Facing foreclosure is bad enough; worrying about your exposure afterwards is worse.
California laws shield homeowners from further collection by a lender who has foreclosed.
Understanding Foreclosure Sales
To understand California’s protections for homeowners, you have to understand how a typical foreclosure sale works.
The deed of trust, given to the lender when a loan is made, grants the lender a lien on the home. If the borrower doesn’t pay as promised, the lender can exercise the power of sale in the deed of trust to conduct a public auction of the home that is security for the loan.
The lender can decide where to start the bidding at the foreclosure sale. While the lender can bid the entire amount that the lender is then owed, the lender can bid less when the property is worth less than the total debt.
So whether because the debt has grown large because it’s been in default for a long time, or whether the value of the house has dropped, the winning bid at a foreclosure sale may well be less than the total debt.
What happens to the difference between what the sale price at auction and the amount owed to the foreclosing creditor? [Read more…]