We have assembled some of the questions that we get asked frequently. The answers are not intended as legal advice but provide you guidelines and information about the loan default process.


What is a foreclosure?

“Foreclosure” is a common term used to describe a trustee’s sale proceeding which is the procedure for enforcing a lender’s rights once an obligation secured by a Deed of Trust (or similar security instrument) is in default.

What constitutes a breach or a default?

A breach exits when the borrower fails to make the payments of principal and interest when due pursuant to the note secured by deed of trust.  The breach may also include failure to pay the loan balance upon maturity, failure to make payments to senior lienholders, failure to pay insurance, failure to pay real property taxes, or transferring title to the property without the lender’s approval.

What documents do I need to foreclose?

You will need to provide the trustee with the note and deed of trust, any modification or extension agreements, additional notes and any assignments.  If an original document is lost, it may be necessary to provide a lost instrument bond.  To the extent the collateral includes personal property collateral, you will also need to provide copies of any security agreements and/or UCC-1 Financing Statements.  You also need to provide the trustee with certain essential information, such as the unpaid balance of the note, the date to which the interest is paid, the reason for the default (such as failure to make the payment which became due on a certain date), information regarding any advances you have made, the last known residence or business address of the last known owner, and the property address.  If you are not using the original trustee, a substitution of trustee must be signed and notarized by the beneficiary.

How long does it take to foreclose?

If there are no delays, a foreclosure will be completed in about four months.  After the recording of the NOD, there is a mandatory three-month waiting period before the trustee may publish the notice of trustee’s sale.  Generally the sale will take place four weeks after the pre-publication period has ended.  The date of the sale is influenced by the county where the property is located, the regular schedule of sales for that county and by the frequency of publication of the newspaper in which the trustee is required to publish.  The trustee must also consider the newspaper deadlines for advertising and the time necessary for preparation of the notice of sale and its delivery to the newspaper.  The Notice of Sale must also be posted on the property and a public place at least 20 days prior to the sale.  If the IRS has recorded a federal tax lien at least 30 days before the sale, they require notification at least 25 days before the sale. 

Who pays the foreclosure fee and costs?

If the borrower brings the loan current or pays it off, the borrower is responsible to the lender for reimbursement of the foreclosure fees, costs and expenses.  The lender is obligated to pay the trustee for the foreclosure expenses.  If the property is sold to an outside bidder at the time of the foreclosure auction, the foreclosure expenses will be included in the bid price.  Only when the lender is the successful bidder at the time of the sale will the lender not be able to look to someone else to recover the trustee’s fees and costs.  Hopefully, when the property is resold, the lender can expect to recover the foreclosure expenses.

What is a Declaration of Default?

This document contains the official written authorization from the beneficiary to the trustee.  Most deeds of trust require the beneficiary to furnish the trustee with a Declaration of Default.  It identifies the deed of trust to be foreclosed, states the breach, and instructs the trustee to sell the property to satisfy the indebtedness.

What are the most common delays in the foreclosure process?

♦The most common delay comes from the filing of bankruptcy.

♦A temporary restraining order (TRO) is used to preserve the status quo pending a court hearing for a preliminary injunction.

♦A preliminary injunction issued to preserve the status quo pending a final determination of the action on the merits.

♦The paid-to date  or unpaid balance was incorrect.

♦The last known address was incorrect or incomplete.

What law authorizes foreclosures through a trustee’s power of sale?

There is no law that authorizes a trustee’s non-judicial foreclosure; that power is created by the borrower when he signs that deed of trust, pledging the property as security.  The words used in the deed of trust are “with power of sale”.  There are, however, many laws that regulate the trustee.  See California Civil Code section 2924.

How does bankruptcy of the borrower affect the foreclosure?

The filing of a petition of bankruptcy by the borrower, by a lessee (tenant) who has a recorded lease, or by the beneficiary of a junior deed of trust, immediately stops the foreclosure, with or without notice.  The trustee may not proceed in any way.  The trustee may postpone an already scheduled and noticed sale.  If the trustee conducts a sale after a bankruptcy is filed, but without any knowledge of it, the sale is void or voidable depending on circumstances.  Before the trustee may continue with the foreclosure, the lender must obtain relief from the bankruptcy court.  Relief must terminate the stay against the property of the debtor and the property of the estate in bankruptcy.  Relief as to the debtor is not relief as to the estate.  The trustee’s sale cannot be held within seven days after the expiration of the stay in bankruptcy unless the court order so provides. 

What is the Trustee’s Sale Guarantee report?

The Trustee’s Sale Guarantee (TSG) report provides the foreclosing trustee with the information necessary to process your foreclosure and guarantees the correctness of that information.  It sets forth the record owners and lists all exceptions of record against he secured property.  The TSG provides the names of those who are to receive notices and the name of the newspaper in which the trustee must publish the Notice of Trustee’s Sale.  The TSG is provided by the title company.

When can I refuse reinstatement?

Unless the loan has matured, you may not refuse reinstatement until five business dates before the date set for sale or a postponed sale; after that you may refuse reinstatement.

Who is entitled to reinstate the loan?

The trustor and any junior lienholder of record have the right to reinstate the loan.  The reinstatement amount should be enough to restore the entire loan to its original installment basis and include attorneys fees and costs which were necessary to protect the security, foreclosure fees and costs, late charges and advances.  A partial payment may not cure the default.  Accepting partial payment may invalidate the foreclosure.  If you believe it is in your best interest to accept partial payments, consult your attorney regarding a written agreement between you and the borrower.

What costs may be included in the reinstatement or payoff amount?

Money advanced to protect the lender’s security, other than improvement of the property, are allowable.  For instance, repairing a leaking roof, that would result in damage and decrease the value of the property, would be allowable.  Replacing the whole roof would not be allowable.  The costs of collection letters and advice from an attorney in certain instances now appear allowable.  Additionally, attorney’s fees and costs incurred while defending yourself in court or seeking relief from bankruptcy may be allowable.  Also, there are regularly allowable trustee’s costs for recording, mailing, publishing, posting, trustee’s sale guarantee, and postponement fees.

How long does the publication period last?

After the three-month pre-publication period has ended, a notice of trustee’s sale is prepared and sent to the newspaper for publication.  The first ad must run at least 20 days before the scheduled sale date.  The time between the first ad and the sale date is the publication period.

Must I bid the full indebtedness, plus advances and costs?

No.  It is not required and there may be good reasons not to.  For instance, if you would like to encourage outside bidders, set the opening bid low and credit bid price upward until you reach your total indebtedness.  Another reason that you might want to bid less than the full amount would be to allow a claim to an insurance company for a casualty loss against the property.  If you had bid the full indebtedness, the insurance company would claim that your debt had been fully satisfied.  There may also be some tax consequences to consider.

Is the trustee’s sale conducted orally or by sealed bid?

The sale is conducted verbally.  The trustee will essentially announce that they are offering to sell at public auction to the highest bidder all right, title and interest conveyed to and now held by the described deed of trust.  The sale will be made, but without covenant or warranty, express or implied, regarding title, possession or encumbrances.  After the auctioneer makes an announcement, they will ask if there are any bidders who wish to qualify.  If there are, each must show the auctioneer funds in excess of the opening bid.  A junior lienholder must qualify as any other bidder and cannot use their lien for bidding purposes.  The auctioneer will note the total amount of funds each bidder possesses, so that they know when a bidder is no longer qualified to enter a bid.  If a bidder tries to enter a bid that exceeds their funds, the auctioneer will ask them to re-qualify.  Each bid is an irrevocable bid and replaces the previous bid.  If a bidder reneges, they may be liable to the trustee for damages and subject to criminal prosecution and penalties.  The successful bidder is the one who enters the final bid that is accepted by the auctioneer.

Must I attend the sale and enter my own bid?

Not if you are the Lender. The trustee’s auctioneer will enter your opening bid on your behalf.  However, you may attend the sale and enter your own bid.  If you wish to bid more than your total debt due you, it would be necessary for you to appear at the sale with certified funds to cover any bids you make over the amount of your debt.

Is there a redemption period after the sale?

In a non-judicial sale there is no redemption period for the previous owner or junior lienholders.  The Internal Revenue Service (IRS) has a 120-day right of redemption, if it had a properly recorded notice of a federal tax lien subsequent to your deed of trust.

Who gets the over bid surplus?

Any monies that exceed the foreclosing lender’s total indebtedness, including advances and expenses, will go to junior lienholders of record in the order of priority, and finally to the previous owner of record.  If the trustee has doubts about where the monies should be paid, they should commence an action for interpleader to avoid potential liability.

When is the trustee’s sale complete?

The sale is final upon the auctioneer saying “sold” and the sale is deemed perfected as of 8am on the day of the sale provided the Trustee’s Deed Upon Sale is recorded within 15 days of the actual sale date.