It is likely in these troubled times that we will have a resurgence of foreclosures and bankruptcies as folks struggle without jobs and are unable to fully open their businesses. We will soon put out a column on when and how to file for bankruptcy. Today’s column is on foreclosures which I counseled hundreds of homeowners through after the 2009 recession.
California has two kinds of foreclosures: judicial foreclosures, handled through the courts, which are relatively rare; and so-called nonjudicial foreclosures, the type you are familiar with. Today we are talking about nonjudicial foreclosures.
The common scenario is owner buys a residential or commercial property, pays some money down, and signs a Promissory Note to pay the balance over some period of time, let’s say fifteen years, which Promissory Note is secured by a Deed of Trust. A Deed of Trust is a security instrument that allows the lender to foreclose against the property should the owner default on the Note.
If the owner defaults on his/her Promissory Note, the lender prepares a Notice of Default and Election to Sell, serves it by certified mail on the owner and records a copy with the recorder’s office in the county where the property is located. After three months, the lender prepares, serves, publishes in a newspaper of general circulation (for three consecutive weeks), posts, and records a Notice of Sale on the property. The published NOS states where the foreclosure auction will take place and when it will be held. The Sierra Sun usually has a few each week – in the boring section of the paper – next to the Law Review.
Anyone interested in purchasing the property can attend the foreclosure auction and bid, with the highest bidder ultimately receiving what is called a Trustee’s Deed, a deed to the property. Most of the time the lender takes back the property but occasionally there is a third-party bidder if there is enough equity in the property to generate interest.
Even more rare is where bidders on the property bid more than what is owed to the lender which results in Surplus Proceeds. Today’s column identifies who gets the surplus bid money, money bid over the lender’s Deed of Trust lien.
For example, the lender is owed $400,000, and the bidders at the auction bid $500,000 – suggesting the property is worth at least that. Where do the overbid/surplus proceeds $100,000 go?
The Code of Civil Procedure spells it out. The gross sale proceeds from the foreclosure auction are distributed in this order: First, the costs of foreclosure are paid; second, the foreclosing lender’s secured obligation is paid (the loan is paid); third, junior lienors are paid in order of priority; and lastly, any remaining funds, which there seldom are, are given to the owner of the property at the time of the foreclosure sale. That does not happen very often.
I could stop there because that last paragraph is what I wanted to tell you, but the editor will kill me if I do not get into the case’s boring details, so here goes.
On second thought, I will not bore you with the details.
MINOR DEEDS PROPERTY
In the case we are analyzing, part of the issue that created confusion and generated the Court’s Opinion, was that a 10-year-old deeded 25% of the property to his uncle. Well, because he was a minor, the deed was null and void meaning the youngster still owned his percentage of the property.
The point is do not let your minor children sign any deeds because they will be invalid.
So, fans, there you go – two points of law in one column.
Jim Porter is an attorney with Porter Simon licensed in California and Nevada, with offices in Truckee and Tahoe City, California, and Reno, Nevada. Jim’s practice areas include: real estate, development, construction, business, HOA’s, contracts, personal injury, accidents, mediation and other transactional matters. He may be reached at email@example.com or www.portersimon.com. Like us on Facebook. ©2020