How does the foreclosure process work?

There are two ways in which foreclosure process is carried out: judicially (court-approved); and, foreclosure sale (done by trustee). The state wherein the property is located dictates which process is done.

Trustee Sale

Once the property owner starts defaulting on mortgage payments, the trustee sale process commences. The lender will obtain a Trustee Sale Guaranty report prepared by the title company, listing all interested parties in the property. The lender then starts foreclosure action by filing a Substitution of Trustee or Notice of Trustee Sale in the appropriate Country Recorder’s office and sends a copy of the filing to all interested parties. The court will then issue a writ authorizing a sheriff or trustee sale. The borrower can either pay back outstanding balances so that the loan may be reinstated and foreclosure process is halted; or, continue defaulting on payments which will force the lender to a trustee sale. A copy of the notice is posted on the property and the courthouse, and published in a newspaper. Properties that are encumbered require additional procedures. Properties are sold “as is,” at an auction, wherein the highest bidder gets the property. 

Judicial Foreclosure

Under a judicial proceeding, the lender files a case if the borrower has been defaulting on payments for about three to six months. The borrower and any junior lien holder is copy-furnished the documents. The lender is required to prove the default of the borrower, who is given the chance to respond. If the court determines that there are grounds for a foreclosure, then it will issue the sale terms and conditions for an auction of the property. The court has to approve the terms of the final sale. Properties are sold in “as is” condition.