In a state with a judiciary legal system, the beginning of foreclosure is marked with the filing of the case, while in a non-judiciary legal system, the beginning of foreclosure is marked with the filing of the Notice of Default and/or the Notice of Trustee Sales. Both of these stages, to the foreclosure process, is known as the time of pre-foreclosure -when you can make the most cash from the transaction or case.
Ordering the TSG or Trustee Sale Guarantee -also known as the Trustee Report.
Sending notice to every person or entity that has a beneficial interest in the property: This would include everyone who has a lien on the property, including mechanic’s liens, a second mortgage, or the IRS.
Substitution of Trustee-Non judicial legal process: There’s always a Substitution of Trustee. To be clear, here are the 3 key parties in this type of process or case:
Trustor, borrower of the money, Trustee, a beneficiary, Trustee, the one entrusted to handle the case or oversee the process
You may see a Substitution of Trustee posted at the County Recorder’s Office. This trustee only handles foreclosures and will follow the process to the end.
Posting of legal notices -It is required by law, that information that can be made public be posted. These legal notices offer an overview of the case including the parties involved and the property being foreclosed. Some states even have “county recorders” or special legal newspapers on which these kinds of notices are posted for public consumption. It’s also imperative to post a notice on the property itself.
Maintain continual contact: Continual contact is maintained with the title company to make sure no other liens are attached to the property. One thing that can stop the whole process is bankruptcy. Bankruptcy is a federal filing lawsuit that supersedes state statute.
Prepare a credit bid: The beneficiary or mortgagee prepares a credit bid, which is the starting bid/amount at the auction, depending on the state and the state statutes.
In most states, the credit bid will include the principle balance plus all of the arrearages, including: Bank interest, Penalties, Legal fees
Other arrearages can include second mortgages and homeowner’s association fees. In a judicial state, the lawyer for the mortgage company/bank will prepare the credit bid. In a non-judicial, the Trustee will prepare the bid.
Payment -this includes reinstating the loan. This is done by the owner of the property. Canceling or suspending the sale at anytime -Done by the mortgagee or beneficiary, but arrangements should be made with the owner beforehand.
Notice of Trustee Sale. This notice contains when and where the auction will be held. It also contains the legal property description -available in the County Tax Assessor’s Office. As a legal document, care should be taken to match the actual address with the document -note that addresses change over a period of time.
Due-on-Sale Clause: A Due on Sale clause in a mortgage is a demand that the borrower pay off the loan in full, if the house is ever sold or transferred. The lender cannot prevent the sale, but can demand the payment in full of the loan balance, which often has the same practical effect.
In the absence of a Due on Sale clause, the loan is assumable without the lender’s consent. Older FHA and VA loans are assumable without the consent of the lender. How does this impact the sale of a foreclosed property? If you get a warranty deed from the owner at the time of the foreclosure sale or in the pre-foreclosure timeframe, as long as you keep making the payments, the bank will most likely be not be aware of the transfer. If you buy the property and then sell it immediately or even later on, you will be fulfilling that requirement of paying off the loan at that time.