In 27 states, banks have the right to bypass the courts and foreclose on a home non-judicially. The non-judicial process is generally faster than a judicial foreclosure because the lender does not need permission to sell. In a non-judicial foreclosure, the bank appoints a third-party trustee to handle the entire foreclosure auction process. The trustee initially named on the deed is often not the one who carries out the foreclosure sale. A trustee can change in foreclosure, but only if the proper procedure is followed.
How It Works
When you purchase a home, ownership is transferred to through a document known as a deed. In non-judicial states, the deed of trust is used to secure the loan rather than a mortgage. The trustee maintains possession of the deed until the loan is satisfied. Once the loan is paid off, the trustee issues a deed of reconveyance that transfers ownership to you. The deed of trust includes a power of sale clause that gives the trustee the right to sell the home if you default on the loan. The trustee arranges the sale and sends the proceeds to the lender.
When a trustee is appointed, a secondary trustee is named in the documents just in case the original trustee is unable or unwilling to carry out the task. The original trustee does not have to step down to be replaced by the substitute trustee. If the secondary trustee needs to step up to the plate, a substitution of trustee must be filed to formalize the change. The substitute trustee must be named before the foreclosure begins and the Notice of Hearing is filed. The substitute trustee generally specializes in foreclosure and is appointed specifically to handle the sale. Although the substitute trustee will generally start the process, there are no restrictions to when a named substitute can take over.
A substitution of trustee document must be completed by the lender and filed at the county recorder's office where the deed of trust is filed. Notices must be sent to anyone with an interest in the trust, including the homeowner. If the home is a rental property, the landlord's tenants must also be notified. Recorded information is public record and can be viewed by anyone who searches the property address.
The original trustee is typically a neutral third party, but sometimes the trustee is replaced with a subsidiary of the foreclosing bank. Some states have laws specifying who can and cannot act as a trustee. For example, in Texas a person appointed as a trustee cannot have any other role aside from selling the property. Debt collectors are excluded from being trustees. If you are facing foreclosure, you may want to contact a HUD-approved foreclosure counselor. These counselors have extensive knowledge of state laws and can advocate on your behalf to help you avoid foreclosure. An attorney can review your loan and foreclosure documents to ensure everything was filed properly. If the Substitution of Trustee form was not filed before the foreclosure commenced, the foreclosure may be declared wrongful. The HUD website (see link in Resources) also provides resources for avoiding foreclosure, including information on legal aid programs.
- MSN Real Estate: Can Foreclosure Trustees be Trusted?
- Maitin Law Firm: Real Property Foreclosure Procedures - Appointment of Substitute Trustee
- Property Radar: Prerequisite - Deed of Trust With Power of Sale
- Clark County Courts: Eviction Following Foreclosure: Obligations of Landlords Facing a Foreclosure Sale
- American Bar Association: The San Francisco Report "Foreclosure in California" - A Crisis of Compliance
- Real Estate Center - Texas A&M University: A Homeowner's Rights Under Foreclosure