If you're a homeowner facing a nonjudicial foreclosure, state law might determine who can act as a trustee and conduct the foreclosure proceedings. In some states, the foreclosing trustee must be a resident in the state or have business offices in the state.
Read on to learn more about the trustee’s role in a nonjudicial foreclosure and how you can fight the foreclosure if the trustee is not authorized to conduct foreclosures in your state. (To learn what to do, and not do, if you're facing a foreclosure, see Foreclosure Do's and Don'ts.)
If your loan is secured by a deed of trust, which is typical in certain states, the foreclosure will probably be nonjudicial. In a nonjudicial foreclosure, the lender can foreclose without going to court so long as the deed of trust contains a power of sale clause. (To find out if you live in a state that permits nonjudicial foreclosures, check our Summary of State Foreclosure Laws.)
Deeds of trust, like mortgages, pledge real property to secure a loan. A deed of trust typically involves three parties:
The deed of trust generally gives the trustee the authority to foreclose and sell the home to pay off the loan balance at the request of the lender if the borrower defaults. The trustee is legally required to act as a neutral party on behalf of both the lender and the borrower while conducting foreclosure proceedings in good faith and in accordance with the law. (Read more about the duties of a foreclosure trustee.)
Generally, the trustee who is originally named in the deed of trust will not be the trustee that conducts the foreclosure. The foreclosure trustee, who is chosen by the lender (or subsequent loan owner), will first record a “Substitution of Trustee” or “Appointment of Successor Trustee” that appoints the new entity as the trustee in place of the original trustee listed on your deed of trust when you first closed the loan.
Once the successor trustee is appointed, it will carry out the nonjudicial foreclosure.
State law sets out the procedural requirements for nonjudicial foreclosures. If any step in the foreclosure process violates the nonjudicial foreclosure statutes, the validity of the foreclosure may be challenged.
State law can limit who may act as a foreclosure trustee. In many cases, the state requires the trustee to have some type of presence in the state. Below are some examples of limits states have put on trustees:
The reason for putting these types of restrictions on who may act as a foreclosure trustee is simple: Foreclosure trustees must provide information to homeowners about the foreclosure, how much they need to pay to reinstate the loan, and to whom the money is owed. If there is no local trustee, it can be difficult, if not impossible, for borrowers to get in contact with the trustee and have a shot at saving their homes and stopping the foreclosure.
Lenders have the legal right to foreclose if you don’t make your payments, but they must follow the law when it comes to foreclosure procedures. You are well within your legal rights to make sure the trustee has the proper authority to conduct the foreclosure.
If you are a homeowner facing foreclosure from an improper trustee, you might be able to bring your foreclosure to a halt, if only temporarily, by challenging the trustee’s authority to foreclose. Ultimately, the lender could restart the foreclosure after hiring a proper trustee to foreclose, so raising this issue won’t stop the foreclosure forever. But it might provide you with some extra time to stay in your home. (Learn about how to fight a nonjudicial foreclosure in our article How to Fight a Foreclosure in Court: Nonjudicial Foreclosure.)
To find out if your state has a law restricting who may act as a foreclosure trustee, check your state’s statutes. For more information on how to locate your state’s laws, see our Laws and Legal Research page. You can also get this information by talking to a local foreclosure lawyer.
Keep in mind that any given foreclosure or legal situation has many potential claims and defenses. It is recommended that you seek the advice of local counsel or a legal aid organization to explore all possible defenses that might be available in your particular situation.