One question that comes up a lot is how does the foreclosure process work as far as the homeowner defaulting on their loan and the bank taking the property into their portfolio of REO’s (“Real Estate Owned”) — Here is a quick breakdown of how the process will proceed once the mortgage is in default after missing 3 or more payments:
Notice of Default is filed with the county recorder, along with a signed
Declaration (if required). This Declaration is to acknowledge that
appropriate steps to contact the borrower were made at least 30 days
prior to recording the Notice of Default.
Within 10 Business Days
Mail Notice of Default to borrower(s) at the property address and any
Notice of Default also sent to those who recorded a Request for
Notice (normally junior lienholders).
Within 1 Month
Mail Notice of Default to any parties that have a recorded interest in the property.
After 3 Months
Set Trustee Sale date.
25 Days Prior To The Trustee Sale Date
Send notification to the I.R.S (if applicable)
20 Days Prior To The Trustee Sale Date
Property is posted with a copy of the Notice of Sale.
Mail Notice of Sale to any parties that have a recorded interest in the property.
Resident/Occupant of the property is sent notification and property is posted
with “Danger/Warning Notice” in five languages, advising of the Notice of Sale.
Begin publication of Notice of Sale. Must be published in newspaper of general
circulation where property is located. Publication runs once a week for 3 consecutive
5 Business Days Prior To Sale Date
Expiration of the borrower’s right to reinstate the loan. The Beneficiary
can deny reinstatement and require payment in full to stop the foreclosure.
Public auction is held. The foreclosing lender generally opens the bidding for an
amount less than or equal to the outstanding debt. The property is sold to the
highest bidder, which will be the lender if there are no third party bidders.
Third party bidders must have certified or cashier’s checks up to the total
amount that are bidding. The trustee will require the total amount at the sale,
all cash (or equivalent).
Sales can be postponed by the Trustee or the lender for up to 365 days
from the original sale date.
(I want to thank Linda Moss from First American Title for clearly breaking down this timeline for me so that I could effectively share it.)