There are two types of foreclosures; a judicial foreclosure and a non-judicial foreclosure. Only 13 states including Arizona process non-judicial foreclosures also referred to as a Notice of Trustee Sale. Lenders and Mortgage Companies still retain the right to process a judicial foreclosure but this type of process is more time consuming and costly. We will not discuss the process of a judicial foreclosure in the following information. We will only provide you with the process of a non-judicial foreclosure.
For a Trustee Sale to occur, a homeowner must be 90 days past due on their mortgage payment. On the 91st day the Lender also known as the beneficiary has the legal right to begin foreclosure proceedings. The Lender or Mortgage Company can file a “Notice of Trustee Sale” with the County Recorders Office. Upon recordation, a copy of the notice is delivered to the homeowner or anyone else that has an interest in the property. Arizona Law states that the “Trustee Sale Auction” cannot occur until after the Notice of Trustee Sale is recorded and a period of 90 days has passed.
At any time prior to the Auction, the homeowner has the right to “make good” on their note either by catching up on their past due payments, short selling the home or working out a loan modification with the Lender. If the homeowner has NOT performed one of the above remedies and NOT filed for bankruptcy and the time frames have expired, then the Trustee Sale will be held at an attorney’s office or at the courthouse.
The lender will determine an opening bid or “credit” bid for the property. This bid amount is normally the amount the lender is willing to pay for the property. If the property is not bid on by a third party investor then the property reverts back to the lender or beneficiary. Once the lender has 100% controlling interest in the property it then becomes a “bank owned” home also known as an REO (Real Estate Owned) home.
An investor or what we might call a “third party” (anyone interested in purchasing the property) has a great financial opportunity when buying at a Trustee Sale. There are however some requirements that would keep many of us from bidding on a home at a Trustee Sale. One of the Trustee Sale rules is the investor or third party must have a cashier’s check in the amount of $10,000 payable to the Trustee. If you do not win the bid then your $10,000 is returned to you. If you are the winning bidder you will have to pay the entire purchase price within one business day or you will forfeit your earnest money. So you must have a loan already in place or the cash in the bank.