Marsha, I know the Santa Barbara housing market has rebounded in the last few years and the future is rosier than it was in 2009. Knowing this, I was shocked to learn my neighbors’ home in Goleta is being foreclosed on. What exactly does that mean and why would that happen now?
I am truly sorry to hear about your neighbors and their struggles. Yes, the Santa Barbara market is recovering from the dark days between 2008 and 2012 when almost 30% of all sales in South Santa Barbara County were distressed. Distressed homes sales have decreased but they’ll never really go away. So what is a distressed sale? It can take many shapes: a short sale, an REO or divorce, to name a few. Your neighbors are experiencing the most common form, the foreclosure. I’ll explain why it happens.
When you buy a home, you often get a loan, and the mortgage is a promise to pay the loan back, secured by a deed of trust for your home. Three entities are involved in a deed of trust; the borrower (trustor), the lender (beneficiary) and the loan administrator (trustee).
If a borrower fails to make a monthly payment and the lender is unable to resolve the missed payment or payments, the trustee will be instructed to begin foreclosure proceedings. I’ll describe the quickest legal time frame possible for a foreclosure. In practice it’s longer, and can be much, much longer. (Also note there are slightly different time frames for loans made between 2003 and the end of 2007.)
Say a June 1st payment is missed. On July 2nd the trustee will record a Notice of Default (NOD). Three months after the NOD recording, the trustee will record a Notice of Trustee’s Sale and a sale date is set. Twenty days before the sale date, the notice of sale is published, posted on the house and mailed to the borrower. This is sometimes referred to as “nailed and mailed.” During this time period and up to five days before the trustee’s sale, the borrower can reinstate or cure the loan by paying missed payments, interest and penalties. However, once the home is foreclosed the borrower no longer owns the house and it will be sold at a trustee’s sale. These sales are usually held outside the courthouse.
There are many reasons your neighbors may have reached foreclosure. The lender may be finally foreclosing after years of leniency, the low interest loan may have reset and the new rate is too high, or maybe they simply couldn’t pay the mortgage for personal reasons. Remember a foreclosure is not the end of the world and people rebound and are able to purchase homes again. You can consult a real estate attorney for more information on this subject.