WHAT YOU SHOULD KNOW ABOUT FORECLOSURE
A Trustee Sale is the non‑judicial process by which a lender or beneficiary can force the sale of the property that is used as collateral on a Note and Deed of Trust when the borrower or Trustor is in breach or default in performance of the contract.
Authority to foreclose is conferred upon the Trustee via the "power of sale" and at the direction of the lender as described in the Arizona Revised Statutes.
The Trustee Sale procedure begins with a Notice of Trustee's Sale being recorded and ends with the public auction approximately 91 days later. The Trustee mails copies of the Notice of Trustee Sale and Breach to all parties with a vested interest in the subject property. The Notice is also published in a newspaper for four consecutive weeks and posted on the property in addition to the county courthouse.
Sixty days after the process begins, the Beneficiary is mailed a credit bid for approval. This credit bid will serve as the opening bid at the auction. The auction is held and the property is sold to the highest bidder. If there are no bidders the property then reverts to the Beneficiary.
Upon full payment of the bid price by the successful bidder, or payment of Trustee's fees by the Beneficiary, a Trustee's Deed Upon Sale is Recorded.
WHEN YOU SHOULD START A TRUSTEE'S SALE
In most promissory notes and deeds of trust the Trustor/borrower agrees to make payments on a specific date. Sometimes a promissory note allows the borrower a grace period before a late charge is assessed. Some deeds of trust contain language that requires a lender give the borrower a thirty (30) day notice of the intent to foreclose.
In a literal interpretation of many deeds of trust, the lender may claim that the Trustor has defaulted when a payment has not been made by the first day after the due date. The lender then directs the Trustee to file a notice of default.
Practically speaking, a court or jury may not look favorably on such fast action unless the action was deemed reasonable or there was just cause, such as an abandoned property or a history of delinquent payments. Consideration should be given to a reasonable period of time passing before notice of default is filed.
STRICT PERFORMANCE
A lender may insist upon the Trustor's strict performance; making payments on the due date. A letter of strict performance should be sent to the Trustor and servicing agent when the Trustor fails to make payments within the terms of the promissory note.
Thereafter the Trustor is expected to comply with all terms and tender payments promptly. Failure of the Trustor to perform in a timely manner may be grounds for default.
TIME IS OF THE ESSENCE AND SETTING PRECEDENCE
By allowing a Trustor to make payments on an irregular basis, the lender is overlooking an important covenant in the deed of trust; time is of the essence. This covenant requires both Trustor and lender to take action immediately on any agreement or performance required in the deed of trust.
Should the lender fail to take action on a timely basis, the Trustor may defend his action of untimely payment. The Trustor may assert that the lender set precedence by accepting previous payments made later than that required in the promissory note. In the event the note has matured and is all due and payable, the Trustor may raise the argument that the lender agreed to an implied modification and extension of the promissory note if the lender has accepted payments beyond the due date or maturity date.
WHEN A TRUSTEE'S SALE MUST BE POSTPONED OR CANCELED
The lender may direct the Trustee to cancel or postpone a sale at any time for most any reason. The Trustee is required to postpone a sale if the Trustor files for protection under any chapter of the Bankruptcy Act. If the required processes of posting and publishing have not been completed, the Trustee sale must be cancelled altogether.
At the time of notification of bankruptcy, the Trustee must postpone the scheduled sale of the property in periods not to exceed ninety (90) days. Minimum periods of postponement may be as little as one (1) hour, however consideration should be given as to purpose, intent and cost of postponement. Once the automatic stay is lifted, the Trustee sale can be held no sooner than the last postponement date.
If a Trustor files for bankruptcy protection under Chapter 13 and a reorganization plan is submitted and confirmed, the Trustee sale must be canceled. Thereafter, if the borrower defaults a new Notice of Default and Notice of Trustee Sale can be recorded.
WHEN TO RETAIN AN ATTORNEY
A Trustee is empowered to foreclose or release a lien on real property as directed by the lender. A Trustee need not be an attorney. Some matters, however, require advice from and action by an attorney, licensed to practice law in Arizona.
Should a Trustor file for bankruptcy protection, the lender should immediately retain an attorney competent in bankruptcy matters to review and respond to plans and pleadings and to advise the Trustee as to postponement dates. Failure to do so could result in repayment agreements unfavorable to the lender.
ATTENDING THE TRUSTEE'S SALE
Most foreclosure auctions last only a few minutes. Since the Beneficiary has given direction to the Trustee to foreclose on the collateral, it is not necessary for the Beneficiary to attend the sale. Prior to the sale, the Beneficiary is provided a credit bid statement which accounts for all amounts due to the Beneficiary. The Trustee establishes the credit bid as the opening or minimum bid to be accepted. The Beneficiary may reduce the credit bid if desired.
All bidding is open and verbal. The highest bidder must deliver good funds to the Trustee by 5:00 p.m. the next business day. Upon acceptance of funds, a Trustee's Deed Upon Sale is prepared and recorded, conveying the property to the highest bidder. All amounts due to the lender or beneficiary are disbursed immediately after receipt of bid proceeds and recording the Trustee's Deed.
OVERBIDDING
Occasionally a lender may want to acquire the property rather than being repaid. In that event, the lender may bid and must tender any amount over the credit or minimum bid.
When such over bids are made, all funds in excess of the minimum bid are disbursed to junior lien holders, by priority of lien, until all lien holders are satisfied. If excess funds remain after payment of junior lien holders or if no junior lien holders exist, the Trustor being foreclosed is entitled to any remaining amounts.
Another option available to the Trustee is to deposit all excess funds with the county treasurer in the county where the property is located and file suit for recovery. The Trustee abandons the suit and the borrower or junior lien holders may ask the court to move in their favor.
DEFICIENCY
In some cases the value of the property being sold at a Trustee's sale is less than the amount due the Beneficiary, including costs and fees. A Beneficiary may attempt to collect and recover any difference between the sale price and the amount owed to the Beneficiary by obtaining a deficiency judgment.
An action for deficiency judgment must be started before ninety (90) days after the Trustee's sale. A deficiency judgment cannot be sustained against properties of 2 1/2 acres or less which are limited to and utilized for either a single one‑family or a single two‑family dwelling.
JUDICIAL FORECLOSURE
A lender of a deed of trust may elect to foreclose a deed of trust other than by Trustee sale. Judicial foreclosure is a process where a judgment is obtained through court action, a law suit. Decisions may be made by a jury trial or summary judgment. When a judgment is awarded the court orders the sheriff to sell the property at a public auction, usually in thirty days. Then, by statute, the Trustor has a six month right of redemption, wherein the Trustor may save the property by paying all principal owed, interest and court costs. The beneficiary is paid in full after the property is redeemed. If however, the Trustor does not redeem the property and if the property is not purchased by a bidder at the sheriff sale, the lender obtains title via a Sheriff's Deed.
WHAT TO DO WHEN YOU GET THE PROPERTY BACK
When the lender acquires the property as a result of a Trustee's sale, the Trustor's equitable and legal rights to the property have been extinguished. If there is an IRS lien attached to the property, there is a required 120 waiting period.
In the event the property is occupied after the Trustee's sale, the lender should consult an attorney to consider action to evict the occupant or enter into a formal rental agreement. The lender may wish to liquidate the property. In this case, the lender should contact a competent real estate broker.
INVESTORS TRUSTEE SERVICES, INC.
Investors Trustee Services is a Trustee sale company that is licensed by the Arizona Department of Real Estate. One of the things that separate us from other Trustee Sale companies is that in most cases, we require no fees up front as many do. Our 90% reinstatement rate is evidence of our commitment to work with borrowers to get them back on track and making timely payments. |