If a borrower falls behind on payments on a mortgage loan, documents will be filed at the recorder's office by the lender alerting the borrower that the loan payments are delinquent and the borrower is in danger of defaulting on the loan.
Notice of Default
A notice of default is the first document filed with the recorder’s office by the lender when the borrower is failing to make payments on time. The default usually is not filed until after a loan has been delinquent for 3 months.
The notice of default informs the borrower of the amount owed, and is the first step in a possible foreclosure action on the property.
Notice of Trustee's Sale
A notice of trustee's sale then is filed if the borrower does not make the delinquent payments within 90 days from receiving the notice of default.
The notice of trustee's sale states the loan remains in default, informs the property owner of the amount that is owed, and warns that unless payments are made (or the loan is repaid in full), the property will be sold at a foreclosure auction. The date of the foreclosure auction is listed on the notice.
This notice of trustee’s sale usually is filed a little more than 3 months after the first notice of default is filed, and it must be filed at least 14 days before any foreclosure auction sale occurs.
It's called a trustee's sale because the trustee on the original deed of trust/mortgage loan will conduct the auction, often on the steps of a courthouse.
Finally, a trustee's deed will be filed with the recorder's office if the borrower does not make the payments on the loan and the property is sold in foreclosure at a trustee's auction.
The trustee's deed will list the date the auction sale occurred, who submitted the highest bid and purchased the property, and the amount they paid for it. Frequently the lender will submit the highest bid, and then re-sell the property later.
The proceeds from the sale will first go to the lender to repay the original loan plus interest and penalties. Other creditors also will be paid off, such as another bank that may have made a second loan to the owner of the property.
The remaining money from the sale, if any, will go to the borrower who owned the property.
Rescinding Notices of Default/Trustee's Sale
If at any stage after the filing of a notice of default or notice of trustee's sale on a mortgage loan, and before the actual trustee's auction, a borrower makes the delinquent loan payments, rescissions of the notice of default or the notice of trustee’s sale will be filed with the recorder’s office.
This means the loan is no longer in default, loan payments presumably are now current and the threat of foreclosure has been removed.
So when you see a notice of default or notice of trustee's sale filed against a property owner, be sure to check for these rescissions to make sure a property owner hasn't subsequently cured a default on a loan by making the delinquent payments.