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Article of the Month for November 2004 Printer friendly version

Facts About California's Trustee's Sales

by Ward Hanigan

All Cash Required
The only acceptable bids at a trustee's sale (except for the foreclosing beneficiary's opening bid) are those that can be immediately and fully paid by the bidder with cash or bank checks (preferably cashier's checks) in hand. Therefore bidders must individually "qualify" with the auctioneer before the sale-showing him/her the total amount of money each bidder brought to bid at the sale. Nobody is allowed to bid more than the amount of cash they actually brought to the sale. The bidding is done by a vocal outcry by the bidders themselves.

In some other states junior lienors are allowed to "credit bid" their unpaid balances at the foreclosure sale of a senior lien, but that is NOT the case in California.

No Property Inspection or Title Report
There are no provisions in the foreclosure process to allow a preview of property interiors prior to a trustee's sale. As a rule most experienced bidders expect that the condition of an unseen interior will mirror that of the exterior's. Contrary to popular belief, it's rare for foreclosed owners to trash or purposely damage their lost property out of spite or in anger. Most disrepair is caused by a year or two of neglect, and for the most part, it's more cosmetic than structural.

Since trustees make no title reports available to bidders on upcoming foreclosures it is a case of "buyer beware". Bidders are well advised to do a thorough title search at the county recorder's office, or purchase the equivalent, before they bid on any foreclosure. Forming assumptions or guessing about lien priorities will result in heavy losses from time to time.

Finality of Sale/Sale Effect/Trustee's Deed
There are no grounds for rescinding a valid trustee's sale-all sales are unequivocally FINAL. There are no warranties of any kind (neither expressed nor implied) concerning the property or the state of its title. In fact, there are specific statutory exceptions absolving the trustee from having to comply with any disclosure requirements concerning the condition of title or the property itself!

The effect of a trustee's sale is the absolute extinguishment of the foreclosing lien and any and all junior (later recorded or non-recorded) liens and title interests pertaining to the specific property. A junior lien may continue to exist (especially an involuntary lien) after the trustee's sale-but not against the foreclosed property. Since real property taxes are always the most senior claim against the title to any property they are not wiped out by any foreclosure. But don't confuse property taxes with income taxes. State and federal income tax liens in junior priority are cleared off the title to property by a foreclosing senior lien. This issue is sometimes confusing because the Feds have a "redemption right" for a limited time (120 days) that allows them to buy out the new foreclosure owners for the price they paid for a property and take title to the property for the purpose of selling it themselves for even more money (in order to collect something towards the foreclosed owners' delinquent federal income taxes).

A trustee's deed is the equivalent of a quitclaim deed and as such only purports to transfer whatever title interest the trustee might have had-if any. In addition, successful bidders do not automatically acquire any possessory right to foreclosed property via a trustee's sale. Possession is perfected afterward, usually via a voluntary abandonment or surrender of the premises by the occupants. An eviction lawsuit can be resorted to if they prove to be intransigent and that will usually take about 30 days or so.

Information provided by this website is for informational purposes only and is not a substitute for professional advice. Please consult your investment advisor and/or attorney before entering into any transaction. Read our privacy policy.

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