Are you a homeowner or real estate investor in the Bay Area? Either way, if you pay attention to the real estate market, then you have heard about the spike in foreclosures in the Bay Area. There is a lot of speculation as to why this happening, but more importantly, you want to know what happens when there is a foreclosure. If it is you dealing with a foreclosure or a friend or family member, understanding what happens will help you throughout the process or potentially avoid foreclosure altogether.
So, what is a foreclosure, and what happens?
What is a Payment Default?
A payment default is the beginning of a foreclosure process. This is when a borrower misses at least one mortgage payment. If you miss a payment then the lender will receive a letter or phone call. A typical mortgage payment is due on the first of each month and many lenders will offer a grace period that gives you until the 15th of each month.
Lenders can charge a late payment and send a notice notifying you of the missed payment. After two months of missed payments a lender will follow up and at this point, they may still work with you to make arrangements for catching up due to your financial situation. Usually, they will want at least one payment so you don’t fall even further behind. Once a borrower is 3 months late making their payments, then a lender will send a demand letter stating your delinquency and that you have 30 days to make your mortgage current. In this case, you can return to good standing, be modified into a repayment plan, or your property is repossessed and sold through a foreclosure or voluntary surrender by the borrower.
What is a Notice of Default?
A notice of default is a letter sent after the fourth month of missed payments which means you are 90 days past due. This gives the borrower 30 days to remedy all past-due payments before the lender starts the foreclosure process. A majority of lenders will not send this notice unless you are 90 days past due. This means that often a lender can fall behind a month or two and remedy the situation before receiving a notice of default. A lender cannot start a foreclosure process until the borrower is more than 120 days past due.
What is a Notice of Trustee’s Sale?
The foreclosure process is initiated differently from state to state. Some states are nonjudicial foreclosures and they only require filing paperwork. This process can move quickly. Other states have judicial foreclosures and these require court approval for each step. These can take longer. Once the property is recorded with a notice of trustee sale, the lender will have to advertise the property before the auction takes place.
What is a Trustee’s Sale?
A trustee sale is when a property is placed for public auction and is awarded to the highest bidder who meets all of the requirements. The opening bid is typically calculated based on the value of the outstanding loan with any leins or unpaid taxes associated with the sale. When a foreclosed home is purchased it is up to the new buyer whether or not the new owners can stay in the previous home and for how long. The new owner is entitled to immediate occupancy.
What does it mean when the property is Real Estate Owned (REO)?
Real estate-owned property is when a lender sets a minimum bid by taking into account the appraised value of the property, the remaining mortgage amount, and any other liens or attorney fees. If the property doesn’t sell during the auction then the lender will become the owner and then work to sell the property through a broker with an REO manager. These are the properties referred to as “bank-owned”.
What is an Eviction?
When an auction ends then the new owner of the property is named or the bank becomes the owner. This means that the borrowers are issued an eviction notice if they are still living in the property. They will be given demands to vacate the property immediately. They may be given several days for sufficient time to leave and remove belongings.
What is happening with foreclosures in the Bay Area?
Foreclosures in the Bay Area have jumped up drastically. However, the fillings of foreclosures are still below pre-pandemic levels and the national average. Many real estate experts say that the spike is due to a return to a normal housing market rather than an oncoming housing crash. This opinion is dependent on who you are talking to, but one thing for certain is foreclosures are likely to continue in the coming months.
Purchasing a home is an exciting process and a big decision. The goal in the process is to find a home that fits your budget and criteria to avoid a potential foreclosure. Whatever your circumstance is, we are here to help with all of your real estate needs. Contact us for all of your investing in buying and selling real estate in the Bay Area.