CONSIDERING A FORECLOSURE OR SHORT SALE?

Always talk to your real estate professional if you are considering selling your home as a "SHORT SALE" or allowing your home to go into foreclosure. Call 650.888.2910 or 650.773.4999 to speak with Olivia or Mary.

WHAT IS A SHORT SALE AND HOW DOES IT DIFFER FROM A FORECLOSURE?

A SHORT SALE is an "arrangement" between the current owner of a home and the bank that lent them the money to buy their home to accept an offer for less than the total amount owed to pay off the home. The "deficiency" is the difference between the amount owed and what the bank collects at the short sale. In this case you would be selling your home as a "SHORT SALE." Most short sales arise when a seller owes more on their house than they can sell it for (upside down). The owner of the home then attempts to make an arrangement with their lender to sell the house for less than is owed. A homeowner will sell their home "Short Sale" as a way to avoid a Foreclosure, and the long term damage to their credit rating.

 

A FORECLOSURE is a legal proceeding a lender will initiate when sellers stop making payments on their loan.  At the end of the foreclosure proceeding the bank will own the property.  Few choose to go into foreclosure voluntarily. It's often an unpredictable result from one of the following:

  • Laid-off, fired or quit job
  • Inability to continue working due to medical conditions
  • Excessive debt
  • Divorce
  • Job transfer to another State

NEW FORECLOSURE TIMELINE

Starting September 8, 2008, California has a special foreclosure timeline for loans originated between 2003 and 2007, inclusive, which are secured by owner-occupied residences.  Indeed, loans involved in short sales are likely to be owner-occupied loans from the years 2003 to 2007, which was the heyday for subprime lending.  The special foreclosure timeline does not apply if the borrower has filed for bankruptcy, surrendered the property, or contracted with a person or entity whose primary business is advising people, who have decided to leave their homes, on how to extend the foreclosure process and avoid their contractual obligations.  The special foreclosure timeline will remain in effect until January 1, 2013.  (Cal. Civ. Code § 2923.5.)

FORECLOSURE TIMELINE FOR OWNER-OCCUPIED REAL PROPERTY LOANS (made from 2003 to 2007)

The approximate minimum time frames for the non-judicial foreclosure of owner‑occupied real property loans made from 2003 to 2007 are as set forth below.  In California, most lenders elect to foreclose non-judicially by conducting trustees' sales, not by judicial foreclosure. 

Pre-Foreclosure Period
A lender may initiate the foreclosure process when a borrower defaults on a loan, such as by missing a mortgage payment.  However, a slight delay may not justify acceleration and foreclosure by the lender.  Hence, in practice, lenders generally wait a few months after a missed payment before starting the foreclosure process.

Day 1: Lender Contacts Borrower
For owner-occupied loans from 2003 to 2007, a lender initiating the foreclosure process must generally contact the borrower by phone or in person to assess the borrower’s financial situation and explore options for avoiding foreclosure.  During the conversation, the lender must inform the borrower of the right to meet with the lender within 14 days.  The lender must also give the borrower the toll-free number for finding a HUD-certified housing counseling agency.
Day 31: Filing of Notice of Default
For owner-occupied loans from 2003 to 2007, the lender may file a notice of default 30 days after contacting the borrower to explore options for avoiding foreclosure.  The notice of default must be filed in the county where the property is located and a copy must be mailed within 10 business days after recordation to the borrower and all other persons who have requested such notice.  The notice of default informs the borrower of the default.  It must also include the lender's declaration that it has contacted the borrower to explore options for avoiding foreclosure, tried with due diligence to contact the borrower, or the borrower has surrendered the property.
Day 121: Filing of Notice of Trustee’s Sale
Three months after the filing of the notice of default, the lender may record a notice of trustee’s sale setting forth the date, time, and place of the upcoming trustee’s sale.  Because of the gravity of a notice of trustee’s sale, it must be widely disseminated.  The notice of trustee’s sale must be recorded, posted, mailed to the borrower and others, as well as published once a week for three consecutive weeks in a newspaper of general circulation.

Day 145: Deadline to Cure Default
Up to five business days before the trustee’s sale, the borrower may reinstate the loan by curing the default or paying the missed payments plus allowable costs.  After the reinstatement period expires, the borrower still has the right to redeem the property by paying the entire debt, plus interest and costs (not just the arrearage), before the bidding begins at the trustee’s sale.
Day 152: Trustee’s Sale
Although California law allows a trustee’s sale to take place 20 days after the posting of the notice of trustee’s sale, lenders customarily wait at least 31 days instead to help protect against federal tax liens.  At the trustee’s sale, the property is sold through a public auction to the highest bidder.  Title is transferred to the successful bidder by trustee’s deed.
USING THIS FORECLOSURE TIMELINE
A foreclosure timeline helps you as a homeowner ascertain whether your real estate professional has enough time to market and sell the property as a short sale.  The chart below gives you the total time frame you have, at a minimum, to sell a property as a short sale before the trustee’s sale occurs (“Minimum Time Left to Sell”).

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Foreclosure Stage

Minimum Time Left to Sell

Homeowner just missed making mortgage payment for the first time.

About 6 to 8 months total

Homeowner has just been contacted by the lender to explore options for avoiding foreclosure.

About 5 months total

Notice of default has just been filed.

About 4 months total

Notice of trustee’s sale has just been filed.

Date of trustee’s sale is on notice of sale

As an example, if a notice of default has just been filed, you have a minimum of about four months to sell the property before the trustee’s sale may occur.  That’s four months not only to find a buyer, but also to get the lender to approve the short sale and close escrow.  The short sale lender may agree to postpone the trustee’s sale in some situations (such as when there’s an accepted offer), but be sure to get any agreement for a postponement in writinG.

ALWAYS TALK TO YOUR REAL ESTATE PROFESSIONAL IF YOU ARE EXPERIENCING DIFFICULTY IN MAKING YOUR MONTHLY LOAN PAYMENTS.  WE OFFER FREE AND CONFIDENTIAL ASSESSMENT OF YOUR SITUATION AND CAN OFFER SOLUTIONS AND OPTIONS.

CALL OLIVIA 650.888.2910 OR MARY 650.773.4999 FOR A FREE CONSULTATION.