The Foreclosure Process…Explanation from Beginning to End

Westcoe Realtors, Riverside California…It is an unfortunate sign of the economic and real estate times that we even have a title like the one for today’s blog…but we get asked this question often enough that we thought it might be best to explain this process for anyone who may be interested.

There is a technical explanation and a “real-world” explanation to this process, and we will discuss both below.  Also, whenever we delve into the fringes of the legal world, we need to include the typical warning that the following is generalized information and that you should consult an attorney for any specific information you may need regarding your situation.  However…that out of the way, hopefully you will never need to know the following details…but just in case, here we go.  A simplified explanation of the foreclosure process.

Technical Version

STEP ONE…At some point, after falling behind on your house payment, your bank will contact you with a series of letters or phone calls trying to get you to pay what you have not been paying.  Once they are convinced that you either will not or can not pay your back payments, they will proceed to step 2.

STEP TWO…The bank will file a Notice of Default (NOD) with the county recorders office.  This document says you are officially in arrears, and the NOD will state the total amount of money needed to bring your loan current.  Once this document is filed, you have 90 days to bring the loan current, and the lender must accept these back payments if you offer them.  If you do not attempt to bring the loan current, then step 3 occurs.

STEP THREE…While this is not an actual step, once the 90 days has passed, you now have 21 days to pay the loan in full, including all fees and back payments.  In other words, if you merely offered the bank the back payments that you owe, the bank is under no obligation to take the back payments and can instead insist that you pay the loan in full.  Of course, no bank in their right mind would do this, but stranger things have happened in the banking world.  Assuming you cannot pay the bank off, then step 4 happens.

STEP FOUR…The bank can now schedule a Trustee Sale, which is basically selling the property on the Court house steps.  Regardless of whether the home is sold to someone else at this sale, or if no one bids and the bank takes it back themselves, the bottom line here is that after this sale is approved on that day, the home is no longer yours.

STEP FIVE…The bank (or new owner) will notify you that they now own the home, and inform you that you, in most cases, have 30 days to vacate the property.  If you are not out in the 30 days, they will schedule a Marshall Lockout, where the bank representative, a Marshall, and a locksmith will arrive at the property.  The Marshall will then remove you from the home, and the locksmith will change all the locks.  If you have any possessions in the home, the bank will store them for a certain period of time (unsure how long the law requires them to store), and if you do not redeem them and pay for the storage and costs, the bank will sell what is there and this nightmare is over for everyone.

Now, for the Real World Version.

STEP ONE…How long you are in this step depends solely on who your lender is, and how many other loans they have in a similar situation.  A smaller bank, with fewer  delinquent loans, will be on top of this issue far sooner than a huge bank with thousands of similar loans.  So what is the timetable?  In a generalized statement, a smaller bank will proceed to step 2 in anywhere from 90-120 days after your last payment was received.  A larger bank can be so buried in paperwork that we have seen examples where the owner has stopped making payments for over a year and has never been contacted!  Just remember that every bank is different, so the time they allow you to stay in the home without making payments can vary a great deal.

STEP TWO…Very few differences here.  Eventually your lender will “discover you” and figure out that you have ignored all their letters and calls, and file the NOD.  Again, how long this takes is anyone’s guess, but once they have indeed filed the NOD, the 90 time frame is the same as above.

STEP THREE…Again, the same as above.  No actual step is taken here, so the 90 days in step 2 combined with the 21 days in step 3 blend together into a single 111 day process.

STEP FOUR…Here’s where huge differences can occur.  Every morning at the Riverside County Courthouse, there are hundreds of scheduled Trustee Sales…and every morning, a HUGE percentage of these sales are cancelled for who knows what reasons.  Our theory mentioned previously in this blog is that many lenders do not want to take the home back at that time because they would then have to show the loss on their books and they would rather wait…but who knows.  The bottom line is that if your home is one that is postponed, then you are off the hook until the next scheduled Trustee Sale…in which case the same thing could happen again.  This is another “big lender vs. small lender” thing as well, so it is impossible to predict.  We only know that there have been many people who have had their sale postponed multiple times. 

STEP FIVE…If your home has gone to sale, when the bank representative contacts you (generally by posting information on your door), it is usually a real estate agent hired by the bank…and that agent usually has the power to offer you what is known as “cash-for-keys.”  The bank knows that you (the now former homeowner) can delay your departure, and even take months if you do not move and force them to get legal, so they will generally offer you some money to move out in 30 days.  How much money?  Depends on the bank, but generally it is between $1,000-3,000.  My advice it to take it, because it only gets worse if you force the bank to do the lockout etc.

In the end, no one likes this side of the business…not the real estate agents, not the banks, and certainly not the home owner…but today, it is a reality that is all too often part of our daily picture.  Hopefully, your life is such that you never have to head down this road…but if circumstances put you there, then perhaps this generalized road map can guide you a bit on what to expect.

Take care, and as always, let us know if there is any issue you would like to see addressed in this blog.