Facing foreclosure in the Bay Area is serious business. With the price of housing, taxes, and the cost of living, in general, skyrocketing throughout the nine-county region, many more homeowners are looking down the barrel of foreclosure.
In this in-depth article, we will discuss:
What Foreclosure is
The foreclosure process
And what homeowners can do to stop foreclosure
Although foreclosure is a stressful and potentially scary process, there are things homeowners can do to prevent it.
What Is Foreclosure
Put simply, foreclosure is the process of a lender, typically a bank, repossessing a property they have originated a loan on.
This foreclosure process is initiated when a homeowner falls behind on their mortgage payments, which causes the loan to enter default status.
In California, properties typically follow the below process once their loans enter default.
The Foreclosure Process In California
Foreclosure Avoidance Assessment
The very first thing a lender will do is contact the homeowner to conduct a foreclosure avoidance assessment.
Everyone who’s a part of the mortgage note, the borrower and co-signers, will all be contacted to take part in this assessment.
Homeowners have at least 30 days after the lender makes initial contact before they can start foreclosure proceedings.
Notice of Default Served
The second thing a lender will do is send out a notice of default, otherwise known as a NOD.
Notices of Default in California are sent out after the mortgage has not been paid for 90 days.
Why 90 days?
First, lenders will typically wait for two missed mortgage payments or 60 days.
After 60 days of missed payments, a lender will move onto the next step, which is sending a notice of intent to inform the homeowner foreclosure proceedings are on the horizon.
The notice of intent lasts for 30 days, and this 30 day period is required by California law before a lender can publicly file a notice of default.
After the total 90 day period is up, the lender can legally move forward with filing a public notice of default.
It’s at this time that everyone can review the foreclosure information attached to the property online, or directly via the local court‘s records.
Notice of Trustee Sale
The next step in the foreclosure process is filing and scheduling the notice of sale. Lenders can schedule a sale at least 90 days after the notice of default is recorded.
Once the notice of sale is recorded, the lender has the right to sell the house at auction in as little as 21 days.
During this 21 day period, owners may still cure their default and stop the sale by paying off the loan in full at least five days prior to the sale.
Public Auction Held At the County Court House
At the end of the 21 day period leading up to the home sale, if the loan hasn’t been reinstated, the house will be offered for sale at public auction.
Typically public auctions are held at the local courthouse steps where everyone who’s interested can bid on the property.
The lender who initiated the foreclosure will also bid on the property for at least the loan amount.
If no one else outbids them, the property will fall into the hands of the bank, thus becoming a Real Estate Owned (REO) property.
Bidders on the courthouse steps must arrive with cash or cashiers check to bid on the property. When a third party bidder wins, they will receive a trustees deed.
Third-Party Owned, Or Real Estate Owned (REO)
After the public auction is complete, the property will either become an REO, or a third party owned property.
Foreclosures become REO’s when no one outbids the lender who initiated the foreclosure and becomes third party owned when another individual wins the sale.
Regardless of who wins the auction, they will have to give the homeowner a three days notice to vacate the property before they can do anything.
When homeowners still refuse to leave the property after the notice is posted, an eviction process will be initiated.
The Bank Sells The House on The Open Market
After a property is taken back as an REO, the bank will keep it on its books until it’s ready to list it on the open market.
Properties become a HUD (Housing And Urban Development) home if the mortgage that was foreclosed on was secured by the FHA, otherwise, they become a regular REO.
The bank will typically find a real estate agent who works with foreclosures and have them list it on the market.
When a third party buys a house at auction, it will most likely be an investor.
Investors will typically buy a house at auction, fix it up, then resell it, or fix it and then rent it out to tenants.
Avoid Foreclosure Scams
Unfortunately, homeowners who find themselves facing foreclosure can become the target of real estate-related scams.
Since all the foreclosure information is available on public record, unscrupulous individuals can look it up and use it to seem legitimate.
Scammers may try to implement the following tactics, so keep an eye out for the following:
Rental Scam:
An interested buyer may ask an owner to sell their house to them and convince them to transfer the title into the buyer's name.
Next, the buyer who took title will rent out the property to a third party and start collecting rent, but WILL NOT make the mortgage payments.
Since the mortgage payments still are not being made, the property will continue going through foreclosure while the scammer collects rent payments.
“Foreclosure Counselors”
There are companies out there who call themselves foreclosure counselors, but all they do is ask for a sizable fee to make some simple calls on behalf of the homeowner.
For example, they make calls to the lender to try and organize a loan modification, but this is something the homeowner can do on their own for free.
Lender Scams
The last foreclosure scam we’ll discuss is the lender scam. A lender scam is when a lender has the homeowner refinance their loan, then calls the entire loan due in a short amount of time.
Since the homeowner is typically unable to make the large balloon payment, the house will fall back into foreclosure.
It’s a shame, but there are plenty of people out there who will gladly take advantage of a homeowner under stress.
There are, however, plenty of people who can actually help these homeowners out by educating them and offering real solutions.
It’s important homeowners thoroughly vet any company they are interested in working with regardless of it's to refinance, get a loan modification, or to sell their house.
Talk To Your Lender
The first thing every homeowner needs to do is talk immediately with their lender. In fact, if a homeowner feels financial problems are coming on, it may be a good idea to preemptively contact the lender and let them know what is going on.
The lender will be able to point you towards all the options they have available, and what other legitimate programs may be available that they can vouch for.
Lenders may be able to offer a loan modification, which can help owners continue making payments and avoid the foreclosure process.
Does Bankruptcy Help?
A lot of people think filing for bankruptcy is a guaranteed way to stop foreclosure and keep their house.
We won’t go into too much detail here since we are not lawyers and don’t want to accidentally give wrong information on this topic.
However, filing for bankruptcy can buy you more time before the bank can sell the property at auction thanks to what’s called an “automatic stay.”
Be aware that filing for bankruptcy will have a severe impact on your credit for up to seven years.
For additional information on how bankruptcy may help you when in foreclosure, I encourage you to speak with a local lawyer who specializes in this area.
Sell Your House Before The Auction Date
When facing foreclosure, all every homeowner wants to do is keep their house. Unfortunately, this is sometimes not possible.
When it becomes clear that keeping the house is impossible, a homeowner’s next best option is to sell the house before it goes to auction.
Let your lender know you are working on selling the house, and they may offer an extension to give you time to find a buyer who will cash everyone out.
When you sell a house before it’s officially foreclosed on, it can prevent further damage to your credit, and help you pull out some of your hard-earned equity.
Therefore, selling the property is almost always a better option than letting it sell at auction when all other options have failed.
Owner Finance The House To Make Up Your Back Payments
Many people believe the only way to sell a house when it’s in foreclosure is to sell it outright for cash.
Homeowners actually have some options here so long as their bank will allow it.
The property can be sold to a third party buyer with owner financing.
The goal when selling with owner financing is to collect a large enough down payment from your buyer to pay off all current back-payments, liens, and any other fees tied to the property because of the foreclosure.
The owner and buyer will agree on terms:
Down payments as mentioned above
The monthly payments
Interest rate
Will there be a balloon payment?
After this, the owner financing agreement can be closed, and if done correctly, it can stop the foreclosure.
Homeowners can even profit off the interest when they sell their house with owner financing.
A word of caution: You have to be careful with the “Due on Sale Clause“ that’s likely in your mortgage documents.
This clause gives lenders the option to call the loan due immediately if the house sells without them knowing.
Usually, lenders won’t do this, as they are happy with receiving all the back payments and collecting their monthly payments as usual.
Offer A Lease-Option
Another opportunity is to sell your house with a lease—option. A lease-option (A.K.A. Rent-to-Own) can help stop foreclosure in the same way owner financing will.
You can find a buyer who can put down a large enough option deposit to make up your back payments and all other fees associated with the foreclosure.
After the foreclosure has been stopped, you proceed to rent out the house to your buyers for a predetermined amount of time.
During or after the rental term, the buyers can exercise their right to buy the house outright with a bank loan, which will fully cash you out of the property.
Work With A Professional Home Buyer
Going through a foreclosure is difficult for every homeowner who goes through it. Often times there are a lot of questions and uncertainty.
If the time arrives where you realize the best option is to sell your house, it’s best to work with a professional, reputable home buying company like Contenza Properties or a realtor.
We will make you a fair offer on your house and take the guesswork out of trying to sell.
We buy houses in their as-is condition, so you don’t have to worry about:
Doing any repairs
Staging
Or cleaning
We even work with owner financing and lease-options where applicable if those options interest you.
If you’re ready to sell, submit your info to us by using our simple form below, and we’ll be happy to make you the best offer we can.
This article is meant to be purely informational. Please do not take it as a substitute for legal advice from a licensed attorney specializing in California law.
About The Author
Jordan Reid founded Contenza Properties in April of 2018 to help homeowners solve their real estate problems quickly.
Since then, Jordan has helped multiple homeowners facing difficult situations such as divorce, property liens, and unwanted property inheritance.
Jordan believes in putting people first, and numbers second, which helps him reach the best possible solutions for the homeowners he works with.
Currently, Jordan and his team at Contenza Properties offer their professional home buying services in the San Francisco Bay Area, and Knoxville, Tennessee.