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TRUSTEE SALES & FORECLOSURE OVERVIEW
Foreclosure is usually state law specific
Unless it is federal land, the law of the state where the property is located controls the judicial foreclosure or trustee sale process. A trustee’s sale or judicial foreclosure are two of the processes a lender can use when there is a default of the original loan agreement (e.g. not paying the mortgage).
THE FOLLOWING DEALS SOLELY WITH ARIZONA LAW AS IT GOVERNS ARIZONA REAL PROPERTY.
A Trustee’s Sale Guaranty (TSG) Report is ordered from the title company. This report will list parties that may have an interest in this property, including all current liens, encumbrances and judgments.
After receipt of the TSG, all parties that have an interest, either in the original Deed of Trust or have since its recording, have recorded an interest in the Property will receive notice of the Trustee’s sale. This notice is to give ample warning to any parties that have an interest junior to yours that they may lose that interest once the property is sold at Trustee’s Sale.
The Notice of Trustee’s Sale (signed by the trustee and notarized) and Substitution of Trustee (signed by the beneficiary/lender and notarized) are recorded in the County Recorder’s Office; in the county where the property is located.
The property and courthouse are posted with a copy of the Notice of Trustee’s Sale and the same Notice is published for four consecutive weeks in a newspaper of general circulation in the county in which the property is located.
There is continuing contact with the title company to ascertain whether or not the IRS has filed a claim or lien, or whether the Trustor has filed a bankruptcy. Should either of these happen, additional procedures become necessary.If a bankruptcy is filed at any time prior to the completion of the trustee’s sale, the sale must be postponed until the Bankruptcy Court’s order is received lifting the stay against any actions by any creditors of the Trustor. Thus, should this become necessary, there will be additional fees for my representation in Bankruptcy court. See for more information about bankruptcy and trustee’s sale.
The Beneficiary will be contacted approximately one week prior to the sale and asked to prepare a credit bid. This credit bid should include all principal, interest, monies expended to keep any senior lienholder current, taxes, costs and penalties permitted by the Note or Deed of Trust. To the beneficiary’s credit bid the trustee’s and attorney’s fees and costs will be added and this amount is usually the opening bid at the time of sale. That is not always the case. If you are seeking a deficiency then it is imperative that you bid only the fair market value of the property, not the full debt. Talk to your attorney regarding this matter.
It is necessary that the Beneficiary have their credit bid prepared and submitted to the Trustee at least 3 working days before the time of the sale. The Trustee has an obligation to provide that credit bid to anyone who asks no later than 9:00 am the day before the sale. Failure to provide the credit bid within that period will require may require the postponement of the trustee’s sale. A.R.S. Section 33-809(F)
THE SALE: If there are any bidders present, they will be asked to sign in with their name, phone number and address. Each bidder must provide the trustee with a $10,000 deposit (cashier’s check payable to Law Office of D.L. Drain, PA). All $10,000 deposits will be returned to all bidders at the time of the trustee’s sale, with the exception of the successful bidder. The successful bidder must tender to this office, by 5:00 p.m. the day following the date of sale, cash or certified funds for the amount of their bid. If no bidders are present, the Beneficiary will take the property for the amount of the credit bid and the Trustee will then issue a Trustee’s Deed naming the Beneficiary as owner of the property.
Please keep in mind that the bidder at the sale takes the Property subject to any liens that had priority above the Deed of Trust that was foreclosed. Please make sure during the period of the foreclosure that all senior lienholder are kept current, otherwise they will foreclose on their Deed of Trust and eliminate a junior’s interest in the property. Talk to your attorney about this situation.
If, at any time during the sale process, the Trustor requests the amount necessary to reinstate the loan, the Trustee must provide him with this information. This reinstatement figure will be comprised of the amount necessary to bring the account current, all permitted penalties, costs, interest, taxes, insurance and monies paid to keep any senior liens current.To the Beneficiary’s reinstatement quote the Trustee will add all fees and costs, as permitted by the Arizona Revised Statutes, and forward the total to the Trustor.
The permitted trustee fees may be lower than those quoted to the Beneficiary for the processing of the sale if the current unpaid principal is less than $110,000.00.Upon receipt of the reinstatement, the Trustee will record a cancellation of Trustee’s Notice of Sale which will effectively terminate the sale.
The Trustor has the right to reinstate his loan at any time prior to the date of sale, assuming that all fees permitted by the Statutes are paid at the time of reinstatement. Should he default again, we can begin the sale process over as many times as necessary.
The Beneficiary has the right to request that the Trustee postpone or cancel the sale at any time prior to the trustee’s sale. Please keep the Trustee informed should you decide to do so, otherwise the sale will continue as scheduled.
The Arizona Revised Statutes require that the Beneficiary notify the Trustee, in writing, should the property be reinstated, paid off, or other agreement reached regarding the cancellation of the sale. Failure of the Beneficiary to do this could amount to a costly penalty to the Beneficiary, both in time money.
After the trustee’s sale is completed the title will change to the new owner has the right to take control and possession of the house. The occupant (either a tenant* or the old owner) will receive a 5-day notice to vacate. Once that 5-day period expires the new owner has the right to file a forcible entry and detainer action at any time. A forcible entry and detainer complaint will be filed with a court and there will be a hearing, that could be just a few days after the complaint is served. At that hearing the judge will usually give the occupant 5 more days to move out.
If the occupant does not move within that second 5 day period then the Sheriff will come, with a moving van, and have the personal property packed up and moved to a storage unit (not of the owner’s choosing). The owner of the personal property may have to pay the fees associated with that move and storage. Failure to do so may allow the storage company can keep the personal property.
Stealing from the property – Once the trustee’s sale is completed, or perhaps a few days before, remove all property that is special (jewelry, family pictures, etc). I have heard stories of the new owners showing up while the old owners are at work or grocery shopping. The new owners have the locks changed. Meanwhile, someone (could be the new owner, the realtor, the property inspector or a neighbor) steals the valuable personal property. The old owner must not take any items that attached to the walls (cabinets, etc).
On a lighter note – if the new owner is the lender, then they might offer the old owner money to leave, plus give additional time to move “cash for keys”. There is no law on that option. It is something the old owner will need to address with the new owner or the new owner’s realtor.
After a trustee’s sale these are the funds that are left over after the lender’s debt has been paid. For additional information: Excess Sale Proceeds
WHAT IS A JUDICIAL FORECLOSURE (from investopedia.com)
Judicial foreclosure refers to foreclosure proceedings in which a mortgage lacks the power of sale clause, or the state law provides for a choice – trustee’s sale or judicial foreclosure. There are many reasons for both and the lender needs an experienced foreclosure attorney in order to guide them to the best result.
BREAKING DOWN Judicial Foreclosure
Judicial foreclosure refers to foreclosure cases that go through the court system. Foreclosure occurs when a home is sold to pay off an unpaid debt. Many states require foreclosures to be judicial or to be processed through the state court system, but in some states foreclosures can be either non-judicial or judicial.
If the court confirms that the debt is in default, an auction (in Arizona referred to as a Sheriff’s Sale) is held for the sale of the property in order to acquire funds to repay the lender. This differs from non-judicial foreclosures, which are processed without court intervention.
Many states require judicial foreclosure to protect equity the debtor may have in the property. Judicial foreclosure also serves to prevent strategic disclosures by unscrupulous lenders. In instances where the sale of the property through the auction does not generate enough funds to repay the mortgage lender, the former homeowner will still be held liable for the remaining balance.
ARIZONA SPECIFIC –
Once Judgment is obtained in a judicial foreclosure, the Court’s Judgment is sent to the County Sheriff with a Writ of Execution from the Plaintiff. The Sheriff then sets a Sheriff’s Sale. The Sheriff advertises the Sale and the Sheriff’s Sale is held no earlier than 30 days (likely longer) after the Sheriff sets the sale and advertises the property for Sale, after Judgment is obtained./Writ filed. Filing bankruptcy before the date of the Sheriff’s Sale will stop the Sheriff’s Sale from being held.