MLO Mentor is an ongoing series covering compliance best practices for Mortgage Loan Originators (MLOs). This article deals with the Notice of Defect (NOD) and Trustee Notice of Sale (NOTS).
Notice of Default and Election to Sell
When ordering a trustee sale security from a title insurance company, the trustee will instruct the title company to record the NOD at the county recorder’s office in the county where the Property. [CC §2924(a)(1)]
The NOD contains statutory statements that set out the monetary default on the note or other obligation secured by the mortgage. [CC §2924c(b)(1)]
The monetary default declaration informs the owner:
- they must continue to pay other obligations required of them by the mortgage, such as risk insurance premiums and property taxes; and
- if they do not make future payments on the defaulted bonds, the owner is obligated to make the payments to reinstate the loan.
The NOD does not need to indicate the actual amounts of monetary defaults on recurring obligations. However, the NOD must indicate the nature of the current defaults on the mortgage. [CC §2924c(a)(1)(B)]
A summary of the NOD must be attached to the NOD. [See RPI Form 471-1]
Additionally, if the Mortgage was originally negotiated in one of the five languages other than English, the summary must be provided in that language. These languages are:
- Chinese;
- Korean;
- Spanish;
- Tagalog; Where
- [CC §2923.3; see RPI Form 474-1 through 474-6]
In order to determine the amount necessary to remedy the defect, the NOD orders the owner wishing to re-establish the mortgage or redeem the property to contact the trustee. Thus, the trustee insulates the mortgagee from any direct contact with the owner or junior mortgagee after the date of registration of the ADI until it is canceled or a sale by the trustee occurs.
If the NOD does not list a known default of the mortgage holder at the time of registration, the unnamed default does not need to be corrected for the loan to be reinstated. [In re Peters (9th Cir. BAP 1995) 184 BR 799]
However, the mortgage holder can later file a separate NOD to notice the omitted defect and pursue a separate foreclosure based on the omitted defect. [CC §2924(e)]
Deliver the NOD
In ten working days after registering a NOD, two copies of the NOD are mailed to:
- the owner of the property;
- the administrator of the estate of a deceased owner; and
- each person who registered a request to receive a copy of the ADI. [Estate of Yates West End Financial Corporation, Inc. (1994) 25 CA4th 511; CC §2924b(b)(1)]
One copy of the NOD is sent by registered or certified mail, the other copy is sent by first class mail. [CC §2924b(b)(1), (e)]
In a month after registration of the NOD, the trustee sends a copy of the NOD by registered or certified mail and another copy by priority mail to the holders of a registered interest in the mortgaged property, including:
- the beneficiary of the owner;
- any junior mortgagee;
- the assignee of a junior mortgage;
- a buyer on a contract for the sale of land;
- a tenant on a lease; and
- the state comptroller’s office, if a Notice of Lien for Deferred Property Taxes is registered against the property. [CC §2924b(c)]
Anyone else interested in obtaining a copy of the ADI registers a NOD request. The NOD request assures the interested party that he will be notified of the defect. [See RPI Form 412]
A trustee or person filing the NOD in the mail to give notice to others prepares proof of service and includes a copy of the form with the NOD in each mailing. [CC §2924b(e)]
The notice of sale by the trustee
A trustee or mortgagee can start noticing the date set for the sale of a property the next day three months later the NOD is registered. [CC §2924(a)(3)]
The date of the sale can be set for any working day, Monday to Friday, between 9:00 a.m. and 5:00 p.m. [CC §2924g(a)]
In general medicine, a appointment of the trustee’s sale guarantee issued to the trustee is ordered from the title company on the day before or on the day the title company registers the NOTS.
The appointment notify the trustee of any registered interest in the title deed after the registration of the ADI. However, the trustee is not required to give notice of the impending trustee sale to anyone who has registered an interest in the property after the registration of the ADI. [CC §2924b(c)(1)]
The trustee prepares a NOTS which contains:
- the name of the trustee or the name, address and telephone number of their agent (or toll-free number if located out of state);
- the civic address or common designation of the mortgaged property;
- the county assessor’s parcel number of the mortgaged property;
- the dollar amount of debt in default, including reasonably estimated advances for risk insurance premiums, property taxes due and foreclosure costs; and
- a statutory declaration informing the owner that they are in default. [CC §2924f]
If the defaulting borrower’s billing address is different from the address of the mortgaged property, an additional notice must be posted on the property at the same time as the NOTS. The notice states in English and five other mandatory languages that any tenant is entitled to 90 days notice to vacate the property. A copy of the Tenant’s Rights must also be mailed at the time of posting to the “Resident of Property Subject to Foreclosure Sale”. [CC §2924.8(a); see RPI Form 474-1]
Like the NOD, the NOTS must contain a summary of key information in the language in which the mortgage was originally negotiated. [CC §2923.3; see RPI Form 474-2]
Note that if the mortgage was negotiated in Spanish, the mortgage may contain a request for NOD in Spanish. The trustee is then required to serve the owner with a NOD translated into Spanish. [CC §2924c(b)(1)]
Provide NOTS
At least 20 calendar days before the trustee’s sale, the trustee sends two copies of the NOTS to each party to whom the trustee previously sent the NOD. [CC §2924b(c)(3)]
As with the NOD, one copy of the NOTS is sent by registered or certified mail, while the other is sent by first class mail. [CC §2924b(b)(2), (e)]
To ensure that the public auction is properly advertised, the notification requirements for NOTS are more comprehensive than the notification requirements for NOD. In addition to sending the notice to all interested parties of record, the trustee performs all of the following operations at least 20 calendar days before the sale:
- post a copy NOTS in a public place in the city of the sale, or if the sale does not take place in a city, the judicial district in which the property is to be sold;
- post a copy NOTS in a prominent place on the property for sale; and
- start publishing a copy NOTS once a week for three consecutive calendar weeks in a newspaper of general circulation in the city where the property is located. [CC §2924f(b)(1)]
Finally, a trustee sale takes place in the county where the mortgaged property is located. If the foreclosed property or properties are located in two or more counties, the trustee sale may take place in one of the counties. [CC §2924g(a)]
