The shortening of the foreclosure period on FHA-insured home loans from 111 days to just 21 may have a catastrophic impact on some homeowners, a San Diego foreclosure reporting service owner said.
A portion of the Single Family Mortgage Foreclosure Act of 1994 that supercedes state civil codes was brought into play last month when a San Diego homeowner was foreclosed out of a Georgia Street condominium 25 days after the notice of default was recorded at the county, said Phyllis Ingram, owner of County Records Service.
The law affects FHA loans made after 1994. The loans are guaranteed by the U.S. Department of Housing and Urban Development.
“Up to now, sales have been held by the trustee of the deed of trust in default,” said Ingram. “HUD now uses a foreclosure commissioner, instead of a trustee and instead of filing two documents as the trustee does 90 days apart, the commissioner files a different instrument , a joint notice of default and notice of sale.”
Under California law, a conventional foreclosure starts when the trustee of the trust deed files a notice of default with the recorder in the county in which a property is located, she said. At least 90 days later, if the loan default is not cured, a notice of trustee’s sale is recorded, setting an auction date not less than 21 days later.
When that 21-day period ends, the trustee can hold an auction and give the successful bidder a deed, wiping out the security for any loans made after the FHA loan was recorded.
Unless there are sufficient proceeds from the auction that are above the amount owed the beneficiary, subsequent lenders and the homeowner receive nothing, Ingram said. The primary way to stop the process is a bankruptcy filing.
A trust deed is a recorded agreement between three parties: the beneficiary who loaned the money; the trustor who borrowed it; and the trustee, a neutral third party appointed to hold the sale in the event of a default, she said.
“Although there have been several HUD fast foreclosure filings in San Bernardino County, San Diego County has experienced only one so far,” Ingraham said. “This has to hurt the homeowner’s ability to resolve his financial problems by selling his home or finding additional financing.”
However, many of the properties foreclosed have been delinquent for several months. That’s an indication the lenders who made the loan or HUD, which insured it, are not in a rush to foreclose, said Steven J. Melmet, a Santa Ana attorney.
He has been the foreclosure commissioner for California for the past year.
“The loans that we have foreclosed have all been delinquent for several months or more,” Melmet said July 13. “These loans have been so severely delinquent the chances are that whether the debtors had a month or four months the outcome would be the same.”
Officials of the Consumer Credit Counseling Service of San Diego and Imperial Counties, a nonprofit debt counseling service, are concerned the short foreclosure period doesn’t allow time for action.
“We feel it is not in the consumer’s best interest, mainly because consumers go through a series of events when they get into foreclosure,” said Maureen Mikelson, director of marketing and external affairs for the service. “They go into shock, then denial and it takes a while to get out of that denial stage and do something.”
FHA loans are a very small percentage of all real estate loans made in the county because of the high housing prices here. The FHA program has a maximum loan amount of approximately $212,000, and are usually made to relatively low-income borrowers, she said.
