The Foreclosure Process

One of the realities of the real estate world is thata bank, savings and loan or private party. The first
when housing and economic activity declines, therestep they will take is that the lender will request that
are more homeowners who end up facing thethe trustee (which is often a title company) file a
foreclosure process. When appreciation is high for anotice of default with the county recorders office. A
sustained period, such as the Bay Area market fromcopy of the notice will also be delivered to the
2001-2005 people tend to be more aggressive andowner. If the default is due to a balloon payment not
will go to great lengths to buy. In fact, lenders werebeing made by the due date, the lender can require
going to great lengths to lend to those who maybepayment of the full balance of the loan as the only
were not well qualified. In many of these cases,way to remedy the situation. If the payments are
borrowers chose interest only loans with balloonnot met, the lender can direct the trustee to sell the
payments and took out second, third and evenproperty at a public sale. Before the public sale takes
fourth deeds of trust. Many of these buyersplace, a notice of sale must be published in a local
expected the market to continue the way it has,newspaper and posted in a public place for three
which would mean double digit appreciation for theconsecutive weeks. Once the notice of sale has been
foreseeable future. Of course we all witnessed therecorded, the homeowner has up until 5 days before
market come down in 2005, with appreciation comingthe published sale date to bring the loan to a current
to a halt in most areas, and prices even dipping instatus. If the owner makes the necessary payment,
some other markets. The buyers who had adjustablethe deed of trust will be reinstated and the monthly
rate loans with large balloon payments and/or interestpayments will continue as they did before. Even after
rates that were set to reset after the first two orthe 5 days, it's still possible for the owner to
three years of the loan are the ones who arenegotiate a postponement of the sale with the
especially vulnerable. When the loan payments cannotlender. However if there is no other agreement
be made, the foreclosure process looms on themade, the property goes up for sale. At the sale, the
horizon.buyers must pay the amount of their bid in cash,
As a general rule, the lender would rather keepcashiers check or another form acceptable to the
receiving the payments as opposed to taking thetrustee.
home and having to sell it. The lenders do not dealWith all the recent attention to foreclosures, many
with selling real estate and will work with ownerspeople have become interested in purchasing
who are having payment problems. Sometimes theforeclosed homes. Any buyer interested in purchasing
lender will restructure the payments for a certaina foreclosed property needs to be aware of the
period of time to allow the owner to get back on hisrisks involved. Foreclosed homes are very likely
her feet. With this in mind, it's always best to contactburdened with overdue taxes, liens and clouded titles.
the lender before problems arise. There is a chanceAny prospective buyer must do his/her homework
that something may be able to be done that can helpand ask a local title company for all information
the owner avoid foreclosure.concerning the outstanding liens and encumbrances.
However when a homeowner has missed severalAnother potential risk is that title insurance may or
payments and has not contacted the lender to makemay not be available after a foreclosure sale, and if it
some type of arrangement, the lender may decideis available then there could be exceptions included in
to begin the foreclosure process. The lender could bethe policy which will weaken the coverage.