is to warn the borrower that if they do not come up with the delinquent mortgage payments along with all additional fees they have acquired foreclosure proceedings will continue. This notice will be recorded at the local courthouse and posted in the local newspaper as well.
Notice of Trustees Sale: A Notice of trustee Sale is the last notice a borrower will receive before their property is to be foreclosed. This notice will give specifics as to when the property is to be auctioned off. The trustee will prepare the paperwork and will record the notice with the county in which the property is located, and also the local newspaper. Generally, this must be recorded done 14-21 days prior to the actual sale date and appear in the newspaper for three consecutive weeks prior to the sale.
With this information you should have a better understanding of how the foreclosure process works in California. If you want to keep your home it is crucial that you contact your lender right away to discuss some of the options listed above.
My name is Maurice “Moe” Bedard. I am the founder of America’s #1 Mortgage Forum, LoanSafe.org. My online work has been featured in the New York Times, LA Times, Fox Business, and many other media publications.