There are two types of foreclosures – one is judicial and the other non judicial. In case of a judicial foreclosure, the lender obtains an order for foreclosure from the court. In a non judicial foreclosure, the lender proceeds with the foreclosure without the intervention of the court. In California most foreclosures are non judicial foreclosures. California Civil Code Section 2924 deals with foreclosures in California.
Foreclosure is not an overnight event. It is a long process. It starts with the homeowner defaulting on the payments. Usually lenders do not initiate foreclosure immediately on the first default. Generally lenders wait until three defaults to initiate the foreclosure. You will receive a couple of letters from lender asking you to regularize the account. If you fail to do so, the lender will proceed with the foreclosure process.
Notice of Default
The recording of the notice of default in the county where the home is located is the first step in a foreclosure process. The law does not specify any time limit from the default to record the notice of default but is must be filed at least 180 days before the actual foreclosure. The homeowner can cure the default within 90 days after the notice of default is recorded.
Notice of Trustee’s Sale
In a foreclosure the home is sold at a public auction to the highest bidder. This auction is referred to as the Trustee’s Sale. The lender must give a Notice of Trustee’s Sale at least 20 days before the sale date. This notice must be pasted on the home and also at one public in the county where the home is located. This notice must also be mailed to the homeowner. The homeowner has time until 5 days before the actual sale to pay the mortgage and prevent the foreclosure.
The Trustee’s Sale must be held on a business day and at the location mentioned in the Notice of Trustee’s Sale. The sale must take place between 9 am and 5 pm. The lender can also bid at the auction. The home will be sold to the highest bidder. The homeowner can postpone the sale by one day.
The homeowner can redeem the home by making full payment of the loan plus costs within one years of the sale. However if the lender is the successful bidder, the homeowner has only three months to redeem the home.
If the proceeds from the Trustee’s Sale are less than the mortgage balance, and the foreclosure is a non judicial foreclosure or involves a purchase money mortgage, the lender cannot obtain a deficiency judgment for the balance amount owed.
Buying Foreclosed Homes
Sometimes the Trustee’s Sale fails. This could be because there was no bidder or the offers were too low. In such cases, the home remains in possession of the lender and becomes owned by the lender. Such homes are often called as REO or real estate owned. Lenders put these REO homes for sale. You can buy such homes. Most lenders list these homes with realtors.
Getting a Mortgage to Buy a REO Home
You can get a mortgage to buy a REO home. You can approach your bank or a traditional mortgage lender. The procedure is similar to a regular mortgage. However it is best to get pre-approved. Also instead of going to a traditional lender, you should approach lenders who are trained in mortgages for REO homes. These lenders will have a variety of REO homes for sale and you can choose and pick the one you want. Ideally your best source of mortgage for a REO home should be the lender from whom you are buying it from. This will reduce a lot of administrative work as the lender already has all the details of the property.