The Truth on Default and Foreclosure


I did a quick search on the topics and got the past and present threads re the subject. Informative, all, but some particulars were unanswered.

First my situation. I rent from my sister, the owner of the house. She divorced her husband maybe five years ago. She got the house, but since her credit sucked she was saddled with an onerous monthly mortgage payment when she bought the place from her ex. She has had frequent trouble meeting the payments (late and last minute cash payments) and has continuously been trying to get a better rate with no success.

So, fast forward to a couple of weeks ago when a realtor knocked on the door and asked to speak with my sister. I think she was fishing to make a short sale. She had some forms on her clipboard with my property on the top. It had a default filing date listed on it!

I asked my sister about all this and she went on about how she had a great agent arranging a re-fi and that was going well, and at the very worst she could sell the place and buy a cheaper house or condo outright.

So. What’s going on? I went on the San Diego County website and she has defaulted on the mortgage. Can she get ANY equity out at this point or is she just sniffing glue?
The question

It depends from state to state but it’s not exactly an overnight deal; from default to foreclosure can take as long as six months (and at least 60, though will most likely take less than 90 days). California has a statutory right of redemption, which AIUI means that the homeowner can halt foreclosure proceedings by coming up with the past due amount (plus fees) at any point more or less up until the house is sold.

When did they buy the house? Did they refinance and pull more money out of the house as prices went up. Where in San Diego is it? Without knowing the answers to these questions you just don’t know. Realistically I don’t expect you to post details of your sister’s finances here. But I live in San Diego and as such cannot avoid following the news of things. Prices went up a lot pretty quickly. If she bought in 2003 or earlier and did not refinance pulling money out of the rising prices. There might be equity.

I think he’s actually asking whether she can use any potential equity, rather than whether or not she’s got any- ie., can she sell or refinance the home once she’s defaulted on the original note?

They bought the house a while ago, maybe 24 years, but did two re-fis before the divorce. The house is in Encinitas. Except for those two re-fis (one for home improvement, one for debt consolidation) she’d be home free…

I’ve already resigned myself to moving out and I have a couple of nice leads on housing ops. And I’m not worried about my sister’s housing; with her income she can afford a nice apartment no problem. She tends to lie about financial matters so I like to lead her to telling me the truth. I think I just need some information about where she stands. No hard numbers needed, but with a quick sale is she going to get any equity out? I did a light search on quick sales and it seems like most sellers are sacrificing equity for a quick bail-out and preservation of credit.

Whether she will receive any money in a sale of the house depends on three factors: the sale price of the house, the amount she owes on any mortgages on the house, and the costs of the sale (agent commissions, taxes, transfer fees, etc.).

Amount she receives = Sale price - Mortgages owed - Costs of sale

Without those numbers, nobody can tell you whether she will receive any money upon sale of the house. If she has to do a short sale (where the mortgage holders allow her to sell the house for less than she owes them), she will receive nothing. Again, there’s no way to give you any useful answers without knowing the specifics of the circumstances.