Party I of IV

Summary:

Understanding trust deeds is a pivotal aspect of the real property borrowing process. It equips you with crucial knowledge about the owner's possessionary interest and the trustee's legal title on behalf of the beneficiaries. This understanding forms the basis of the real property borrowing process and empowers you, giving you a sense of control and confidence. In a trust deed, there are three parties: the trustor (borrower), trustee (neutral third party who holds title), and beneficiary (the lender).

The term assumed is essential. Depending on the type of government structure, the property owner can be burdened with so many regulations that their rights are considered temporary, subject to the whims of the government body. This potential for abuse should be a cause for concern and vigilance, keeping you on guard against blatant overreach of power and ensuring you remain cautious and vigilant in your property ownership.

The legislature has even bestowed upon squatters a bundle of possessory rights in real property in California. This means that someone or a group of individuals can break into private property without permission and claim ownership rights. A body of law assures their possessionary rights, even though it is through adversarial theft. They can live for free for a couple of years, while the property owner must hire lawyers, make the payments, and suffer the consequence of material damage to the property. The criminals live rent-free with the state government's permission while the property owner may be upside down by $150,000. This potential for exploitation of the law should be a cause for alarm and caution, keeping you alert to potential risks.

Article:

Three types of interest in fee-owned real property are equitable, legal, and possessionary.

• Legal refers to the legal title recognized and protected by the laws of the land. The title holder has the authority to control and manage the property, including occupying, hypothecating (borrowing against), transferring the title, and leasing, including maintenance, upkeep, and capital improvements.
• Equitable ownership, or beneficial interest holders, refers to the rights and benefits, including the economic value. This concept is particularly relevant in situations involving a trust. The trustee of the trust holds legal title on behalf of the beneficiaries, while the beneficiaries have the equitable interest. This means that while the trustee holds the legal title, the beneficiaries have the right to use and enjoy the property, and they may receive the financial benefits from the property's use or sale.
• Possessionary interest in real property refers to the right of a party to occupy without owning. The possessor controls the property and enjoys occupancy benefits, but they do not own it. The possessor's rights are spelled out in a rental or lease agreement. However, it's important to note that adverse possession can occur when no written contract or a tenant overstays the lease period, potentially leading to legal complications. This potential risk of adverse possession should keep you cautious and alert, as it can lead to legal complications and loss of property ownership.

Judicial vs. Non-judicial foreclosure:

When a borrower defaults, it may be due to various reasons, including payment arrears, failure to refinance when the loan is due, some form of fraud, or material breaches of the loan documents' covenants.

Understanding these defaults and the foreclosure process is crucial. They can have severe financial implications for both the borrower and the mortgage broker/lender. This knowledge empowers you to navigate these situations confidently and ensures you are prepared and knowledgeable, giving you a sense of control over the process.

Material breaches:

A material breach is a substantial violation of contractual obligations that significantly impact the lender's legal rights

Material breaches may include nonpayments or covenant violations, such as keeping property taxes and insurance coverage current, paying association dues, and performing usual and customary maintenance and upkeep.

https://www.lsd.law/define/material-breach

https://calkinslawfirm.com/material-vs-minor-breach-of-contract/

https://www.gannons.co.uk/insights/breach-of-financial-covenants-in-loan-agreements/

https://www.fredlaw.com/alert-demystifying-the-loan-agreement-a-guide-for-lenders

Foreclosure:

Under ideal circumstances, provided that a borrower does not file for bankruptcy to forestall the foreclosure, the lender will foreclose, take possession of the property, actively manage it, and then resell it to regain the capital investment.

Non-Judicial Foreclosure:

A non-judicial foreclosure is an administrative procedure handled outside the court system by a designated third-party foreclosure trustee. It is a legal statutory procedure by which a lender notifies the borrower of the material breach, takes administrative actions as the state government prescribes, and takes back the collateral property in case of borrower default.

In trust deed states that provide for non-judicial foreclosure, the procedure is completed by a third-party trustee

The non-judicial foreclosure and foreclosure trustees carrying out the power of sale resulted in the court defining such foreclosures as a procedural law, not a state action.  Therefore, the title is not altered and remains with the borrower as the vested owner subject to the three contractual powers provided to the borrower.   See I. E. Associates v. Safeco Title Ins: Co., 39 Cal. 3d 281.

The non-judicial method is much faster and cheaper.

In non-judicial foreclosure states, the foreclosure trustee is responsible for issuing the necessary notices to the defaulting party, such as the Notice of Default and Notice of Trustee Sale. The trustee will handle the foreclosure sale and arrange with a title company to issue a trustee sale guarantee. They also play a crucial role in overseeing the completion of the sale, ensuring that it is carried out without court involvement. The trustee's role is to ensure that the law conducts the foreclosure process and that all parties' rights are protected. This includes ensuring that the sale is conducted fairly and that all legal requirements are met. In essence, the trustee acts as a neutral party who oversees the foreclosure process to ensure it is conducted legally and fairly for all parties involved.

What is the foreclosure process in California?

California is a non-judicial foreclosure state, so the entire process can be handled outside of court.

In California, the foreclosure process begins when a foreclosure trustee, on behalf of the lender, records a Notice of Default (NOD) with the county recorder's office. The recorded NOD becomes an encumbrance on the property and public record. The public is notified of the NOD.

How the process unfolds.

1. The lender contacts the borrower to discuss their financial situation.

2. If the borrower and lender can't agree on a plan, the lender records the notice of default (NOD).

3. The lender mails the borrower a copy of the NOD within 10 business days.

4. The borrower has 90 days to pay the amount owed.

5. If the borrower doesn't pay, the trustee, on behalf of the lender, will file a Notice of Trustee Sale,  then must wait 21 days. 

6. The lender will go to the house steps, announce the default, and start the bidding if any bidders appear. 

7. If bidders show the bidding can proceed; otherwise, the property will revert to the lender 

8. A title insurance carrier will issue a trustee's deed and deed sale guarantee. 

Guide to Foreclosure Laws and Procedures By State - RealtyTrac

https://selfhelp.courts.ca.gov/foreclosures/nonjudicial

https://www.nolo.com/legal-encyclopedia/how-foreclosure-works-30066-2.html

https://www.justia.com/foreclosure/judicial-vs-non-judicial-foreclosure/

https://www.alllaw.com/articles/nolo/foreclosure/nonjudicial-foreclosure.html

Judicial Foreclosure:

Judicial foreclosure requires the lender to file a lawsuit in the court system and tolerate the whims of the judges and government employees, mainly the labor union members. For those with substantial experience, meandering through a government system is frustrating and costly because our objects do not consistently produce fast results nor necessarily follow the law relating to the interpretation of the loan documents. Idiological deviations abound.

Judicial Foreclosure: Navigating a Complex Process with Caution and Preparation

The foreclosure process can be interpreted as a significant pain in the a_s because it is long and drawn out by a committee of public employees who have no sense of urgency and seem to invite every borrower wiggle available to forestall the inevitable.

https://www.investopedia.com/terms/j/judicial_foreclosure.asp

https://www.nolo.com/legal-encyclopedia/how-foreclosure-works-30066.html

Foreclosure Trustees:

Independent foreclosure trustees (agents) play a significant role in foreclosure. They are entrusted with acting on behalf of creditors (beneficiaries) of trust deeds and mortgages to complete foreclosure proceedings.

A foreclosure trustee assumes the role of an agent acting on behalf of the creditors (beneficiaries) of trust deeds and mortgages to complete foreclosure proceedings. If property payments are reinstated and the loan is current, the foreclosing creditor or the defaulting borrowers will pay the trustee a fee for services. States have different statutory foreclosure procedures and methods. The distinction is the judicial process versus the non-judicial foreclosure process.

In non-judicial foreclosure states, the foreclosure trustee is responsible for issuing the necessary notices to the defaulting party, such as the Notice of Default and Notice of Trustee Sale. They also oversee the completion of the sale, a process that can be carried out without court involvement. Once the trustee sale is completed, the creditors will gain title to the property, with a title company issuing a trustee sale guarantee, a form of title insurance.

In judicial foreclosure states, the process is more complex. Creditors must proceed to file a lawsuit in the court of the jurisdiction to force the sale of the property. The judicial foreclosure court method allows for subjective interference and ideological interpretations of a judge regarding issues and events that delay the process. Completing a foreclosure could take years and cost a bundle of money. Many actual property lenders refuse to make loans in judicial foreclosure states, highlighting the need for caution and preparation.

If the collateral is personal rather than real property, the security instrument will likely be a UCC-1 filing with the Secretary of State. The trustee may concurrently foreclose on real and personal property through two rules. Personal property foreclosures are much faster.

The Foreclosure Trustee has three powers:

• Power to notify the borrower of default and file a notice of default and a notice of sale.
• The power of sale
• The power to reconvey the deed of trust when the debt is paid in full

Trustee sale guarantee (TSG):

A title insurer provides a title insurance policy to the lender in a non-judicial process. The effect is that the trustee sale guarantee provides legal notice that the property has been sold under the state's applicable regulations.

Loopholds available to borrowers to circumvent the system:

Regulations continuously create wiggle room, which feeds the court system and lawyers but damages property owners and trust deed investors.

A recent law signed by Governor Newsom in California, AB 3108, became an amendment of Section 4973 of the Financial Code. This law, which focuses on making loans to single-family owners of occupied properties, tightens accusations of fraud by a mortgage broker while simultaneously inviting borrowers and hungry lawyers to sue the lender and mortgage broker for fraud. The broker is subject to guilt by violating the section and may be imprisoned in a county jail for up to 1 year, significantly impacting the foreclosure process.

If a borrower defaults and wants to forestall losing their property, they are invited to file an ex-parte application for court jurisdiction and make claims, including substantive disregard for the kitchen sink. Judges love this stuff and gobble up the stories since most are ideologically driven and blatantly disregard the order of law.

The effect is that there is a transfer from a statutory foreclosure procedure called non-judicial to a judicial process that becomes a long-drawn-out litigation. The borrower may stay in the property for one or two years without payments, and the lender/broker may be forced to spend between $50,000 and $100,000. Of course, this is another example of the prevalent entitlement consciousness today.

A lawyer specializing in real property will be necessary to guide the accused party through the dangerous process of judicial foreclosure and the unexpected side punch of an accusation in an ex-parte motion that the broker created fraud.

This completes Part I.

Part II: I will discuss reasons that constitute a default.

Part III: I will discuss actions possibly taken by a defaulting borrower.

Part IV: I will discuss actions the lender may take to recover their security.