What is a Notice of Trustee Sale?
A Notice of Trustee Sale is a recorded document that gives notice of the date, time, and location of an upcoming public auction of real property facing foreclosure.
The Notice of Trustee Sale (or Notice of Trustee’s Sale) is a legal notice delivered by both first-class and certified mail to a borrower (or borrowers) informing them of the foreclosure sale. The Notice of Trustee Sale will indicate the names of the grantor, current beneficiary of the deed of trust, the current trustee, the current mortgage servicer, and the parcel number of the property.
The public auction is referred to as a “Trustee’s Sale” and is typically the final step in the non-judicial foreclosure process. (For states that foreclosure judicially, meaning – through the court system, you will likely not receive a Notice of Trustee Sale).
The Trustee works on behalf of your lender and the beneficiary of your loan. The Trustee legally executes the Trustee Sale. Typically, before the Notice of Trustee’s Sale is issued, the Trustee assigned to your deed at the time of mortgage origination will be replaced by a Substitute Trustee. The Substitute Trustee is normally a local law firm (or company) that specializes in conducting foreclosure sales.
Most states require your lender and Trustee to send pre foreclosure notices preceding the Notice of Trustee’s Sale giving notice that you are in default on your mortgage, have missed payments, and need to take action if you intend to avoid the Trustee Sale.
So, if you have received a Notice of Trustee’s Sale, you need to take this matter seriously if you intend to try to avoid foreclosure.
State law determines how much time you have after you receive your Notice of Trustee’s Sale
Lenders and Trustees must abide by state law when scheduling an auction date. Your state’s laws have rules around how much time can be between the recording of the Notice of Trustee Sale and the actual auction.
For example, in Washington – the Trustee must give a homeowner 120-days after the recording of the Notice of Trustee Sale before they can auction the home. So, homeowners who receive a Notice of Trustee Sale in Washington have four months between the notice and the auction.
Receiving the Notice of Trustee Sale doesn’t necessarily mean you are out of options to avoid the public auction. There may still be some things you can do, but you need to act quickly.
Stop the Trustee Sale by going through your mortgage lender’s loss mitigation process
You may be able to work out a new agreement with your lender to avoid the Trustee Sale and fully resolve the default:
- Use the loan modification process to help you achieve a mortgage modification so you can resume mortgage payments and keep your home. An approved and accepted loan modification will stop your foreclosure. If you have a Fannie Mae, Freddie Mac, FHA, VA or USDA loan, there may be government programs to help you achieve a mortgage modification (to keep the home).
- Complete a reinstatement of the past due amounts in order to bring your loan current and keep the home. A reinstatement is a one-time payment in full of all your missed mortgage payments and any related fees. After you reinstate, you then resume your normal mortgage payments. If you’re trying to reinstate your mortgage after you’ve received a Notice of Trustee sale, make sure you ask the Trustee to provide you a reinstatement quote in writing and payment instructions for how they want you to reinstate the mortgage. Follow their instructions exactly (you may have to send certified funds, depending on what your Trustee wants) and there may be a cutoff deadline depending on your state’s laws. For example, in Washington – you can only reinstate if you are over 11-days away from the auction date.
- Negotiate a new repayment plan with your bank to catch up on mortgage payments and keep the home. A repayment plan allows you to resume your regular mortgage payments with an agreed-upon extra amount on top of your regular payment that goes toward the arrears. Once your repayment plan is complete, you continue with regular mortgage payments.
- Short sell your home or deed it back to the bank (because you owe more than the home is worth), there are ways to apply and negotiate approval for a Deed in Lieu or a Short Sale Agreement with your lender. These agreements will help you stop the Trustee Sale and get out of your home before the auction date.
It is important to understand that loss mitigation options like the ones listed above may resolve the matter but that it’s not a guaranteed solution. If you get denied for one of the options above, the bank may still move forward with the Trustee’s sale.
Or, if you’re applying too close to a Trustee’s Sale, the bank may decline to review your loss mitigation option due to bad timing.
So, if you are considering pursuing one of the options above and have a Notice of Trustee’s Sale, it is always advisable to have an attorney consultation as soon as possible to ensure you make the right decision. If you can’t afford legal advice, check with a housing counselor to see if they can help you stop or delay the foreclosure proceedings.
Avoid the Trustee Sale by completing an equity sale of your property before the foreclosure sale date
If you want to sell your home and recover your equity, you may want to consider selling the property on the real estate market before your foreclosure auction date.
(If you’re considering this, you may want to partner with a distressed sale manager to handle the foreclosure aspect of the sale as these sales often take place on a tight timeline).
Stop the Trustee Sale by using foreclosure defense laws and protections:
- For homeowners in Washington State, you may be eligible for Foreclosure Mediation under the Foreclosure Fairness Act. This is a government-help program designed to stop foreclosure so you can communicate directly with your bank. In Washington, you become eligible for Mediation once you receive your Notice of Default (the document that usually comes before your Notice of Trustee Sale). A Foreclosure Mediation stops the foreclosure activity on the property until the Mediation is complete. You can still be eligible for Mediation even if you get a Notice of Trustee Sale but only for 20-days after the Notice of Trustee Sale was recorded. So, it is imperative that you reach out to an attorney or housing counselor as soon as you get your Notice of Trustee Sale document to take advantage of foreclosure mediation.
- You can sue your bank using the foreclosure litigation process if there is some violation of state law. Or, you may be able to sue your bank under federal regulatory laws like RESPA, TILA, the FDCPA and the CFPB. With that said, you want to make sure that you have a valid legal reason for suing your bank before you do so – suing your bank just to get more time in the home isn’t always the best option.
Use bankruptcy to stop the Trustee Sale
If you’ve run out of time to work with your lender or servicer, you’ve been denied loss mitigation options, are very close to your auction date, or need to stop the foreclosure sale quickly, you may need to consider bankruptcy to stop the auction.
A Chapter 7 or a Chapter 13 Bankruptcy stops foreclosure actions. Once you file Bankruptcy, an ”automatic stay” goes into place which stops the foreclosure. Your mortgage lender can ask the Bankruptcy court to lift the stay (by filing a motion) but even if this happens, you will likely still be able to delay the Trustee Sale for 1-2 months using the Bankruptcy process.
A Chapter 13 Bankruptcy may also help you keep your home long-term by establishing a payment plan that allows you to pay back the missed mortgage payments over a certain amount of time.
A Chapter 7 Bankruptcy doesn’t allow you an opportunity to catch up on mortgage payments or keep the home long-term, so this type of Bankruptcy is mostly beneficial in delaying the Trustee Sale and getting rid of other unsecured debt, not in figuring out a long-term solution.
If you’re considering filing Bankruptcy, the first step is always to have a consultation with a Bankruptcy attorney about your particular situation so you get the best advice.
What happens after the Trustee Sale?
If you do nothing to resolve the matter, on the date listed within the Notice of Trustee Sale, your home will be sold at a public auction to a third party buyer. If no one buys the home, the property will become bank-owned property.
The bank will eventually list it on the open market and sell the home.
Following the auction, regardless of whether a third party buyer purchases the property or whether it goes back to the bank, you will have to vacate the home based on the required timeframe in your state.
In Washington, you have 20-days to vacate a home following a Trustee’s Sale.
If you’re a homeowner in Washington state who has received a Notice of Trustee Sale, feel free to give me a call for a free attorney consultation at (425) 654-1674.