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After at least 3+ months of missed payments, the homeowner will receive a Notice of Default (N.O.D.) and keep receiving it for the next three months. The financially distressed homeowner’s reinstatement period expires. Missing payments give the bank the right to start the foreclosure process. They do so by recording a Notice of Trustee’s (N.O.T.) Sale. The date of the N.O.T. sale cannot be sooner than 21 days after the three months of Notices of Default. Both the NOD and the NOT are available to the public.
Properties from trustee’s sale are either sold through auctions at the county courthouse steps or wholesale to certain loan and/or asset management companies at bargain prices for resale. Anyone may bid but not the designated “trustee”. In setting an auction price, it is customary for the Lender to add up all the distressed homeowner’s missed payments, late-fee penalties, and other fees to the unpaid mortgage balance.
The highest bidder “wins” only if the bid is above the minimum (called “the reserved”) price set by the creditor. The winning bidder receives the Trustee’s Deed upon sale, which contains no warranties as to title, possession, encumbrances, or condition of the property. Hence, a trustee’s sale is a risky way for a naive individual to acquire real estate, because of lack of accurate information about the precise mortgage loan position (1st, 2nd, or 3rd) that is up for bid. Sometimes, the unknowing winning bidder can potentially end up having to pay for the senior lien (i.e., the first mortgage) and/or recently recorded tax liens, even though all junior liens are wiped out–just because they did not know that they were only buying the second mortgage. Some homes have gone into foreclosures repeatedly, each time owned for a brief period by different owners who overpaid.
Payments for properties bought at Trustee’s Sale must be made in cash (e.g., cashier’s check). In contrast, buying REOs or bank-owned properties instead of Trustee’s Sale at the courthouse steps is safer and cash payment is not required. A buyer can obtain financing when buying REOs or bank-owned properties. However, buyers who have to take out a loan to buy REO properties are at a disadvantage compared to all-cash buyers.
