Article of the Month for June 2004

California Foreclosure Fundamentals

by Ward Hanigan
  1. FORECLOSURE (Calif.) - A non-judicial forced sale of real property to the highest oral bidder at a public sale conducted by a trustee who was empowered to do so, under certain circumstances, according to a power of sale clause contained in the deed of trust signed by the trustor (borrower) and recorded against the property by the beneficiary (lender).

  2. The Process (statutory foreclosure)
    1. Two Time Periods
      1. Notice of Default period - (3 months minimum duration)
        1. Begins with the Trustee recording a Notice of Default that sets forth the particulars of the delinquency, etc.
        2. Trustee notifies all junior lienors, sending them a copy of the notice of default within 30 days of its recording. Trustee also notifies all owners and parties who have recorded a Request For Notice of Default (on that particular trust deed) within 10 business days of recording the N.O.D.
        3. Trustor has a statutory right of reinstatement (that cannot be waived) throughout this period - up to 5 business days before the scheduled sale.
      2. Notice of Trustee's Sale period - (21 days minimum duration)
        1. Begins with the Trustee recording a Notice of Trustee's Sale that sets forth the total indebtedness due, the commonly known address of the property (if there is one), the sale time, date, and location, etc.
        2. Copies of the notice are sent, by both regular and certified mail, to all affected parties. It is also posted to the property and posted at a public bulletin board. Notice of the impending sale is also advertised in a qualifying publication once a week for three consecutive weeks.
        3. Beneficiary has the discretion (via the Trustee) of:
          1. Arbitrarily postponing the sale 3 times before having to re-advertise.
          2. Allowing the Trustor or a junior trust deed holder the privilege of just reinstating the delinquent loan rather than insisting on its total payoff during the final five business days.
    2. Trustee's Sale
      1. Confined to the county in which the property is located, at a place easily accessible to the public, on a legal workday, between 9:00 AM to 5:00 PM.
      2. Trustee or his appointed agent "cries the sale" out loud, establishing the minimum bid as the sum total due the beneficiary including all principal, interest, late charges, advances, trustee's fees, etc.
      3. The first bid is made by the Trustee on the Beneficiary's behalf. Then qualified bidders are invited to bid, until the bidding stops. At that point the Trustee or auctioneer will collect payment-in-full from the highest bidder. Such payment must be either cash, cashier's checks, or checks from a qualified banking entity. Any overpayment/refund will be made by the Trustee's office. They'll also prepare a notarized Trustee's Deed for the bidder to record.
    3. Post Sale Possession
      1. The new buyer at the Trustee's Sale proceeding does not automatically get possession to the property, even though they now own it. If the previous owners or tenants refuse to move then the new owner will have to bring an Unlawful Detainer action against them and evict them judicially . . . a process that can take from 30 to 60 days or more.