Foreclosing On Land
I’m selling a bare home site lot with no structures on it. A few prospects have asked for an OWC deal. I have no problem with that, but in the event I need to foreclose on a piece of bare land I sold which the buyer might now have built a house on at some point, is the foreclosure procedure the same as when you just sell a house with owner financing?
Basically yes.
[addsig]
So if they've built, and live in, a $500,000.00 house on the bare lot they bought from me a year ago, I would be able to foreclose on the land and whatever they have built on it?
My point is the buyers mortgage. I assume no bank will give a construction loan to build on financed land.
Question: So if they've built, and live in, a $500,000.00 house on the bare lot they bought from me a year ago, I would be able to foreclose on the land and whatever they have built on it?
Answer: Yes that is correct but in accordance to a proper California foreclosure proceeding as outlined below.
Depending upon the method of foreclosure, the nature of the loan, the circumstances of origination, and the value of the Property, you may or may not be able to recover your entire investment.
In California, lenders may foreclose on deeds of trusts or mortgages in default using either a judicial or nonjudicial foreclosure process and covers 2 Primary Security Instruments a Deed of Trust or Mortgage.
Right of Redemption can vary.
The judicial process of foreclosure, which involves filing a lawsuit to obtain a court order to foreclose, is used when no power of sale is present in the mortgage or deed of trust. Generally, after the court declares a foreclosure, your property will be auctioned off to the highest bidder.
Using this type of foreclosure process, lenders may seek a deficiency judgment and under certain circumstances, the borrower may have up to one (1) year to redeem the property.
The Nonjudicial process of foreclosure is used when a power of sale clause exists in a mortgage or deed of trust. A "power of sale" clause is the clause in a deed of trust or mortgage, in which the borrower preauthorizes the sale of property to pay off the balance on a loan in the event of the their default. In deeds of trust or mortgages where a power of sale exists, the power given to the lender to sell the property may be executed by the lender or their representative, typically referred to as the trustee.
Power of Sale Foreclosure can occur if the deed of trust or mortgage contains a power of sale clause and specifies the time, place and terms of sale, and then the specified procedure must be followed.
After the sale auction is completed and if the property sells to a third party bidder, all funds owed to the lender/beneficiary will be prepared for immediate payout. If the property reverts to the lender/beneficiary at the sale, a Trustee's Deed upon Sale will be issued and the lender will have ownership to the property securing the debt.
Your statement: My point is the buyers mortgage. I assume no bank will give a construction loan to build on financed land.
This is basically correct unless you as the O.F. holder agrees to take a 2nd position in your security instrument.
The borrower’s equity is not the same as the protective equity. The borrower’s equity is the difference between the market value of the Property and the total indebtedness secured by the Property. The protective equity is the difference between the market value of the Property and the total indebtedness of loans senior to your loan and your loan, but does not include loans junior to your loan.
When foreclosing a deed of trust, all sums owing and secured by the deed of trust are accelerated and immediately become due regardless of the maturity date identified in the promissory note, provided that an acceleration clause is included in the promissory note and/or deed of trust. Two methods are used to foreclose deeds of trust: judicial foreclosure and non-judicial foreclosure.
When the beneficiary files a lawsuit against the trustor in a local superior court to judicially foreclose, the Property, unless the default is remedied (cured), will be ordered sold at a publicly held sale supervised by the court. The judicial action to foreclose is often more costly and will typically take more time to complete than the second method, which is a privately held public sale (non-judicial foreclosure).
I would suggest a "deed in lieu" of foreclosure clause in your agreement to finance because if properly executed and delivered "deed in lieu," with consideration and when accepted by you, will transfer title of the Property to you without going through a foreclosure.
The homeowner could seek the protection of an automatic stay (a prohibition against any further foreclosure action) by filing a petition in bankruptcy in federal court or bringing an action in state court to restrain the non-judicial foreclosure sale (Temporary Restraining Order).
I would a review of California civil code at: http://www.leginfo.ca.gov/cgi-bin/calawquery?codesection=civ&codebody=&hits=20
The answer to all your questions will be found in your contract that articulates the due date and your remedy in the event of default.
[addsig]
Thanks for all the detail. This property in in Nevada, however, where evictions and foreclosures are far simpler than Cal.