Default and Foreclosure - Part 1 - Chapters 68-69 Flashcards
Understand how a property owner or junior lien holder terminated foreclosure proceedings by reinstating or redeeming a mortgage
Trust Deeds contain a boilerplate acceleration provision authorizing mortgage holders to call the mortgage after a material default on the trust deed. Similarly, the trust deed’s power of sale provision authorizes the beneficiary to instruct the trustee to initiate a non-judicial foreclosure sale of the property.
After the Notice Of Default (NOD) has been recorded and prior to 5 business days before the trustee sale, the owner May terminate the foreclosure proceedings by paying:
- the delinquent amount due on the note and Trust deed, + foreclosure charges, called reinstatement or
- the entire amount due on the note and Trust deed, + foreclosure charges, called Redemption
Distinguish the time frames an owner has to cure a default and reinstate the mortgage from periods for trustees notices, postings and advertising periods
The owner or Junior lienholder has approximately 105 days after recording the NOD notice of default to cure the default and reinstate the note and Trust deed. Doing so avoids the full payoff or foreclosure sale of the property.
On reinstatement of the note and Trust deed, the notice of default is rescinded by the trustee, removing the record default from the title of property. The owner continues their ownership of the property as though the mortgage/trust deed had never been in default.
A property owners ability to reinstate a trust Deed by curing a default depends on the trustee provision in default.
Advise a client on their financial options when faced with foreclosure
Aside from Reinstatement and Redemption, and owner of property has several other options when faced with losing their property through foreclosure:
- Refinance
- Seek service of a foreclosure consultant to help
- Deed in lieu
- Litigate
- Bankruptcy
- Sell the property before the Trustee sale
- Walk away from the property after foreclosure
Recognize defaults curable only by redemption
Failure to cure a default before the reinstatement period expires allows a trust deed holder to require the owner to REDEEM the property and avoid the trustee sale by:
- paying all sums due under the note and Trust deed and
- reimbursing the cost of foreclosure prior to completion of the trustee’s sale
The owner’s right of redemption exist until the trustee completes the bidding and announces the property has been sold.
What other activities are considered a default on the trust deed?
When the owner fails to meet their obligations regarding the care, use and maintenance of the secured real estate, the owner is in default under the WASTE PROVISION in the trust deed. The default on the trust deed exist even though the owner may be current on all payments for called in the note.
Other activities that are considered a default on the trust deed, such as the owners failure to maintain the property, called waste, or failure to pay:
- property taxes
- Hazard insurance premiums
- assessments
- amount due on senior trust deed liens
A trust deed holder may advance funds to cure a default on the trust deed in order to preserve the value of the property. The amount of the advance is then added to the debt owed by authority of the trust deed’s FUTURE ADVANCES provision. Therefore, the Trustee adds the ADVANCE to the debt owed and then they may demand the immediate repayment of the advance from the owner.
future advances
FUTURE ADVANCES is a trust deed provision authorizing a mortgage holder to advance funds for payment of conditions impairing the mortgage holder security interest in the mortgage property, such as delinquent property taxes, assessments, improvement bonds, mortgage insurance premiums or elimination of waste.
For example, a trust deed holder may advance funds to cure a default on the trust deed or to preserve the value of the property. The amount of the advance is then added to the debt owed by authority of the trust deed’s FUTURE ADVANCES provision. Therefore, the Trustee adds the advance to the debt owed and then they may demand the immediate repayment of the advance from the owner.
power-of-sale provision
The POWER OF SALE PROVISION is a trust deed provision authorizing the trustee to initiate a non-judicial foreclosure sale of the described property on instructions from the beneficiary.
redemption
REDEMPTION is a property owners or Junior lien holders right to clear title to property of a mortgage lien prior to the completion of a trustee sale or following a Judicial foreclosure sale by paying all amounts due on Mortgage Debt including foreclosure charges.
Failure to cure a default before the reinstatement period expires allows a trust deed holder to require the owner to REDEEM the property prior to completion of the trustee’s sale by:
- paying all sums due under the note and Trust deed and
- reimbursing the cost of foreclosure prior to completion of the trustee’s sale
The owner’s right of redemption runs until the trustee completes the bidding and announces the property has been sold. Unless all amounts due on the note and Trust deed resulting from the owners default are paid in full during the Redemption period, the owner will lose ownership to the property at the trustees foreclosure sale.
reinstatement
Reinstatement is a property owners or Junior lien holders right to reinstate a mortgage and cure any default prior to 5 business days before the trustee’s sale by paying delinquent amounts due on the note and Trust deed, + foreclosure charges.
Advise an owners rights during the different periods in the trustee foreclosure process
A trust deed is a security device which imposes a lien on real estate. A power of sale provision in the trust deed allows the deed holder to non-judicially foreclose by a trustee’s sale. By foreclosing using the power of sale provision, the holder of a lien avoids a court action for judicial foreclosure.
A trustee’s sale is conducted by a trustee either named in the trust deed or appointed by the beneficiary at the start of the foreclosure process.
REVIEW AND READ CAREFULLY
Copies of the NOD Notice Of Default are sent to the owner and each person who has requested a copy within 10 BUSINESS DAYS after it was recorded, and copies are sent to all those with “recorded interests” in the property within ONE MONTH.
A trustee or beneficiary may begin noticing the date set for the sale of the property by posting and serving a Notice of Trustee Sale (NOTS) on the day following 3 MONTHS after the day the Notice of Default (NOD) is recorded. If the billing address of the defaulting owner is different from the secured property address, residential tenants of the property are served with a 90-day notice to vacate.
Copies of the NOTS are sent to each party who received copies of the NOD at least 20 calendar days before the trustee’s sale. The NOTS is also posted in a:
- public place in the city of the sale
- conspicuous place on the property to be sold
- local newspaper for 3 consecutive weeks prior to the sale.*****
Understand the pre-foreclosure workout process mandated for one-to-four unit residential property
The trustee initiates non-judicial foreclosure by recording and serving a notice of default (NOD). Before recording a notice of default on a 1 to 4 residential property, a mortgage holder conducts a pre-foreclosure workout with the owner to explore options to avoid foreclosure and provide financial counseling to the owner.
Counsel buyers and owners on the procedures for a trustee’s sale including advertising, postponing, and accepting bids.
A trustee sale is held in the county where the secured real estate is located. A trustee sale is a public auction where the property is sold to the successful bidder. **The TRUSTEE’S SALE is considered final on the trustees acceptance of the last and highest bid.*
On completion of a trustee sale, the trustee uses a trustee’s deed to convey title to the successful bidder. A successful bidder without notice of title or sale defects is considered a bona fide purchaser (BFP) and takes title clear of any claims to the property on interests junior to the foreclosed trust deed.
bona fide purchaser (BFP)
When a buyer other than the beneficiary purchases the property for value and without notice of the title or trustee sales defects, the buyer is considered a BONA FIDE PURCHASER (BFP). A bona fide purchaser is a buyer who purchases a property for valuable consideration in good faith without notice or knowledge of pre-existing encumbrances or conditions affecting their right to full ownership.
Declaration of Default and Demand for Sale
When a trust deed is in default and the beneficiary has chosen to foreclose, the beneficiary delivers a Declaration of Default and Demand for Sale to the trustee. The Declaration contains instructions directing the trustee to initiate foreclosure on the secured real estate as authorized under the power of sale provision contained in the trust deed.
A Declaration of Default and Demand for Sale is a document delivered to the trustee under the power of sale provision by the mortgage holder instructing the trustee to initiate foreclosure on the secured real estate by recording a notice of default.
mortgage holder’s full credit bid
A MORTGAGE HOLDER’S/BENEFICIARY FULL CREDIT BID is the maximum amount the foreclosing mortgage holder may bid at a trustee sale without adding cash, equal to the debt secured by the property being sold + trustees fees and foreclosure expenses.
