The foreclosure process is important to understand if you opt to invest as an individual investor on a note, fractionalized or solo. If you invest in the mortgage pool, you have no direct responsibility for any foreclosure costs. All risks and fees are absorbed by the pool. Pool investors have no responsibility for direct costs.

A note is the promise to repay a debt. The deed of trust is the security instrument recorded against the property. A non-judicial foreclosure is the means by which an investor can effect the return of their principle for breach of the note.

The Notice of Default (NOD) starts the non-judicial foreclosure process. The lender forwards a Declaration of Default and an Instruction to the Trustee to proceed with the NOD, the Trustee will sign and cause to be recorded the NOD in the Office of the County Recorder of the appropriate county.

A copy of the NOD is mailed to all parties entitled to its receipt. The Trustee will order a Trustee's Sale Guarantee (TSG) from a title company. The TSG assures the priority of each lien or encumbrance recorded against the property and provides the mailing information for the parties entitled to receive the NOD.

The Three (3) Month Reinstatement Period. This is the minimum period, required by law, in California, to wait before a Notice of Sale can be published and recorded. Throughout the foreclosure process, up until five (5) days prior to the Trustee's Sale date, or postponed sale date, the borrower can fully reinstate the loan.

The lender may endeavor to negotiate workout and forbearance agreements.

The Notice of Trustee's Sale - 21 Day Publication Period. No sooner than three (3) months from the recording date of the NOD, a Notice of Trustee's Sale, indicating the place, date and time of the sale, must be published in a local newspaper.

Twenty-one (21) days thereafter the property may be eligible to be sold at public auction to the highest bidder.

The borrower has the right to reinstate the loan up until five (5) days prior to the published sale date, or postponed sale date. In the event the NOD was filed due to a balloon payment and/or maturity date, the lender(s) may require the loan be paid in full at any time during the foreclosure. Otherwise, in the five (5) days preceding the sale or postponed sale, the lender(s) may accept reinstatement, or require that the loan be paid in full.

The Trustee's Sale. The Notice of Trustee's Sale will designate the date, time and location of the auction. The property is typically sold along with other properties auctioned by the Trustee.

Bidding

Full Credit Bidding. The lender(s)' opening bid for the property (also known as the "Credit Bid") may be the total amount due on the loan, including principal, accrued interest to the date of the sale, late charges, legal fees, foreclosure fees, advances, interest on advances, etc. (referred to as a full credit bid).

Under Bidding. The opening bid requested by the lender(s) may be less than the total amount due. These circumstances may require the advice of an attorney, an accountant or other professional. Specific bidding instructions to the Trustee are required if under bidding is elected by the lender(s).

Bidding Instructions. While full credit bidding may not be appropriate, unless otherwise instructed in writing, no later than three (3) days prior to the sale date, or postponed sale date, the lender will direct the Trustee to proceed with a bid usually in the amount of the unpaid principal balance of the loan, directing the Trustee to increase the Lenders' bid to the unpaid debt if a third party is bidding at the sale.

The property is sold to the highest bidder. If no one bids at the sale, the property is sold to the foreclosing lender(s) for the opening bid, whatever it may be. The Trustee conveys title by signing and recording a Trustee's Deed Upon Sale.