Failure to make payments results in the foreclosure of the mortgage. Foreclosure allows the mortgagor to declare that the entire mortgage debt is due and must be paid immediately. This is accomplished through an acceleration clause in the mortgage. Failure to pay the mortgage debt once foreclosure of the property begins leads to seizure of the security interest and it's sale to pay for any remaining mortgage debt and expenses. The foreclosure process depends on state law and the terms of the mortgage. The most common processes are court proceedings (judicial foreclosure) or granting of power to the mortgagor to sell the property (non-judicial foreclosure). Many states regulate acceleration clauses and allow late payments to avoid foreclosure.

(California)

 

Day Number	Event
Day 1	Record Notice of Default
Within 10 business days	Mail Notice of Default
After 3 months	Set sale date
25 days before the sale date	Send Notice of Sale to IRS
20 days before the sale date	Publish, post, mail Notice of Sale
14 days before the sale date	Record Notice of Sale
7 days before the sale date	Trustee cannot sell for 7 days after expiration of court order
5 business days before the sale date	Right of borrower to reinstate ends
Sale date	Sold at Trustee's Sale

This time period begins once the notice of default has been recorded. 

The California Civil Code requires that a copy of the notice of default be mailed within 10 days of its recording to all persons who are entitled to notice. This includes the original Trustor at the address shown on the deed of trust, at his / her last known address and to anyone else who has recorded a request for notice. The civil code also requires that a copy of the notice of default be mailed to certain entitled parties, such as junior lien holders, within one month of the notices recording. All mailings to the trustors and new owners are sent by certified and first class mail.

A Trustees Sale Guarantee (TSG) will be ordered from a title company at the time the Notice of Default is recorded. The TSG provides the information needed to proceed with the trustee's sale process and guarantees the accuracy of that information to the trustee and beneficiary only.

The property owner, or a junior lien holder, may cure the default by paying all delinquent amounts, including all costs associated with the filing of the default. This may be done at any time up to five business days before the scheduled sale date which is set in the publication period. 

Many foreclosure proceedings are resolved during this 3 month Notice of Default period. The borrower, or anyone with a subsequent interest in the property, may pay the beneficiary or his authorized agent the amount necessary to cure the default. 
This amount will include delinquent payments, advances and the fees and costs associated with filing the Notice of Default and other necessary documents. Once all of the delinquent fees and costs are paid, a Notice of Recession is recorded.  When the Notice of Recession is recorded it cancels the Notice of Default.

The date of the trustees sale is established at the time of the Notice of Trustees Sale is prepared. The trustee's sale is a public auction sale and is open to all qualified bidders. Bids are made orally and everyone who wants to bid must first qualify with the auctioneer by showing the amount and type of money intended to be used in the event of a successful bid.

The Notice of Trustee's Sale designates the type of funds required, usually cash, cashier's check or bank check. The acceptance of the bid is not final until the total amount is paid to the auctioneer by the highest bidder.

The beneficiary does not need any money to make the opening bid. However, if the lender plans to bid over the opening bid he must have enough money to pay the difference between the amount of his balance due in his final bid. The sale is complete when the highest bid is received and the auctioneer accepts it and declares the property sold.

There are many reasons why a trustee's sale may be postponed. As an example, a bankruptcy or other legal proceedings may prevent the trustee from conducting the sale on the scheduled date.

 

The beneficiary is entitled to three separate postponements for their own reasons. The beneficiary and the property owner can agree on as many postponements as they wish. If there is a bankruptcy or legal proceeding, the sale can be postponed as many times as necessary to obtain a court order to allow the sale to take place. If a sale is postponed for any reason, an announcement must be made at the sale location as to the reason for the postponement as well as the next sale date.

A Trustees Deed Upon Sale is prepared after the sale is completed. This deed transfers title to the successful bidder or beneficiary. The deed must be signed by the trustee, acknowledged by a notary public and recorded. After the deed has been recorded it is forwarded to the party who purchased the property at the Trustees Sale auction.

There is no right of redemption after a trustee's sale. The successful bidder is entitled to immediate possession of the property.

The one exception is the right of the federal government (IRS) to redeem the property, if a federal tax lien has been recorded against the property and is subsequent (junior to) to the deed of trust being foreclosed. In this case, the government must reimburse the successful bidder, with a full payoff of the amount the bidder paid at auction, plus interest calculated for the period of the bidders ownership.  Note: a senior lien by the federal government must be satisfied like any other senior lien and does not become discharged by a trustee's sale. The federal government (IRS) redemption rights elapse four months after the Trustees Sale.  The state has no right of redemption.

Amortization- The gradual, systematic payment of a debt, such as a mortgage or other loan, in installments of principal and interest for a definite time, so that at the end of that time, the debt will have been paid in full.

 

Articles of Incorporation- A document filed with a U.S. state by the founders of a corporation. After approving the articles, the state issues a Certificate of Incorporation; the two documents together become the Charter of Incorporation.

 

Asset- Anything having commercial or exchange value that is owned by a business, institution or individual. A business' assets might include its real estate, equipment inventory, intellectual assets such as copyrights or trademarks, and accounts receivable.

 

Assignee- The person or business entity who is given, obtains, or buys the right to an asset

.

Assignment- The transfer of the rights, title or interest of any debt instrument or property that is properly owned by another party.

 

Assignment of Deed of Trust- A document that transfers the beneficial interest in a note and deed of trust.

 

Assignor- The person giving or selling an asset, and subsequently, forfeiting rights to that asset.

 

Bad Debt- Any debt that is delinquent and has been written off as un-collectible.

 

Balance sheet- A financial statement that shows a business' current financial condition, with assets on the left side and liabilities and net worth on the right side.

 

Balloon- The balance of principal that is due and owing in its entirety at a specified point in time, but in any event, less than the time required to fully amortize the debt.

 

Bankruptcy- A state of insolvency of an individual or organization. A legal proceeding that allows a debtor to discharge certain debts or obligations without paying the full amount. It gives the debtor time to recognize his / her financial affairs in order to repay his / her debts. A bankruptcy does not discharge obligations secured by a deed of trust.

 

Beneficiary- The person or party (lender) entitled to receive the benefits, or proceeds- (to whom the obligation is owed).

 

Bidding Authorization Letter- An authorization form which, when signed by the beneficiary, authorizes the trustee to make the initial opening bid at the trustees sale.

 

Bill of Sale- A document used to transfer the title of certain goods from seller to buyer.

 

Cash flow- The flow of cash through a business or household. In business terms, cash flow involves the flow of cash into a company in the form of revenues, and out of the company in the form of expenses.

 

Chattel mortgage- A mortgage on personal property, given to secure a debt. Typically used in the sale of a business. Also called a security agreement.

 

Collateral- Something of value (land, a home, a car, etc.) that is pledged as security to ensure the payment of a debt. Collateral is promised to a lender until a loan is repaid. If the borrower defaults, the lender has the right, by law, to seize the collateral.

 

Collectibility- Refers to the funding source's ability to collect future income stream payments once they are purchased.

 

Commission- Fee paid to a broker for executing or referring a cash flow transaction.

 

Corporation- A legal entity, chartered by a U.S. state or the federal government, and separate and distinct from the persons who own it. It is regarded by the courts as an artificial person; it may own property, incur debts, sue or be sued.

 

Creditor- One who is owed payments on a debt by a debtor.

 

Declaration of Default- A document instructing the trustee to prepare and record a Notice of Default, and, if necessary, to sell the trust property in order to satisfy the unpaid obligation.

Deed of Trust- A written document describing the real property being given as security or the repayment of an obligation.

 

Default- The omission or failure to perform or fulfill a legal duty, obligation, or promise (i.e. to pay a debt).

 

Due diligence- Exhaustive research on a property, transaction, income stream, Trustor and/or payor. Due diligence may involve appraisals, title searches, lien and property tax searches, property and neighborhood inspections, broker and contractor opinions.

 

Equity- The value or interest an owner has in property over and above any indebtedness owed on the property.

 

Escrow- The system by which money documents, personal property, or real property is held in trust for another party by a disinterested third party until the terms and conditions of the escrow instructions are completed or terminated.

 

Extension Agreement- An agreement that extends the due date of a loan.

Foreclosure- A popular term used to describe the procedure for enforcing a creditors rights when an obligation secured by a deed of trusts is in default. A legal proceeding in court to seize property given as security for a debt that is in default.

 

Funding source- An individual investor or an investment company that buys income streams.

Full Reconveyance- A document prepared by the trustee when the obligation secured by a deed of trust is paid in full. When recorded, the reconveyance eliminates the lien from the title of the property.

 

Hypothecation- Borrowing funds from a lender, investing those funds in a debt instrument, and giving the lender a security interest in the debt instrument as the collateral for the loan.

 

Income stream- A future payment or series of payments, or a debt that one party owes to another party. Also known as a debt instrument or cash flow instrument.

 

Institutional lenders- Savings and loan associations, local and regional banks, mortgage companies, finance companies, and commercial lenders.

 

Intangible personal property (not real property)- Something that has value but is not a tangible asset, for example, a car, boat, furniture, jewelry.

 

Joint venture- A business entity established for a specific task, operation, or goal.

 

Junior Lien- A legal claim upon real property recorded subsequent to another legal lien (mortgage lien, tax lien, mechanics lien, judgment, or easement). The lien with an earlier date of recording is a Senior Lien.

 

Leverage- The ratio of debt to total assets.

 

Limited liability company- A form of business structure designed to combine the best of corporate and partnership attributes into one entity.

 

Loan-to-Value ratio- A measure of how heavily mortgaged a property is and how likely the owner is to default on his or her debts. Measured by dividing the amount of the subject loan, by the amount of the valuation of the property.

 

Market value- The price at which a ready, willing, and informed person would buy something; the price property would command in the current market.

 

Military Affidavit- A sworn, written statement, affirming that the property owner is the entitled to any rights under the Soldiers in Sailors Civil Relief Act of 1940.

 

Mortgage- A written instrument that creates a lien by pledging real property as security for a debt.

Notice of Default- A written document which gives notice of public record that a borrower has failed to perform his / her obligation. The trustee's sale proceeding commences when the notice is recorded.

Notice of Trustees Sale- A document that is published, posted and recorded, setting forth the faith, time and location of the trustee's sale.

 

Owner financing- A type of financing in which the seller of a tangible item accepts a promissory note as a portion of the purchase price. Also called seller financing.

 

Partnership- A common form of joint ownership of a business.

 

Payee- Person or business receiving a payment.

 

Payor- The person or entity making a payment.

 

Partial- Any part of a payment stream that is less than the full amount due.

 

Personal guaranty- A contractual agreement between a funding source and a seller, whereby the seller assumes personal responsibility and liability for the obligations of the income stream.

 

Portfolio- A group or package of income streams of the same type.

 

Postponement- A verbal announcement made at the time at location of the scheduled trustees sale, extending the sale to a future date and time.

 

Privately held- Owed to a private individual or business rather than to a bank or other financial institution.

 

Profit and loss statement- A financial statement that shows a historical record of a business' income and expenses.

 

Promissory note- A written promise to pay a specified amount to a specified party over a certain period of time.

 

Publication Letter- The letter that, when signed by the beneficiary, authorizes the trustee to prepare, publish and record the Notice of Trustees Sale.

 

Publication Period- The period beginning after the three-calendar month default period (this period varies by state) has expired and ending when the trustees sale has been conducted. During the publication period, the Notice of Trustees Sale is published, posted and recorded.

 

Rescission of Notice of Default- After a default has been cured, this document, when signed by the lender and recorded by the trustee, will remove the effect of the previously recorded Notice of Default.

Reinstatement Period- The time period that commences when the Notice of Default records and ends five business days before the trustees sale (this period varies by state). The default may be cured at any time during this period by paying all delinquent amounts, including the trustees fees and costs.

 

Replevin- A legal proceeding in court to seize property (other than real estate) given as security for a debt that is in default.

 

Reserve- An amount a funding source holds in its account to cover potential payment defaults. After a certain time period has passed, the funding source rebates the reserve to the client less any fees or charges for delinquency. Also called a bad debt reserve.

 

Satisfaction- The discharge of an obligation by paying a party what is due (i.e., the satisfaction of an IRS lien or the satisfaction of a mortgage).

 

Seasoning- The length of time payments have been made on a note or other debt instrument.

 

Secondary market- The marketplace where individuals and businesses can sell privately held income streams to funding sources for cash.

 

Security interest-  An interest in property, other than real estate, which is given as security for a debt or other obligation. A security interest is created by execution of a security agreement and one or more financing statements under the Uniform Commercial Code.

 

Seller- The person or company that owns a property, or debt instrument and wants to sell it.

 

Servicing- The collection of payments of interest and principal, and trust fund items such as fire insurance, taxes, etc., on a note by the borrower in accordance with the terms of the note. Servicing by the lender also consists of operational procedures covering accounting, bookkeeping, insurance, tax records, loan payment follow-up, delinquent loan follow-up and loan analysis.

 

Soldiers' and Sailors' Civil Relief Act of 1940- An act passed by Congress for the financial protection for those individuals serving in the military.

 

Sole proprietorship- A business owned and operated by an individual.

 

Subordination- The act of a creditor acknowledging in writing that a debt due him or her by a debtor shall be inferior to the debt due another creditor by the same debtor.

 

Substitution of Trustee- A written document in which the beneficiary appoints a successor trustee to the trustee of record.

 

 

Time value of money- Concept that addresses the way the value of money changes over a period of time.

 

Title commitment- A commitment on the part of the insurer, once a title search has been conducted, to provide the proposed insured with a title insurance policy upon closing.

 

Title insurance- Title insurance can benefit either the Trustor or the Lender. Should the beneficiary suffer any damages due to clouded or false title to real estate, title insurance recompenses the damaged party to the extent of the damages.

 

Title policy- An insurance policy that insures a party against loss due to a defective title.

Trustee- The party who holds title to real property in trust for the benefit of another. The trustee's most common functions are to process trustees sale proceedings and to issue a full reconveyance.

Trustor- The borrower / owner at the time the deed of trust is created.

Trustees Deed Upon Sale- A document signed by the trustee that transfers ownership of real property to the purchaser at a trustee's sale.

Trustees Sale- A public auction sale of property, described in a recorded Notice of Trustees Sale.

 

Uniform Commercial Code (UCC)- Standardized set of guidelines protected by law that set down how business transactions must be conducted.

 

Unseasoned- A lease or note that has had few, if any, payments made.

 

Importance of Foreclosure Data Makes the Difference

The Internet can be plagued with providers of "junk data" that obtain their data for little or nothing and then resell or provide it for "free" to promote other products and services. For example they promote properties as "foreclosures", but in fact, the properties are not. Most of the foreclosure data being provided (promoted) by these web sites are obtained from lists from banks (REO's) and government agencies (VA, HUD, FNMA, etc.). They obtain these lists for nothing, and that's what the data is worth - nothing!

Properties that are being sold by a bank or an agency are NOT FORECLOSURES. They are Post-Foreclosures properties, having already been foreclosed on. These properties are not distress properties! Once the bank, lender or agency forecloses on the property, it is no longer in foreclosure, and no longer in distress. Below are the three foreclosure descriptions:

Pre-Foreclosure: A better deal can be found at this point. The property owner may be experiencing a problem paying the mortgage on time. Property taxes and or homeowner association fees start to become delinquent. Deferred maintenance on the property becomes more apparent as the “curb appeal” of the property declines.

In-Foreclosure: The best deals are generally found when a property is "in foreclosure", going through either the Notice of Default (NOD), or Notice of Sale (NOS). During theses stages, owners may be experiencing more distress and therefore, more motivated to sell the property. At this point the property may be purchased SIGNIFICANTLY BELOW MARKET VALUE. This is where you may find more equity in the property (10% to even 50% of the current market value). The lender or agency has not yet received the property back, and therefore is not able to market the property at market value. A deal could be made with the current owner (in foreclosure), or purchased at the public auction, where it goes to the highest bidder.

Post-Foreclosure: A this point the property MAY or MAY NOT be a deal. If the bank, lender or agency receives the foreclosed property they typically get an appraisal on the property through a local appraiser or real estate agent, than list the property with a real estate broker, or with themselves...at FULL MARKET VALUE! The only time when a deal might be made at a market discount ("short sale") is when the bank, lender or agency has TOO MUCH INVENTORY! When they have more properties on their books than they can handle, they are more willing to consider a discount.. 
 Subscribing to a real foreclosure data service WIL SAVE YOU TIME, MONEY and FRUSTRATION! For pennies per day data services can provide valuable foreclosure and non-foreclosure information from a local county recorder office. Data information varies from data service to data service. Providers of data gather and publish different types of data, which may be a key to your faster deal or success. Don't be misled by these web sites offering, "lists" of "foreclosures" in your local area. The properties may be "post" foreclosures and are usually already sold or not the right deal for you. This type of data may be a novelty or useless for your purpose.