1. The Notice of Default (NOD) starts the non-judicial foreclosure process. The lender forwards a Declaration of Default and an Instruction to the Trustee to proceed with the NOD, the Trustee will sign and cause to be recorded the NOD in the Office of the County Recorder of the appropriate county.
A copy of the NOD is mailed to all parties entitled to its receipt. The Trustee will order a Trustee's Sale Guarantee (TSG) from a title company. The TSG assures the priority of each lien or encumbrance recorded against the property and provides the mailing information for the parties entitled to receive the NOD.
2. The Three (3) Month Reinstatement Period. This is the minimum period, required by law, in California, to wait before a Notice of Sale can be published and recorded. Throughout the foreclosure process, up until five (5) days prior to the Trustee’s Sale date, or postponed sale date, the borrower can fully reinstate the loan.
The lender may endeavor to negotiate workout and forbearance agreements.
3. The Notice of Trustee's Sale - 21 Day Publication Period. No sooner than three (3) months from the recording date of the NOD, a Notice of Trustee's Sale, indicating the place, date and time of the sale, must be published in a local newspaper.
Twenty-one (21) days thereafter the property may be eligible to be sold at public auction to the highest bidder.
The borrower has the right to reinstate the loan up until five (5) days prior to the published sale date, or postponed sale date. In the event the NOD was filed due to a balloon payment and/or maturity date, the lender(s) may require the loan be paid in full at any time during the foreclosure. Otherwise, in the five (5) days preceding the sale or postponed sale, the lender(s) may accept reinstatement, or require that the loan be paid in full.
4. The Trustee's Sale. The Notice of Trustee's Sale will designate the date, time and location of the auction. The property is typically sold along with other properties auctioned by the Trustee.
A. Bidding.
Full Credit Bidding. The lender(s)’ opening bid for the property (also known as the “Credit Bid”) may be the total amount due on the loan, including principal, accrued interest to the date of the sale, late charges, legal fees, foreclosure fees, advances, interest on advances, etc. (referred to as a full credit bid).
Under Bidding. The opening bid requested by the lender(s) may be less than the total amount due. These circumstances may require the advice of an attorney, an accountant or other professional. Specific bidding instructions to the Trustee are required if under bidding is elected by the lender(s).
Bidding Instructions. While full credit bidding may not be appropriate, unless otherwise instructed in writing, no later than three (3) days prior to the sale date, or postponed sale date, the lender will direct the Trustee to proceed with a bid usually in the amount of the unpaid principal balance of the loan, directing the Trustee to increase the Lenders’ bid to the unpaid debt if a third party is bidding at the sale.
The property is sold to the highest bidder. If no one bids at the sale, the property is sold to the foreclosing lender(s) for the opening bid, whatever it may be. The Trustee conveys title by signing and recording a Trustee's Deed Upon Sale.
QUESTIONS AND ANSWERS
When Can a Lender Foreclose? To exercise a non-judicial foreclosure against a borrower's property, the lender(s) must follow certain statutory
procedures set forth in the Civil Code. A lender can begin a non-judicial foreclosure (without proceeding with a lawsuit to foreclose) when a borrower defaults under the terms, covenants and conditions contained in the Note and/or Deed of Trust. Most often a non-judicial foreclosure is begun because a borrower has not paid one or more of his/her/their regular installment payments.
How can a Lender Try to Collect from the Borrower? The Lender may begin following up with borrowers if their payments are not received within the normal 10 day grace period.
The first contact is attempted by telephone with a follow up letter. If the borrower fails to respond to both telephone and/or written notice of the late payment, a letter is written letting them know of the Lenders intention to foreclose.
What are the Costs Associated with a Foreclosure?. The Lender may use a specialist company to provide foreclosure services, from filing the NOD through conducting the Trustee’s Sale.
Acting as the Trustee, the company can charges fees as allowed by law. In addition, the Trustee passes along their mailing, posting, recording and other related costs and expenses of the foreclosure. The Trustee purchases a Trustee's Sale Guarantee, described above, from a title company. Required publication of the Notice of Sale in newspapers or other publications local to the property result in additional costs and expenses. Depending upon where the property is located and the length of the legal description of the property, the publishing and posting fees vary.
Who Pays For the Foreclosure? If the borrower reinstates the loan, or enters into a Forbearance Agreement, the foreclosure fees, costs and expenses are collected from the borrower. The lender(s) is/are otherwise responsible for the payment of all foreclosure fees, costs and expenses.
Mortgage payments are paid in arrears, that is, behind. Take a sample
mortgage with an original balance of $100,000, 10 % interest, 180 months. The
monthly payments are $1,074.61.
After 60 months the principal balance is
$81,316.29 on the day the 60th payment is made. From that day forward the
interest accrues till the next payment date. The daily, or per diem, rate is the
current principal times the interest rate divided by 365. In this case
$81,316.29 X 10% / 365 = $22.28 per day.
If the mortgage is paid off 10 days
after the last payment due date then the payoff would be $81,316.29 + 10 X
$22.28 = $81,539.09
What rights does the second mortgage holder have with respect to a first mortgage holder?
It may be that the first mortgage holder will permit the second mortgage holder to continue making paying on the first mortgage after the second mortgage holder has foreclosed the second mortgage and taken title to the property. They may even permit the second mortgage holder to make the payments while the second mortgage holder is foreclosing the second mortgage. And most institutional lenders just want to get paid, not have another REO on their books. But they may not be required to do so.
Here are two contrasting cases:
In Barnes V Resolution Trust Corporation 664 So 2nd 1171 (4th district 1995) the second mortgagee (lender) began making payments on the first mortgage after the second mortgagee had foreclosed on the second mortgage. Thereafter the first mortgagee sought to foreclose on the first mortgage. The second mortgagee argued that acceptance of installment payments by the first mortgagee from the second mortgagee estopped the first mortgagee from acceleration and foreclosure.
The Court disagreed and stated that "by terms of the mortgage, the first mortgage holder had a contractual right to foreclose when mortgagors (borrowers) defaulted. The first mortgage holder was not obligated to second mortgagees as they were not parties to the first mortgage, nor did they ever assume the first mortgage and there was no evidence that the first mortgagee...induced second mortgagee to continue making payments to satisfy first mortgage.
Also in Travers v Tilton 134 So 2d 807 (2nd DCA 1961), which suggests that to constitute estoppel, the mortgage holder must engage in conduct which intends, or reasonably calculates, to mislead to the detriment of the party asserting an estoppel.
The lenders under the first mortgage now sought to foreclose their mortgage on the grounds that this foreclosure sale triggered the "due on sale" clause of the first mortgage.
The trial court and the North Carolina Court of Appeals held this was NOT the case and that the mortgage was NOT foreclosable.
IN RE REUPP
In the Matter of the Foreclosure of the Deed of Trust of
FERDINAND RUEPP and BILLIE LEE RUEPP, Grantors, TO LARRY W. BYRD, Trustee, as
recorded in Book 4230 at Page 48 of the Mecklenburg Public Registry. See
Appointment of Substitute Trustee as recorded in Book 4663 at Page 895 of the
Mecklenburg Public Registry
No. 8326SC1187
COURT OF
APPEALS OF NORTH CAROLINA
71 N.C. App. 146; 321 S.E.2d 517; 1984 N.C.
App. LEXIS 3806
August 30, 1984, Heard in the Court of Appeals
November 6, 1984, Filed
PRIOR HISTORY: [***1] Appeal by Petitioner, Columbus Mutual Life Insurance Company, from Saunders, Judge. Judgment entered 15 August 1983 in Superior Court, Mecklenburg County.
DISPOSITION: Affirmed.
COUNSEL: Manning, Fulton and Skinner, by Charles L. Fulton, and E. Fred McPhail, for Columbus Mutual Life Insurance Company, petitioner-appellant. Kenneth W. Parsons, for Gary H. Watts Realty Company, respondent-appellee.
JUDGES: Sidney S. Eagles, Jr., Judge, wrote the opinion. Judges
Gerald Arnold [***6] and Willis P. Whichard concur.
OPINION BY:
EAGLES
OPINION:
[*148] [**519] This appeal raises an issue of first
impression: Whether the foreclosure of a subordinate deed of trust activates the
due on [*149] sale clause of the standard FNMA/FHLMC Uniform Instrument. We
hold that it does not.
I
Petitioner first assigns as error the trial court`s conclusion of law that petitioner elected to use the FNMA/FHLMC standard instrument as the original deed of trust and that petitioner thereby impliedly waived the acceleration provisions of paragraph 17. We find no error.
Petitioner argues that there was no evidence before the trial court upon which it could conclude that petitioner elected to use the FNMA/FHLMC standard instrument as the original deed of trust. The only evidence presented at the trial de novo was contained in the stipulations which make no reference to the manner in which the language of the original deed of trust was agreed upon, nor to the manner in which the printed form used was selected. We note, however, that the trial court is always permitted to incorporate matters of such common knowledge that they are subject to "judicial notice." See, generally, [***7] 1 Stansbury, North Carolina Evidence, Section 11 (Brandis Ed. 1982). It is common knowledge that institutional lenders customarily dictate the form and language of the loan documentation to be used. Further, even if the conclusion was error, the error was harmless and petitioner has shown no prejudice.
II
Petitioner next assigns as error the trial court`s refusal to conclude that an event of default existed under the original deed of trust, and that petitioner was entitled to accelerate the payment due. We find no error.
We agree that this assignment of error appears to present an issue of first impression in North Carolina: Whether the foreclosure of a subordinate deed of trust and the resulting conveyance to a party other than the original borrower amounts to a sale of "all or any part of the property or an interest therein ... by Borrower without Lender`s prior written Consent" so as to constitute default under the senior deed of trust containing the FNMA/FHLMC due on sale clause. We hold that such a foreclosure is not a default under the FNMA/FHLMC due on sale clause.
[*150] Our appellate courts have upheld due on sale clauses containing acceleration provisions. [***8] Crockett v. Savings & Loan Assoc., 289 N.C. 620, 224 S.E. 2d 580 (1976); In Re Foreclosure of Bonder, 306 N.C. 451, 293 S.E. 2d 798 (1982); and In Re Foreclosure of Taylor, 60 N.C. App. 134, 298 S.E. 2d 163 (1982). None of these cases address the narrow issue now before us.
An examination of the due on sale clause in question shows on its face that the type of subordinate lien foreclosed on in the instant case is expressly permitted. We think that where a subordinate lien is expressly permitted, the lender should reasonably anticipate that the borrower could default and the second lien could be foreclosed upon. Where a subordinate lien is expressly allowed, the trial court was correct in concluding as a matter of law that the lender impliedly waived the acceleration provisions of paragraph 17 upon the later exercise of the power of sale contained in the subordinate, second deed of trust. Petitioner, as assignee of the lender, is bound by the express terms of the instruments.
We note that the sale was not by the borrower. The sale and conveyance was ordered by the Assistant Clerk of Superior Court, Mecklenburg County and carried out by the substitute trustee. [***9]
We hold that the conveyance of the real property in question pursuant to the power of sale in the second deed of trust does not constitute an event of default under the terms of the FNMA/FHLMC due on sale clause contained in the original deed of trust sought to be foreclosed herein and does not entitle the petitioner to [**520] accelerate payment of the outstanding balance. The order of the Superior Court is affirmed. Petitioner`s other assignments of error are without merit.
Affirmed.
Please note that these cases may not apply in your part of the country. The above is not intended to constitute legal advice. Please ensure you check your case with a qualified local professional.