The Short Sale and Foreclosure Process

Foreclosure

In California, the timeline of non-judicial foreclosure begins when the trustee files a notice of default. This is a letter which is sent to the owner/trustor notifying him or her of their default of the loan. This notifies the owner of the intent of the lender to follow through on their right to collect on the debt. The copy of the notice, which is recorded at the County Recorders Office of the appropriate county, is mailed to the address of notice as per the deed of trust. Recording of the notice of default can vary greatly depending on the beneficiary.

It can occur anywhere between a week to many months after one misses their first mortgage payment. The next step of the foreclosure process is there is a filing of the Notice of Trustee’s Sale. No sooner than ninety (90) days after the trustee records the Notice of Default, the Trustee must publish a notice of trustee’s sale in the local paper and simultaneously file that notice with the county recorder’s office. No sooner than twenty days (20) after the notice of trustee sale is filed, the home may be sold at public auction for the amount of the debt plus foreclosure costs. If no one bids at the auction, the lender assumes ownership of the property, and may dispose of that property to recover their cash investment.

Short Sale

A short Sale is the ideal solution for someone that is behind or soon to be behind in their mortgage payments. It firstly avoids a Foreclosure on your credit report and minimizes the potential for the bank to come after you with a deficiency judgment.

The seller has to provide a hardship package to the bank to show them that they are indeed struggling to make ends meets and that it would be in the banks best interest to approve the short sale rather than to go through with the foreclosure, banks typically loose an additional $77,000 when they foreclose on a property.
The secret to getting a short sale approved is to submit a complete package, so it is important that you select an agent that has experience in not only selling real estate but also handling short sales.

Once the bank has the package they will then send out an appraiser/agent to carry out a Broker Price Opinion (BPO) to determine the value of the property. When the BPO is sent back to the lender they will at that time review the whole file and if the short sale is approved they will at that time send the approval letter.

This whole process can take anywhere from 4 to 8 months depending on the lender and if there are one or two loans on the property. However recently we have been getting files approved within 2 ½ months, it appears that some banks are finally starting to speed up the whole process.

Deficiency Judgment

In some cases the lender can seek a deficiency judgment against the seller, the deficiency is the amount the bank forgave on the loan(s) on the property in order to complete the short sale; the ability to seek this judgment depends on whether the loan(s) is a recourse or non-recourse loan.

Non-recourse loans

A non recourse loan is the original loan the borrower took out to purchase the property, in California purchase money loans are mostly non –recourse and typically do not allow the lender to seek a deficiency judgment in the event of a foreclosure or a short sale.

Recourse loans

If the owner of a property has refinanced and taken cash out or if the owner has taken money out with a 2nd loan typically a Home Equity Line Of Credit (HELOC) then they are considered Recourse loans and the lender can seek a deficiency judgment after a Foreclosure and a Short Sale.