When does a Trustee Sale Become a Foreclosure?

[Mike Miller]

When a person defaults on their payments, after a certain period of time if you don't pay it off, the bank just forecloses on you right? But then some people have trustee sales instead? How does that work, the bank gives you the chance to auction it as a trustee sale before foreclosing? 

What brought this up, is a guy I was talking with has been postponing his trustee sale for the past 7 years, living  in the house for free. Everytime it comes up for auction, he manages to postpone it. At what point does the bank say enough is enough, and just foreclose on it? Why would it keep coming up for auction after this long?

[Jeff B.]

A Foreclosure (for non-payment on a note) varies from state to state, but in Calif the process begins with a Notice of Default(NOD) and is 'noticed' by publication.

There are cases when the market is flooded with NTS or the Bank has a large number on their books.  The are NOT REQUIRED to displace the owner until it is sold.  I know of one where the bank sat on the default for a calendar year before proceeding with the foreclosure.

The NODs reoccurs twice every 30 days.  Then the Notice of Trustee Sale(NTS) is publicized and sale to take place in 21 days, typically at the Court House or sometimes the property itself.

Question becomes, "what if there's no accepted bid at the auction?" The property becomes an REO. The home may still be occupied. The bank will assign the property to a broker and start to entertain the "Short Sale Process" which also may take several bids and more time lapses.

[Brett Goldsmith]

A Trustee Sale Dale is the foreclosure auction date. If the auction date goes through then the property will of been foreclosed on. Trustee Sale Dates can be postponed multiple ways. By the beneficiary's discretion, there could be an open modification or short sale reviewing taking place and the mortgage servicer is requesting postponements, the borrower could of filed Bankruptcy, or the occasional shady postponement tactics. 7 Years is on the extremely long end of the spectrum. If there is not a cure to the default ( doesn't seem likely after 7 years ) or some sort of bizarre scenario, this property will likely be foreclosed on at some point in time. 

[Mike Miller]

That's what I saw at the assessors office, he's been served Notice of Defaults over the years, and he's been up for auction many times. 

So the bank does have the power to skip a trustee sale and just foreclose on it instead, or no? And if not, who decides whether he can keep postponing the auction, is that the bank or county? 7 years seems way to gracious for a bank to allow that.

[William Hochstedler]

@Mike Miller

The trustee sale IS the foreclosure.  

Sometimes, foreclosure refers to the whole legal process of the bank taking possession of the property.  This culminates in a trustee sale.

In trust deed states, there is no statutory way a lender can take possession of a property and gain the power of sale except through the foreclosure process.  The lender does not own--nor can it sell--the property until a trustee sale occurs.

Often, the notices of default and the legal process leading up to the trustee sale is called "pre-foreclosure".  This is the state your borrower is in.

Does that make sense? 

[Mike Miller]

Okay so he is in foreclosure. But why doesnt the bank have the power to just forece the auction(trustee sale) to happpen once and for all? 

Is it up to the bank? Because 7 years seems absurd.

[Ron S.]

Originally posted by @Jeff B.:

A Foreclosure (for non-payment on a note) varies from state to state, but in Calif the process begins with a Notice of Default(NOD) and is 'noticed' by publication.

There are cases when the market is flooded with NTS or the Bank has a large number on their books.  The are NOT REQUIRED to displace the owner until it is sold.  I know of one where the bank sat on the default for a calendar year before proceeding with the foreclosure.

The NODs reoccurs twice every 30 days.  Then the Notice of Trustee Sale(NTS) is publicized and sale to take place in 21 days, typically at the Court House or sometimes the property itself.

Question becomes, "what if there's no accepted bid at the auction?" The property becomes an REO. The home may still be occupied. The bank will assign the property to a broker and start to entertain the "Short Sale Process" which also may take several bids and more time lapses.

@J Beard...close but not exactly. There is no such thing as a broker entertaining a short sale once a property becomes REO and, there are no bids once its REO. Once it's REO, it's an offer in the form of a purchase and sale agreement, not a "bid".

[Ron S.]

Originally posted by @Mike Miller:

Okay so he is in foreclosure. But why doesnt the bank have the power to just forece the auction(trustee sale) to happpen once and for all? 

Is it up to the bank? Because 7 years seems absurd.

Well, I suppose you could ask the bank why it's taking so long. Maybe you could ask the borrower. Only the two of them know why. I seriously doubt the validity of a seven year long foreclosure action.

[Jeff B.]

Originally posted by @Ron S.:

Originally posted by @Jeff B.:

A Foreclosure (for non-payment on a note) varies from state to state, but in Calif the process begins with a Notice of Default(NOD) and is 'noticed' by publication.

There are cases when the market is flooded with NTS or the Bank has a large number on their books.  The are NOT REQUIRED to displace the owner until it is sold.  I know of one where the bank sat on the default for a calendar year before proceeding with the foreclosure.

The NODs reoccurs twice every 30 days.  Then the Notice of Trustee Sale(NTS) is publicized and sale to take place in 21 days, typically at the Court House or sometimes the property itself.

Question becomes, "what if there's no accepted bid at the auction?" The property becomes an REO. The home may still be occupied. The bank will assign the property to a broker and start to entertain the "Short Sale Process" which also may take several bids and more time lapses.

@J Beard...close but not exactly. There is no such thing as a broker entertaining a short sale once a property becomes REO and, there are no bids once its REO. Once it's REO, it's an offer in the form of a purchase and sale agreement, not a "bid".

 Sorry friend, we bought a 4/3 in Palm Springs this way so I speak from experience :)

[Ron S.]

"This way"? What exactly is "This way"? You may have done whatever it is that you did but there is no such thing as a "Short Sale" on an REO!!!!! You can call it whatever you want but by definition, there is no loan to "Short sale" on an REO. Once its REO, the loan is gone so again, you may have purchased a bank owned property and you may have had a broker do the purchase on your behalf with the bank but you didn't short sale an REO. You did this one time (Maybe more). I do it one time a day, nationwide, and have done it for over 20 years. I'll take my experience over your 4/3 in Palm Springs any day...friend.

Not to beat a dead horse but it is quite common for a consumer that is not employed in the profession of foreclosing, acquisition of and disposition of foreclosed assets, to mix up industry vernacular and come up with their own conclusion of what it is that they did or want to do, mixing half truths and internet keyword searches on Google. At the end of the day after its all said and done, you still didn't purchase a bank REO as a short sale. You purchased a bank REO using a broker. Your broker submitted an offer to the bank (The owner of the property you wanted to purchase), the bank accepted your offer ("Offer" does not mean "Bid) to purchase the home they owned (with no outstanding loan or lien) and you closed on the transaction.

While I may not be as gentle on the forum as the other professionals on this board, I seriously doubt there will be anyone that's been in the business for more than two weeks to rebut my statement here.

[Matthew Kreitzer]

There is slight misinformation here; Not all Trustee Sales are Foreclosures, while in most states, all (or a significant enough portion of) foreclosures are Trustee Sales (although not necessarily, sometimes you can initiate a sale of a foreclosed property outside of the commissioner of accounts/trustee process). There are other avenues to have the Commissioner of Accounts or some other court appointed Trustee initiate a sale, among them being;

A) Partition Suits

B) Probate cases

C) Bankruptcy Cases

Etc.

Disclaimer: Nothing above is even remotely legal advice. Just basic, educational material.

[Jeff B.]

@Ron S.  Your views have been noted. :grin:

[Ron S.]

Originally posted by @Matthew Kreitzer:

There is slight misinformation here; Not all Trustee Sales are Foreclosures, while in most states, all (or a significant enough portion of) foreclosures are Trustee Sales (although not necessarily, sometimes you can initiate a sale of a foreclosed property outside of the commissioner of accounts/trustee process). There are other avenues to have the Commissioner of Accounts or some other court appointed Trustee initiate a sale, among them being;

A) Partition Suits

B) Probate cases

C) Bankruptcy Cases

Etc.

Disclaimer: Nothing above is even remotely legal advice. Just basic, educational material.

@Matthew, valid points although for purposes of this discussion , I think its safe to assume (yes...I know the danger in that) we are talking about California non judicial foreclosures which will always be a trustee sale and will not involve the courts in any way. Yes, there are a million and one reasons why a court could become involved, it just isn't part of the foreclosure process in California, all things being equal.

[Mark Pedroza]

Originally posted by @Matthew Kreitzer:

There is slight misinformation here; Not all Trustee Sales are Foreclosures, while in most states, all (or a significant enough portion of) foreclosures are Trustee Sales (although not necessarily, sometimes you can initiate a sale of a foreclosed property outside of the commissioner of accounts/trustee process). There are other avenues to have the Commissioner of Accounts or some other court appointed Trustee initiate a sale, among them being;

A) Partition Suits

B) Probate cases

C) Bankruptcy Cases

Etc.

Disclaimer: Nothing above is even remotely legal advice. Just basic, educational material.

To my knowledge, in CA, the court never appoints a trustee to initiate a probate sale/cases.

[Matthew Kreitzer]

Originally posted by @Mark Pedroza:

Originally posted by @Matthew Kreitzer:

There is slight misinformation here; Not all Trustee Sales are Foreclosures, while in most states, all (or a significant enough portion of) foreclosures are Trustee Sales (although not necessarily, sometimes you can initiate a sale of a foreclosed property outside of the commissioner of accounts/trustee process). There are other avenues to have the Commissioner of Accounts or some other court appointed Trustee initiate a sale, among them being;

A) Partition Suits

B) Probate cases

C) Bankruptcy Cases

Etc.

Disclaimer: Nothing above is even remotely legal advice. Just basic, educational material.

To my knowledge, in CA, the court never appoints a trustee to initiate a probate sale/cases.

 I cannot speak personally to California, as I am not licensed in California, but a Trustee Sale typically arises in a Probate scenario if and when there is a contested piece of real estate subject to a Probate Estate. The beneficiaries agree to some kind of "judgment in lieu of receipt of interest" and proceed to have a receiver appointed by the court to sell the property at public auction. I can't imagine such a common law venture is foreclosed in California, but I never know.

Disclaimer: Generally obtainable legal education, not legal advice.

[Rick H.]

@Mark Pedroza Trustee sales made pursuant to court order and confirmation are fairly common. All trust matters are heard in probate court (in CA) so a testimentary trust created via a testator's will or any matter resulting from litigating a trust that ends in an order for sale, not just the administration of Decedent's estate.

However, this thread is about a foreclosure trustee sale, not trust administration.

Most Foreclosures in CA are non-judicial. They are much easier (generally) to complete. The laws concerning the process are contained in Cal Code 2924 a-k. Hard to cite properly using iPad. 

Go to ForeclosureForum for more detailed info (Ward Hanigsn's site),

Remember that foreclosure is merely the forced liquidation of equitable interest in collateral asset. Debtor pledges property, breaches terms, lender forces sale.

This morning I started foreclosure on collateral that is impaired with code enforcement "red tag" of house. I've never used that breach before as a lender. I've been involved in perhaps 5,000 Foreclosures in nearly 40 years in this business but this is rare,

Occasionally, lenders pursue judicial foreclosure in CA despite having the option of non-judicial.  At issue includes more difficulty in  affirmstive noticing (due process) and one year ROR that must be either waited out or affirmatively resolved with stip order. 

Lastly, there are good reasons why non-judicial Foreclosures continue. There may be other matters happening in the background that the lender or services are resolving. There may be a particularly pernicious debtor who has gone "Ruby Ridge" and unable to deal with their problems rationally and detach from a property.

Ultimately, time and Mother Nature will solve any problem that is not resolved by persuasion, courts or non-judicial sale.

[Mike Miller]

So I found out from the homeowner, the way he's managed to do this since 2009, is requesting a loan modification. That's all he provided, and said he's gotten really good at doing it, and it force it to be postponed. 

I stopped by the county assessors office, and when looking at these Notice of Defaults he's gotten over the years, something really strange (at least to me) came up, maybe it's common, not sure. The "unpaid balance" listed on the NOD, has increased each NOD over the past 7 years, even though it's the SAME loan from Washington Mutual he took out in 2007, same loan number. Is this because of penalties? It went from $990K in 2009, to $1.1M in 2012, to $1,556,000 in the most recent NOD of 2016. How can the unpaid amount go up by 50% when the original loan was only for $990k?