Part I of IV

The body of law governing real property is vast, encompassing a range of rules and regulations at the local, state, and federal levels. Understanding these laws is not just important, it's crucial. There are distinctions between guaranteed property rights, absolute property rights, possessory rights, and the practical reality of temporary ownership rights. This knowledge will empower you in your property ownership journey.

It's crucial to note the term "temporary." Depending on the type of government structure, the property owner may be subject to numerous regulations that render their rights "temporary," at the discretion of the government body. This potential for abuse should not only be a cause for concern but also a call to action, keeping you on guard against the blatant overreach of power and ensuring you remain cautious and vigilant in your property ownership.

The California legislature has even bestowed a bundle of possessory rights in real property to "squatters." This means that someone or a group of individuals (criminals) can break into private property without permission and claim ownership rights over it. A body of law assures their possessory rights, even though it is through adversarial theft. They can live there for free for a couple of years, while the property owner must hire lawyers, make the payments, and bear the consequences of any 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 not only be a cause for alarm but also a stark reminder to remain alert to potential risks in the real estate market.

Article:

In a trust deed, there are three parties: the trustor (the borrower), the trustee (a neutral third party who holds the title), and the beneficiary (the lender).

Three types of interest in fee-owned real property are legal, equitable, and possessory:

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, as well as maintaining, upkeeping, and making 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.

A possessory 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 rights of the possessor are outlined in a rental or lease agreement. However, it's essential to note that adverse possession can occur when there is no written contract or a tenant overstays the lease period, potentially leading to legal complications. Adverse possession is a legal doctrine that allows a person to claim ownership of a property if they have used it openly, continuously, and exclusively for a specific period, typically 5 to 20 years, depending on the jurisdiction. In simpler terms, if someone uses a property as if it were their own for a long time without the owner objecting, they may be able to claim legal ownership.

Triggering a Default:

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 or lender. This knowledge empowers you to navigate these situations confidently and clearly, ensuring you control the process and feel empowered in your understanding of the foreclosure 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 procedures:

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

Non-Judicial Foreclosure:

In states that allow deeds of trust as a recorded security instrument and that provide for non-judicial foreclosure, a third-party trustee completes the procedure.

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

The non-judicial foreclosure and the foreclosure trustees carrying out the "power of sale" resulted in the court defining such foreclosures as a "procedural law" rather than 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 "panda bear." See I.E. Associates v. Safeco Title Ins. Co., 39 Cal 3d 281.

The non-judicial method is significantly faster and less expensive:

In non-judicial foreclosure states, the foreclosure trustee is responsible for issuing the necessary notices to the defaulting party, including the notice of default and the notice of trustee's sale. The trustee will handle the foreclosure sale and arrange with a title company to issue a trustee's sale guarantee. They also play a crucial role in overseeing the completion of the sale, ensuring that it is carried out without the need for 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. The trustee's role is to ensure that the law is followed in 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.

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 judges and government employees, primarily labor union members. For those with substantial experience, navigating a government system can be frustrating and costly because our objectives do not consistently yield quick results, nor do they necessarily align with the law regarding the interpretation of loan documents. Ideological deviations and biased decisions abound.

Judicial Foreclosure: Navigating a Complex Process with Caution and Preparation

The foreclosure process can be interpreted as a significant pain in the neck because it is lengthy and drawn out by a committee of public employees who seem to lack urgency and appear to invite every borrower's wiggle room, thereby forestalling 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 facilitate the completion of 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 lies between the judicial process and the non-judicial foreclosure process.

In non-judicial foreclosure states, the foreclosure trustee is responsible for issuing the necessary notices to the defaulting party, including the Notice of Default and the 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 can take years and incur substantial costs. Many actual property lenders refuse to make loans in judicial foreclosure states, underscoring the importance of 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 in accordance with the state's applicable regulations.

Loopholes 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 prosecution for violating the section and may be imprisoned in a county jail for up to 1 year, which could significantly impact the foreclosure process.

If a borrower defaults and wants to prevent 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 material and gobble up the stories, as most are ideologically driven and blatantly disregard the rule 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 lengthy and 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 sense of entitlement prevalent today.

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

This completes Part I.

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

Part III: I will discuss actions that a defaulting borrower may take.

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