How does foreclosure work?

When you borrow money from a lender to purchase a home, the Public Trustee in the County where the home exists creates a "Deed of Trust". This is done to protect the lender - if the borrower defaults on a loan that is secured by a deed of trust, an attorney for the lender will foreclose on the defaulted deed of trust.

The process begins when the lender's attorney files the Notice of Election and Demand for foreclosure and the accompanying documents with the public trustee. Within 10 days, these documents must be recorded to initiate the process.

1) The timeline begins at this point, when the notice of default is recorded.
2) Within 10 business days, a notice of default is published and mailed to the appropriate parties.
3) Within 3 months, the sale date is set.
4) Property is sold to the highest bidder at public auction on the sale date.

The borrower has the right to cure, or bring all payments up to date. In most cases, the borrower will not be able to do this and the foreclosure process continues.

Most foreclosures have a list of debtors waiting for payment, and they each have a place in line on the list. By the time a home has gone to foreclosure, it usually means that both first mortgage and second mortgage holders exist, and the total debt on the property is more than the value of the home.

Since the borrowers are almost always "upside down" - they owe more than the home is worth - most foreclosures do not end in a sale. In this case, the more junior lien holders lose out, and the first mortgage holder becomes the owner. Then the property goes back on the market to be sold as "Real Estate Owned" (by the bank).

REO properties are bank owned properties. They are placed on the market and sold in the normal real estate process.

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