At Pioneer Lender Trustee Services, we understand that life happens and that borrowers may face unexpected hardships that affect their home ownership status. Our borrower resource page provides valuable information for both lenders and their clients with a simple FAQ that addresses those with deed/note default. PLTS encourages clients to consult a real estate attorney, tax professional, or financial planner to help you determine a suitable course of action for each individual case.
Frequently Asked Questions
Can I shorten the foreclosure process or postpone the sale?
The rules of foreclosure are strict and for the protection of both yourself and the owner of the property. The process cannot be shortened, however, you can postpone a sale date.
Can the property owner cure the foreclosure and get out of foreclosure?
Yes. If the property owner wants to save their property they can bring the past due amounts current or payoff the loan if there is a balloon payment due. They are free to sell the property, or refinance it through another lender.
What are some of the red flag Items during a foreclosure action?
A very brief list:
- Property owners who want to give the property back to you.
- Accepting funds without a properly executed forbearance agreement from the property owners.
- Answering demands and pay off letters from escrow or mortgage companies.
- Ignoring trust deeds recorded prior to your loan, delinquent property taxes or insurance policies.
- Ignoring letters sent by the owner of the property.
- Providing information regarding the property owner to unauthorized persons.
- Bankruptcy filings.
Who pays for the foreclosure action?
According to the Note and Deed of Trust, the trustor (owner of the property) is responsible for the fees and charges incurred during the collection of the past due sums. If the owner of the property desires to cure the foreclosure, all past amounts and foreclosure fees will be collected from them. During the foreclosure action, the beneficiary will be invoiced for fees and charges incurred. These costs will be reimbursed to the beneficiary if the owner of the property cures the foreclosure action.
What is a foreclosure?
Foreclosure is a common term used to describe a trustee’s sale proceeding- the correct terminology to use when describing the procedure for enforcing a lender’s rights once an obligation secured by a Deed Of Trust (or similar instrument) is in default.
What constitutes a breach or default?
A breach exists when the borrower fails to make the payments of principal and interest when due pursuant to the note secured by deed of trust. If the balance of the note is due, the breach would be the failure to make the principal payment due plus interest, by the maturity date. Most deeds of trust have provisions for default being declared when a senior lien, insurance, taxes and assessments have not been paid, or if the property is transferred without the lenders approval.
Should I forego a foreclosure and take a deed in lieu?
Before you can even consider an alternative, the borrower must be willing to offer a deed in lieu. There are advantages to taking a deed in lieu. It could save you time and money. You should order a preliminary title report and review it carefully to determine if there are any junior liens that would survive the deed in lieu. If you are satisfied with the title report, you would take the deed in lieu subject to a title insurance policy being issued in your favor as reflected in the preliminary report. This procedure would take a lot less time than the approximate four months of foreclosure. The main disadvantages to taking a deed in lieu of foreclosure are the junior liens will not be extinguished and that the borrower may later have a change of heart and seek to have the courts set the deed in lieu aside.
Must the original trustee process a non-judicial foreclosure?
No. The beneficiary may substitute trustees anytime.
Should I notify a senior lender of the existence of my junior lien?
Yes. A senior lender may have a provision in his deed of trust that provides for senior priority for additional advances to the borrower. When advances are “obligatory” to protect the lender’s security interest, they are so secured. However, if the advances are “optional” and the senior lender has knowledge of a junior lien, the advances may not be senior to the junior lien of trust. A junior lender, therefore, should give the senior lender notice of their lien. Many lenders would like to reduce their collection efforts by having the junior lienholder advance to their loan. Send the senior lender a notice which tells them that you are willing to reinstate their loan.
If my loan is in a junior position, when should I start my foreclosure?
If you service a loan for someone else, if it is insured, or it is a standard FNMA/FHLMC document, then you have the same constraints mentioned in the previous question. Being in junior position adds one other very important dimension for your consideration. The senior lender can foreclose you out of your security or certainly diminish your protection as their loan interest balance grows.
If the senior lender begins foreclosure, and neither you nor the borrower bring them current, the lender could very well go to sale and eliminate your security. It is much better for you to initiate foreclosure early, go to auction, acquire the property and sell it, before the senior lender can complete the foreclosure. Of course, if necessary, you may have to reinstate the first lender to allow enough time for you to complete your foreclosure.
Should I reinstante the senior loan which is in foreclosure or bid at its resale?
Reinstating the senior loan should require considerably less cash than bidding at its sale. If the loan has matured, then you may pay off the loan prior to the sale or bid at the sale.
If the senior lender filed a notice of default several months earlier, you may be able to save time by bidding at the senior’s sale. However there are some pitfalls to this strategy. The senior may delay his foreclosure; you have no control over when they may go to sale. File your own notice of default as soon as possible so that at least you are proceeding to your own sale. If you intend to bid at the senior’s sale, come to the sale early, bring sufficient certified funds to bid the amount of the debt plus your lien. You cannot credit bid the amount owed to you under your deed of trust; your standing as a bidder is the same as any others. If you fail to arrive on time for the sale, your lien may be eliminated.
Do I need the borrower’s permission to foreclose?
No. You already have their permission; they gave it when they signed the note and deed of trust.
What documents do I need to foreclose?
You will need to provide the trustee with the note and deed of trust, any modification or extension agreements, additional notes and any assignments. If an original document is lost, it may be necessary to provide a lost instrument bond. Consult with your trustee. You also need to provide the trustee with certain essential information, such as the unpaid balance of the note, the date to which the interest is paid, the reason for the default(such as failure to make the payment which became due on a certain date), information regarding any advances you have made, the last known residence or business address of the last known owner, and the property address. If you are not using the original trustee, a substitution of trustee must be signed and notarized by the beneficiary.
What is an accurate last known address of the last known owner vital?
Failure to send notice to an accurate business or residence address of the last known owners may invalidate the foreclosure. Search all your records completely and carefully. If the borrower has more than one loan with your firm, review all sets of records. If the borrowers are married and you receive word from one of them that (s)he is no longer residing at the property address and you are provided with a new address, be sure to communicate that information to the trustee as soon as possible.
What is a Declaration of Default (NOD)?
This document contains the official written instruction from the beneficiary to the trustee. Most deeds of trust require the beneficiary to furnish the trustee with a Declaration of Default. It identifies the deed of trust to be foreclosed, states the breach, and directs the trustee to sell the property to satisfy the indebtedness.
What is the fastest way to record the NOD?
You may send the trustee a pre-signed substitution along with the other documents, or the trustee can prepare one and return it to you for your signature.
If you are to be regularly using a trustee, you might consider giving the trustee a limited power of attorney authorizing them to sign the substitution of trustee and the notice of default. Sending pre-signed substitutions or giving a limited power of attorney reduces the time between your decision to foreclose and the actual recording of the notice of default to as little as 24 to 48 hours.
What are the most common delays to the foreclosure process?
- The most common delay comes from the filing of bankruptcy.
- A temporary restraining order (TRO) is used to preserve the status quo pending a court hearing for a preliminary injunction.
- A preliminary injunction is used to preserve the status quo pending a final determination of the action on the merits.
- The beneficiary or their servicer doesn’t send he trustee the most current assignment. The trustee prepares the NOD and the substitution with the wrong beneficiary shown. Several days after the documents are recorded the title company discovers the error. The trustee now must rescind the original NOD and re-record new documents.
- If there is uncertainty regarding the current beneficiary, ask the trustee handling the foreclosure to check with the title company for current information.
- The recording information on the deed of trust was incorrect. A copy of the deed of trust has the recording information written incorrectly or the original deed of trust was re-recorded later.
- The paid-to-date was incorrect.
- The unpaid balance was incorrect.
- The last known address was incorrect or incomplete.
- Money (partial payment) is accidentally accepted from the borrower.
- Instructions are misunderstood. The beneficiary instructs the trustee to cancel the sale rather than postpone, or postpone rather than sell.
- The NOD is re-recorded (start-over) because of failure to notify someone.
- Correspondence requiring response is accidentally filed rather than handled.
- Opening bid information given to the trustee too late to order a date down of the trustee’s sale guarantee.
What law authorizes foreclosures through a trustee’s power of sale?
There is no law that authorizes a trustee’s non-judicial foreclosure; that power is created by the borrower when he signs that deed to trust, pledging the real property as security. The words used in the deed of trust are; “with power of sale.” There are, however, many laws that regulate the trustee.
Could a senior lender get relief from the bankruptcy stay and go to sale while the junior lender is still delayed?
Yes. If you are a junior lienholder, notify your attorney as soon as you get word of a bankruptcy. Assist them in every way to get relief before the senior lender does.
What is a Trustee’s Sale Guarantee (TSG) report?
The Trustee’s Sale Guarantee (TSG) report provides the foreclosing trustee with the information necessary to process your foreclosure and guarantees the correctness of that information. It sets forth the record owners and lists all exceptions of record against the secured property. It provides the names of those who are to receive notices and the name of the newspaper in which the trustee must publish. The TSG is provided by a title company in the county where the property is located. When you receive your copy from the trustee, you should be alert to certain items:
- New Owners.
- Delinquent real estate taxes.
- Notice of default recorded by a senior deed of trust. You should contact the senior beneficiary to determine if their loan is still delinquent.
- Federal (IRS) tax liens recorded.
- Lis Pendens. This provides constructive notice of pending litigation, the outcome of which will not be affected by the foreclosure.
- Notice of substandard dwelling.
- Any irregularities noted therein.
Who is entitled to reinstate the loan?
The trustor and any junior lienholder of record have the right to reinstate the loan. The reinstatement amount should be enough to restore the entire loan to its original installment basis and include attorney fee and costs which were necessary to protect the security, foreclosure fee and costs, late charges, and advances. Contact the trustee for updated fees and costs before accepting reinstatement. A partial payment may not cure the default. Accepting partial payment may invalidate the foreclosure. If you believe it is in your best interest to accept partial payments, consult your attorney regarding a written agreement between you and the borrower.
Must I bid the full idebtedness plus advances and costs?
No. It is not required and there may be good reasons not to. For instance, it you would like to encourage outside bidders, set the opening bid low and credit bid price upward until you reach your total indebtedness. Another reason that you might want to bid less than the full amount would be to allow for a claim to an insurance company for a casualty loss against the property. If you had bid the full indebtedness, the insurance company could claim that your debt had been fully satisfied. There may also be some tax consequences to consider.
Are the trustee’s sales really held on the steps of the county courthouse?
Yes. Most trustees use the same place to conduct their sales. The most common spot is the front entrance to the county courthouse, city hall, or hall or records. The only requirement by law is that it be conducted in a public place.
Is the trustee’s sale conducted orally or by sealed bid?
The sale is conducted verbally. The trustee will essentially announce that they are offering to sell at public auction to the highest bidder all right, title and interest conveyed to and now held by the described deed of trust. The sale will be made, but without covenant or warranty, express or implied, regarding title, possession or encumbrances. After the auctioneer makes an announcement, they will ask if there are any bidders who wish to qualify. If there are, each must show the auctioneer funds in excess of the opening bid. A junior lienholder must qualify as any other bidder and cannot use their lien for bidding purposes. Nomellini Const. Co. v. Modesto Savings & Loan Assoc. (1969) 275CA2d 114,79 CR 717. The auctioneer will note the total amount of funds each bidder possesses, so that they know when a bidder is no longer qualified to enter a bid. If a bidder tries to enter a bid that exceeds their funds, the auctioneer will ask them to requalify. Each bid is an irrevocable bid and replaces the previous bid. If a bidder reneges, they may be liable to the trustee for damages and subject to criminal prosecution and penalties. The successful bidder is the one who enters the final bid that is accepted by the auctioneer.
Must I attend the sale and enter my own bid?
No. The trustee’s auctioneer will enter your opening bid on your behalf. However, you may attend the sale and enter your own bid. If you wish to bid more than your total debt due you, it would be necessary for you to appear at the sale with certified funds to cover any bids you make over the amount of your debt.
Who gets the over-bid surplus?
Any moneys that exceed the foreclosing lender’s total indebtedness, including advances and expenses, will go to junior lienholders of record in the order of priority, and finally to the previous owner of record. If the trustee has doubts about where the moneys should be paid, they should commence an action for interpleader to avoid potential liability.