FORECLOSURE FACTS
There are approximately 1 percent of all mortgages currently in foreclosure. Foreclosure procedure is different in different states, but in the State of California, Foreclosures take place through the power of sale in the Deed of Trust that all borrowers sign when they get a loan. Foreclosure takes approximately 4 1/2 - 5 months from the recording of the Notice of Default. The NOD is recorded after the mortgage is 2-3 months in arrears. A seller can be in their home without making any payments for 8 - 12 months through the foreclosure process. The seller is able to cure the default by paying the loan current and paying the foreclosure fees. If the seller is unable to do this and the property does go to sale then anyone can purchase the property on the courthouse steps. The buyer must pay no less than the amount the lender is owed plus back taxes & fees. It is an auction that takes place so if there are multiple bidders they bid against each other.
Once the final bid is made should the amount that was taken in be more than the lender is owed the seller receives the difference.
The seller will receive a 30 day notice from the lender and they will have to move.
SHORT SALES
Short sales are generally a pre-foreclosure sale, but not always. The Seller is unable to make their payments for any multitude of reasons but cannot sale the house in the typical manner because they owe more than the property will sale for. The Seller may not be in arrears on the loan but was transferred in his job, divorce or any number of reasons. The Seller will contact the bank and get an approval to sale the house for a reduced amount. Once the bank gives approval to market the property as a short sale the property is listed. When a prospective Buyer comes along and makes an offer the Seller has the right to negotiate and then the lending institution must approve, deny or negotiate the purchase price.
The Seller may have to take on the financial liability of the amount the loan is short through a personal loan guarantee. The Seller may not have to take on the responsibility of the Deed of Trust, this is something the Seller should negotiate before the offer comes in.