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San
Jose Realtor ® - Foreclosure
Process Overview
Foreclosure is a process that allows a lender to recover the amount
owed on a defaulted loan by selling or taking ownership (repossession)
of the property securing the loan. The foreclosure process begins
when a borrower/owner defaults on loan payments (usually mortgage
payments) and the lender files a public default notice. The foreclosure
process can end one of four ways:
1. The borrower/owner pays off the default amount to reinstate
the loan during a grace period known as pre-foreclosure.
2. The borrower/owner sells the property to a third party during
pre-foreclosure, allowing the borrower/owner to pay off the loan
and avoid having a foreclosure on his or her credit history.
3. A third party buys the property at a public auction at the
end of the pre-foreclosure period.
4. The lender takes ownership of the property, usually with the
intent to re-sell. The lender can take ownership through an agreement
with the borrower/owner during pre-foreclosure or by buying back
the property at the public auction.
Foreclosure Buying Opportunities
The foreclosure process offers three bargain-buying opportunities,
represented by three different property statuses.
1. Buying during pre-foreclosure (NOD, LIS)
2. Buying at public auction (NTS, NFS)
3. Buying bank-owned properties (REO)
STEP 1
Subscribe to a service like Realtytrac (provide link here)
Find a Property
Choose a location
Choose a property status
Decide the status of foreclosure for which you want to search.
You choose the status under Property Status on the Property Search
page.
1. Select Default Notices or Lis Pendens for pre-foreclosure properties.
2. Select Trustee Sales or Foreclosure Sales for auction properties.
3. Select REOs for bank-owned properties.
4. Select FSBOs for For Sale By Owner properties
See Step 4 in this guide for more about the different property
statuses.
Find a Property
Most important fields
The Property Details page should always include the address of
the property and the name of the owner, trustee or lender involved
with the foreclosure, depending on the property status. Also included
should be an estimate of the unpaid loan balance, which will appear
either as the Balance or Opening Bid.
Other important fields
The Estimated Property and Market Values provided are based on
comparable sales. The Trans Date and Trans Value represent the
date and purchase amount the last time the property changed ownership.
The Default Amount (usually only relevant for Pre-Foreclosure
properties) is the amount the owner/borrower is behind on payments.
The Recorded date is the date when the document with the foreclosure
information was recorded with county records. The Entered On date
is the date RealtyTrac entered t he foreclosure information on
the website. You can also click on most of the field names on
the Property Details page for a definition.
Missing information
Some fields of information are missing simply because the field
is not relevant to the status of foreclosure. For instance, you
will never see a sale date on Pre-Foreclosure properties because
the auction date has not been scheduled yet. When the sale date
is set, the property will appear with Auction status.
Some fields of information are missing because they were not available
from the recorded document that has the foreclosure information.
This usually applies to property details such as year built, bedrooms
and bathrooms and square footage. If this information is missing,
you can often find it by purchasing the Detailed Subject Property
Report.
STEP 2 GET FINANCING
Get Financing
Obtaining financing not only gives you an estimate of what you
can afford, it also enables you to moveb quickly once you locate
a property that interests you. When you approach a borrower/owner
or a foreclosing lender about a property, secured financing will
demonstrate that you are a serious buyer and are ready to buy
quickly.
STEP 3 CONTACT AN AGENT
Contact an Agent
If you're a first-time homebuyer and you've never purchased a
home, let alone a foreclosure property, it is beneficial to contact
a local real estate agent who can guide you through the process
of buying a foreclosure. If you work with an agent, make sure
they know your priorities. Ask any potential agents if they have
experience with foreclosures. Especially for first-time buyers,
a good agent can be a comforting and helpful resource.
STEP 4 Contact Owner
Depending on the property status, the seller will be the owner
in default, the trustee or the foreclosing lender.
Pre-Foreclosure (NOD, LIS):
Buying a property in pre-foreclosure involves approaching the
borrower/owner and offering to buy the property. The borrower/owner
can walk away with something to show for any equity in the property
and avoid a bad mark on his or her credit history. The buyer has
time to research the title and condition of the property and can
realize discounts of 20-40 percent below market value.
Auction (NTS, NFS):
If the loan is not reinstated by the end of the pre-foreclosure
period, potential buyers can bid on the property at a public auction.
Buyers often are required to pay in cash at the auction and may
not have much time to research the title and condition of the
property beforehand; however, a public auction offers some of
the best bargains and avoids the unpredictability of dealing directly
with the borrower/owner.
Bank Owned (REO):
If the lender takes ownership of the property, either through
an agreement with the owner during pre-foreclosure or at the public
auction, the lender usually sells the property to recover the
unpaid loan amount. The lender typically clears the title for
any buyer, but the potential bargain is often less than a pre-foreclosure
or auction property.
STEP 5 MAKE AN OFFER
Make an Offer
If you have never purchased a foreclosure property before, we
recommend that you have a real estate agent help you prepare and
make an offer.
Evaluate the property
To get an estimate of the potential bargain for any property,
you need to find out the estimated market value of the property,
how much is owed on the property and if the owner has any other
liens against the property.
If you want to see a detailed comparable sales report, ask your
real estate agent for a Sales Comparable report.
Add together any outstanding liens and estimated repair costs
and subtract that total from the estimated market value of the
property.
Make an offer
Based on your research of the potential bargain, you can make
an offer. Usually the offer amount is somewhere below the market
value but above the total outstanding liens and estimated repair
costs. If the property is a pre-foreclosure or bank owned, you
could prepare an offer similar to a typical purchase offer, contingent
on a full inspection and title search.
Bid at auction
If the property is selling at auction, you will need to make your
offer, or bid, at the auction. In many states, bidders are required
to pay in cash in the form of a cashier's check at the auction.
You probably won't be able to conduct a full inspection and title
search when you buy at an auction, so it's important to do good
research before attending an auction.
CALIFORNIA
FORECLOSURE LAWS
Foreclosures in California are primarily administered out
of court, although court foreclosures are allowed. Out-of-court
foreclosures take about four months.
Pre-foreclosure Period
Court foreclosures only occur if a lender desires a deficiency
judgment. This process gives a borrower up to one year to redeem
the property after the foreclosure sale.
In almost all cases, foreclosures are handled out of court. The
process begins when a lender file a notice of default with the
county recorder identifying the default amount and the date the
borrower must pay off the default. The notice is mailed to the
borrower and other affected parties.
Up to five business days before the trustee sale, the borrower
may pay off the default plus any applicable costs of foreclosure
and stop the foreclosure process. Three months after the notice
of default is filed, the lender can schedule a trustee's sale
of the property. Notice Of Sale / Auction
At least 20 days before the trustee's sale, the notice of sale
must be posted on the property and in one local public location.
The notice is also published once a week for three weeks in a
local newspaper, starting at least 20 days before the sale date.
The notice is mailed to the borrower at least 20 days before the
sale and to anyone who requests the notice. The notice must contain
the date, time, and location of the sale, the property address,
and the trustee's contact information. In addition, the notice
of sale must be recorded with the county recorder at least 14
days before the sale.
The trustee's sale is a public auction and the property is sold
to the winning bidder. The trustee may require bidders to pay
the full bid amount in cash or cashier's check. Anyone may bid
at the sale, including the lender and any junior lien holders.
A trustee's sale may be postponed by announcement at the sale.
If a sale is postponed more than three times, a new notice of
sale must be issued.
After the sale is complete, the trustee transfers ownership to
the winning bidder. The borrower does not have the right to redeem
the property after the sale.
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