When a bank informs you that they are foreclosing on your home, there will be several steps over several months before they can legally sell it. Your house cannot be auctioned off until you have received a notice of sale, and there are a few steps you can take to stop the foreclosure process before it gets to that point. So, how does a home foreclosure work?
How Does a Home Foreclosure Work?
“Foreclosure” describes the legal process used by mortgage lenders to take back ownership of a home when a borrower has stopped making payments.
There are many steps in the foreclosure process, and the first phase of the foreclosure process is known as “pre-foreclosure.” After you have missed payments for at least three months, your bank will consider you “in default” on your mortgage.
They’ll try to reach you once you are 90 days in arrears on payments and assess why you haven’t been paying. At this point, many banks will work with you to try to find a solution, like a loan modification. They aren’t always eager to go through an expensive and time-consuming foreclosure process.
Notice of Default
If a month goes by in pre-foreclosure and no new agreement can be worked out, the bank files a “Notice of Default” in the court of the county where your home is located. They’ll notify you of this filing within 10 days with a certified letter. This ends the pre-foreclosure phase and starts the strict foreclosure process.
Notice of Sale
After 90 days have passed from the date you received your Notice of Default, you will probably be alerted to a “Notice of Sale.” The mortgage lender alerts the county of the upcoming sale and publishes the notice in the paper as foreclosure proceedings move on.
When you see a Notice of Sale or “Notice of Trustee’s Sale” you won’t have much longer to figure out a way to avoid foreclosure. In 21 days from this Notice of Sale, the bank can put your house up for auction. You have up until 5 days before the sale to pay what you owe and “reinstate” the loan.
Your house goes up for sale at a public auction as foreclosure proceedings continue. The bank hopes to sell your home for as much as possible. In some states, you’d still have to pay back whatever portion of your mortgage the sale of the home didn’t cover, but that’s not the case in California.
California is a non-recourse state, so any deficiency in the sale price, when compared to what’s owed, would be the bank’s loss. Your lenders could not ask you to repay the difference in most “non-judicial” foreclosures. Non-judicial means the foreclosure doesn’t involve the courts. This is the most common way foreclosures are carried out in Los Angeles.
What Happens if a Foreclosed Home Doesn’t Sell at Auction?
If a home doesn’t sell, the bank retains ownership of the property. It becomes a “Real-Estate Owned” property (REO).
The bank will work with an REO Real Estate Agent to handle inquiries about the house and facilitate purchases. These agents often represent many properties at a time, and people interested in foreclosed properties may have to wait a while before getting a callback.
Buying a Foreclosed Home in Los Angeles
On the other end of the spectrum, as one person may have been forced to move on from a home, someone else may be looking to buy that same house.
If you are interested in buying a foreclosed home, you can either outbid others in an auction or buy a home that fails to sell in an auction as an REO property.
Buying a Foreclosed Home at a California Auction
It’s important to know the rewards and risks of buying a home in an auction. You’ll have to purchase the home “as is.” There will be no appraisal or house inspection. However, you’ll hope to secure the property at a decent discount.
Many auctions don’t accept anything but cash for homes. You’ll have to have money sitting in an account ready for transfer. For auctions that do allow mortgage financing, you’ll want to show that you’re pre-approved for your loan.
Buying an REO Property in Los Angeles
Once a property has been on the auction block and failed to sell, it becomes an REO property. To purchase a house that’s owned by the lender, you’ll be dealing with an REO agent the bank chooses.
The lender usually has cleared the title and has evicted the house’s previous owners before any sale. However, you probably won’t deal with the lender directly to purchase the home.
The REO listing agent facilitates the purchase. You’ll again be buying a home “as is” but you can tour the home and have a home inspector look it over.
Find a Real Estate Agent to Represent You
It’s a good idea to have a real estate expert looking out for your interests, whether you purchase at an auction or in an REO sale. A real estate attorney may be an important partner when you are buying a home blindly through auction.
Not every real estate agent has had experience working with an REO agency or with facilitating the purchase of a foreclosed property. A qualified foreclosure agent will be able to offer the most protection as you investigate making an offer.
Locating Foreclosed Homes in Los Angeles
Ideally, your real estate agent will work on finding properties that match your needs.
You’ll also want to take up the search yourself. Visiting the U.S. Department of
Housing and Urban Development (HUD) website allow you to tap into the available homes from several different government agencies. You can search Los Angeles, Los Angeles County, or by zip code.
The HUD site links you to homes up for foreclosure sale through The Department of Veterans Affairs, the IRS, and the U.S. Marshals Service. You can also search the Fannie Mae site and the Freddie Mac site for properties.
Potential Drawbacks of Purchasing a Foreclosed Home
Foreclosed homes can provide you with a great place to live at a reduced price. They also often make fantastic investments as rental properties.
As with any investment, there are things to watch out for. People who are going to lose their homes in foreclosure don’t usually have a lot of incentive to take care of the property by replacing or repairing items in the home. As for the lenders, they will only care about selling off the property so they no longer have to be responsible for it.
With this in mind, once you own a foreclosed home, you’ll want to be prepared to spend more money to make substantial upgrades and repairs.
You may also have to take legal steps to evict anyone living in the home. Banks usually handle the eviction of the former homeowners after foreclosure, but a property that sits empty for a while can attract squatters. Squatters may leave once they are discovered, but if they don’t, you could have to file a lawsuit and depend on the California court system to legally evict them.
Contact a Bankruptcy Specialist in Los Angeles
The best outcome to any pending foreclosure is to avoid foreclosure altogether. Southern California families have several options to avoid foreclosure and keep their homes, even during difficult financial times.
Bankruptcy is one option for people with a wide array of financial issues, including being behind on monthly payments. A Chapter 7 or Chapter 13 Bankruptcy can delay foreclosure. In many cases, it will give you a chance to catch up on loan payments while wiping away other types of debt.
When you are looking for an option that lets you keep the keys to your front door, contact the Law Offices of Steers & Associates for a free bankruptcy consultation on your case. If filing for bankruptcy is your best path to financial freedom, we can help you take the first step. We have helped clients from all walks of life get out from under foreclosure and debt to earn financial freedom.
Elena Steers is a highly experienced bankruptcy attorney, the founder of Law Offices of Steers & Associates, and previously worked as a Bankruptcy Trustee Assistant at the Office of the Chapter 13 Trustee in Los Angeles. Her current affiliations include the State Bar of California, National Association of Consumer Bankruptcy Attorneys, and Central District Consumer Bankruptcy Attorneys Association.