The legal process by which a lender takes back the property from a borrower usually for non-payment of a loan. The lender is usually a bank, but can also be a private party or other type of lender. Lenders may foreclosure judicially or non-judicially. The end result of this legal proceeding is that the borrower loses his home to the bank/lender.
In California, the process can be completed is 111 days. After the 111 days have passed, the lender holds a Trustee sale. At this sale, if no one successfully bids on the home, the property reverts to the lender. (Not all homes foreclosed on by the lender end up being owned by the bank; however, only a small percentage of the time bidders are successful or homeowners reinstate their loans prior to the trustee sale.)
This is the legal document used to commence the foreclosure process. Once a borrower is in arrears for 30 to 60 days, the lender typically records a Notice of Default. This Notice serves to make the borrower aware that the lender is foreclosing on his home. During the foreclosure process, the borrower can reinstate his loan by bringing it current, which stops the foreclosure. Bringing your loan current means paying the bank/lender all interest, principal, property tax, insurance and lender incurred legal fees that are due. (A borrower also can sell the property or file for bankruptcy in order to stall or stop the foreclosure proceedings.)
A short sale occurs when a borrower desires to sell his home, but the proceeds from the sale are not sufficient to cover the amount of debt owed. For instance: Borrower Joe owes $500,000 secured as a first trust deed on his home. The current market value of Joe’s home is $520,000. The costs of selling his home are estimated to be $42,000. If Joe’s home sells for $520,000 and the selling costs of $42,000 are deducted from the sale price, the remainder is $478,000. A short sale occurs when borrower Joe approaches the lender and requests the lender to accept $478,000 in lieu of the $500,000 that is owed. A short sale requires the approval of the lender, considering the lender will be losing money on the sale of the home. Not all borrowers requesting a short sale from the lender are approved. Selling a home as a short sale has many legal and tax consequences and is not always the best option for a borrower in arrears. Other options are available to the borrower in distress, and should be explored before committing to sell the home as a short sale.
This means the bank/lender has completed the foreclosure process, and now owns the property making it part of the bank’s portfolio.
Once the bank has completed the foreclosure process and owns the property, the bank typically elects to sell or liquidate this non performing asset. One way the bank does this is by listing the properties with a Realtor.
In closing, if you are interested in finding properties for sale that are either Short Sale or Bank Owned, click on “Short Sale” or “Bank Owned” on the left hand side of the page. The links are sorted by price range.
This page is intended to give you defintions relating to the foreclosure and short sales. It is not intended to replace the professional legal and tax advice you should seek from your accountant and legal counsel if you are facing foreclosure or attempting to sell your home as a short sale.