A trust sale is the involuntary sale of a property by a trustee. In a title theory state, the title to a property remains in trust until full payment of the underlying loan is made.
The document that secures the title is a deed of trust or deed of trust. The trust deed contains a provision called a power of sale clause that allows a trustee to sell the property to satisfy the underlying loan in default.
In the event of default, the trustee is authorized to foreclose and put the property up for auction to sell to the highest bidder. In the event that the property is not sold at auction, the mortgage lender takes title to the property. Small lien holders are stripped of their interest in the property, and any potential claims against the property (such as unpaid subcontractors, etc.) that occurred prior to the fiduciary sale are invalid.
Some states allow a statutory post-sale salvage right, the right of a mortgagor (owner) to recover the mortgaged property from a foreclosure sale or foreclosure by paying the lender the outstanding principal and interest owed, plus the lender’s costs. in foreclosure.
If a homeowner loses their home to foreclosure, the lender can forcibly evict them in as little as 30 days.
The effects of a foreclosure on an individual include the loss of the home and all equity, a serious derogatory impact on the serious credit score that remains for 7 years. It can also affect insurance and employment, especially if the job is safety sensitive.
The foreclosure process:
- The borrower does not make the payments.
- The lender tries to communicate with the borrower.
- The lender sends a Notice of Default (NOD), officially starting the foreclosure process.
- If the borrower does not reinstate the loan, the notice of sale is recorded and published.
- The foreclosure sale (auction, trust sale, bailiff sale) takes place.
- If it is not sold at auction, the property is involuntarily transferred to the lender.
The notice period for non-compliance is 90 days. After the 90 days, a lender can record and post a notice of sale within 10 days of the 90-day period, which means a distressed borrower can lose their home as soon as 100 days from the date. in which you did not make the first mortgage payment.
Mortgage lenders have come to understand that it is more advantageous to work with a distressed homeowner than to A) keep their home through a mortgage modification or B) liquidate the property by completing a short sale. The last resort is for the lender to foreclose on a home through a trust sale; however, if the homeowner is unwilling to pursue foreclosure options, the lender has no other option to seize the asset.