California Foreclosure Law Summary
Quick Facts
- Judicial Foreclosure Available: Yes
- Non-Judicial Foreclosure Available: Yes
- Primary Security Instruments: Deed of Trust, Mortgage
- Timeline: Typically 120 days
- Right of Redemption: Varies
- Deficiency Judgments Allowed: Varies
Real Estate Foreclosures
California has its own unique foreclosure process that all lenders must follow. Much of this process is unique because California uses Deeds of Trust to secure a mortgage to a piece of real property. Both Judicial foreclosures and
Non-Judicial foreclosures are available in the state of California. From start to finish, a foreclosure can take more than 120 days to complete. California is known to file for judicial foreclosures and Non-Judicial foreclosures.
If borrower does not contest they will drop the judicial foreclosures.
And will go with the least expensive process.
Judicial Foreclosure
The judicial process of foreclosure, which involves filing a lawsuit to obtain a court order to foreclose, is used when no power of sale is present in the mortgage or deed of trust. Generally, after the court declares a foreclosure, your home will be auctioned off to the highest bidder.
Using this type of foreclosure process, lenders may seek a deficiency judgment and under certain circumstances, the borrower may have up to one (1) year to redeem the property.
Non-Judicial Foreclosure
The non-judicial process of foreclosure is used when a power of sale clause exists in a mortgage or deed of trust. A “power of sale” clause is the clause in a deed of trust or mortgage, in which the borrower pre-authorizes the sale of property to payoff the balance on a loan in the event of their default. In deeds of trust or mortgages where a power of sale exists, the power given to the lender to sell the property may be executed by the lender or their representative, typically referred to as the trustee. Regulations for this type of foreclosure process are outlined below in the “Power of Sale Foreclosure Guidelines”.
Power of Sale Foreclosure Guidelines
If the deed of trust or mortgage contains a power of sale clause and specifies the time, place and terms of sale, then the specified procedure must be followed. Otherwise, the non-judicial power of sale foreclosure is carried out as follows:
- A notice of sale must be: 1) recorded in the county where the property is located at least fourteen (14) days prior to the sale; 2) mailed by certified, return receipt requested, to the borrower at least twenty (20) days before the sale; 3) posted on the property itself at least twenty (20) days before the sale; and 4) posted in one (1) public place in the county where the property is to be sold.
The notice of sale must contain the time and location of the foreclosure sale, as well as the property address, the trustee’s name, address and phone number and a statement that the property will be sold at auction.
2. The borrower has up until five days before the foreclosure sale to cure the default and stop the process.
- The sale may be held on any business day between the hours of 9:00 am and 5:00 pm and must take place at the location specified in the notice of sale. The trustee may require proof of the bidder’s ability to pay their full bid amount. Anyone may bid at the sale, which must be made at public auction to the highest bidder.
Lenders may not seek a deficiency judgment after a non-judicial foreclosure sale and the borrower has no rights of redemption.
Foreclosure Process
- Notice of Default
Foreclosure proceedings start with a Notice of Default (NOD). The lender (or trustee for the lender) files a Notice of Default with the county, after the property owner (trust or) fails to make his/her loan payment(s). This is done to give, constructive notice to the public which is required by law. The owner may be delinquent anywhere from 15 days to 12 months, or more. This time period is also referred to as the Reinstatement Period.
After the recording of the Notice of Default, in the state of California, the borrower and junior lien holders are given proper notification and the borrower has 90 days to bring their account current with the lender.
- Notice of Trustee Sale
If the borrower does not reinstate their account within the 90 day period, the lender will authorize and instruct the Trustee to record the Notice of Trustee Sale (NOS).
After 21 days of the recording of the NOS, a foreclosure sale can take place at public auction. The property may be sold to a third party bidder or revert back to the lender for a specified amount. Bidders are required to bring cashier’s checks or money orders to the sale in an amount equal to or higher than the lenders opening bid. The auctioneer will qualify each bidder and the successful bidder will have to tender full payment at the time of the sale.
The Notice of Trustee’s Sale is recorded at the County Recorder’s office in the County where the property is located. It contains the date, time. and place where the auction will take place. This notice has to be published in an adjudicated newspaper in the city where the property is located. The NOS is also posted on the property as a requirement of law.
Buying property at a Trustee’s Sale is not like purchasing property in a conventional manner. You will not have the opportunity to inspect the property after you have purchased it at sale. Any and all due diligence must be conducted prior to the Trustee’s sale. This means potential purchasers will benefit from tracking the properties as the Notice(s) of Default are filed up until the time they are sold at the Trustee’s Sale. There is a great service we have used over the years to track distressed properties called RealtyTrac. You can receive a free one week trial to their real estate foreclosures tracking service.
- Disbursement of Funds
After the sale auction is completed and if the property sells to a third party bidder, all funds owed to the lender/beneficiary will be prepared for immediate payout. If the property reverts to the lender/beneficiary at the sale, a Trustee’s Deed upon Sale will be issued and the lender will have ownership to the property securing the debt.
Foreclosure Terms
Foreclosure-The forced sale of property offered as security for a debt that is in default.
Deficiency Judgment
A deficiency judgment refers to any difference in the sale amount and the amount owed to a lender in a
foreclosure proceeding. A court may issue a deficiency judgment in favor of a lender if there is a deficiency in the proceeds from the sale of real property to cover the costs and amount owed to the lender. The court can issue a 1099 (to the borrower) for the difference or they may send the borrower to a collections agency, or even garnish the borrower’s wages.
In regards to foreclosures, Trust Deeds are a written instrument legally conveying real property to a trustee (or a third party) used to secure a mortgage or promissory note.
Trustee’s Sale
A sale conducted by a Trustee, in the case of foreclosures, this refers to the sale of the property in question.
Notice of Default
Written notice sent by a lender notifying the borrower that he/she has not met his/her obligations under the loan contract, and the lender may take legal action to enforce said agreement. In other words, the lender is notifying the borrower that they may start a foreclosure action against them and their property.
In the case of a “power of sale” clause existing in a mortgage or deed of trust, the non-judicial process of foreclosure is used. The clause “power of sale” in the deed of trust or mortgage pre-authorizes the sale of property to payoff any balance on a loan in the event of a default by the borrower. In such cases, this power, which is given to the lender to sell the property, can be executed either by the lender, their representative or a trustee.
Power of sale California foreclosure guidelines
In the case of the deed containing the power of sale clause that specifies the time, place and term of sale, the procedure has to be followed at the specified time and place. If not, the non-judicial power of sale method of a foreclosure is carried out.
Here, the notice of default has to be recorded in the county the property is located at least 14 days prior to the sale and, has to be mailed by certified, return receipt requested post to the borrower at least 20 days before the sale. It has also got to be posted on the property 20 days before the sale and in one public place in the county it is to be sold in. This notice has to include the time, location and property of the foreclosure sale, the trustee’s name, address, phone number and a statement that the property is being sold at an auction. The borrower then has 5 days before the foreclosure to cure the default and thus stop the process. The sale can be held on any business day between 9a.m. and 5p.m. at the location specified in the notice. Anyone can bid at the sale, but the trustee requires proof of the bidders’ ability to pay their full bid amount. If necessary, the sale can be postponed by an announcement at the place and time of the original foreclosure.
Typically, a title insurance company is named as the trustee to arrange the sale of the real estate.
Antideficiency Statues
Some states such as California have enacted antideficiecy statues. These statues generally prohibit a lender’s deficiency judgment against a borrower (often in connection with a nonjudical foreclosure action) or limit a deficiency judgment to the difference between the debt and greater of the fair market value of the secured property (as determined to the satisfaction of the court) or the price paid at the foreclosure sale. Depending on the applicable state antidefiecency statue and court decisions interpreting the statue, the protection afforded by the anti deficiency statue may or may not be extended to apply to a guarantor if a lender elects to foreclosure and brings a suit against a guarantor for a deficiency judgment.
One – Action States
Some states such as California have also enacted” one action” statues or rules, that a lender to one lender to one lawsuit to collect its debt and enforce its security interest. In certain states that enacted one –action statues or rules such as California, a lender must commerce a foreclosure action (judicial or, if permitted, nonjudical) contemporaneously with or before any action for monetary judgment against a borrower.
California is famous for its one-action rule, in which a lender must carefully elect one action to take against the borrower if the borrower defaults. If the lender forecloses the deed of trust out of court, the lender has chosen one action and may not bring a lawsuit to recover a deficiency, which would be a second action. If the lender chooses to sue the borrower and obtain both a foreclosure order, and if the proceeds of the judicial sale of the real estate are not sufficient to repay the loan balance, then a deficiency for the balance. Such a suit is permitted as the lender’s one action.
California lenders rarely elect judicial foreclosures.
A copy of the notice of sale must be posted in a conspicuous place on the property to be sold at least 20 days before the sale. If access to the property is restricted by means of a central guard gate, then the notice must be posted on the guard gate. A copy of the notice must be posted at one public place in the city where the property is to be sold (or judicial district in rural areas) at least 20 days before the sale.
Recording
A notice of trustee sale must be recorded at least 14 days before the sale.
Mailing
A notice of trustee sale must be mailed by certified mail, return receipt requested, 20 days before the foreclosure sale to the borrower, to anyone who requests notice or recorded a request and to the trustors, beneficiaries or parties at interest.
Sale Procedures: Non-judicial
Time
All sales under a power of sale in a deed of trust will be made between the hours of 9:00 a.m. and 5:00 p.m. on any business day, Monday through Friday, at the time specified in the notice of trustee sale.
Place
The sale shall commence at the location specified in the notice of sale.
Manner
The sale must be made a public auction to the highest bidder. The trustee has the right to require every bidder to show evidence of ability to pay the full bid in cash, cashier’s check or certain bank checks. Each bid is by law an irrevocable offer to purchase. However, a higher bid cancels an earlier bid. It is unlawful and a criminal offense (a fine of $10,000 or up to one year in jail) to offer anyone consideration not to bid, or to fix or restrain the bidding process in any manner.
Postponement
Sales may be postponed by announcement at the time and location specified for the intended sale. The borrower may postpone the sale in order to obtain cash, provided the written request for postponement identifies source from which the funds are to be obtained, and the postponement is only for one business day. The borrower may obtain one such postponement.
Reinstatement
Debtors may reinstate up to five days before non-judicial foreclosure sale.
Junior
Junior lien holders may no longer redeem, so they may try to protect themselves by (1) advancing funds to bring the senior loan payments current, then foreclosing for the sums advanced; (2) bidding at the foreclosure sale so the price will be sufficient to payoff the senior and the junior liens; or (3) acquire the property by bidding at the foreclosure. If the debtor has a right to redeem and does so, the junior who purchased the home must be reimbursed. Junior liens do not reattach the property if a borrower redeems a senior lien whose foreclosure extinguished the junior. This helps borrowers by encouraging the junior to bid up to the property to fair market value at the foreclosure sale, or else lose out, giving borrowers closer to fair value at sale.
Deficiency
Lenders may not seek a deficiency judgment if (1) the foreclosure is non-judicial or if (2) foreclosure is on a purchase money obligation. The same rules do not apply to guarantee or later lien holders. The lenders may seize alternative collateral. If the lender forecloses by filing a lawsuit, then the lender can obtain both a foreclosure sale order and a judgment against the borrower for a deficiency after the court-ordered sale, but only for the difference between the judgment and the fair value of the security.
Redemption
A borrower’s right to redemption is terminated when a deficiency judgment is waived or prohibited. When redemption is permitted, after judicial foreclosure, only the borrower can now redeem and junior lien holders or “redemptionors” may not. When the lender is permitted to seek a deficiency, elects to pursue a
deficiency and forecloses judicially, the borrower may redeem 12 months after sale, but a full credit bid by the lender cuts it to 3 months
Foreclosure FAQ
Q. Can the bank just come and kick me out of my house?
A. No. Only an order of the court can force you to leave your home. Ultimately you may be evicted but there are procedures within the court system that the mortgage holder must follow first for the foreclosure and then another set for the eviction.
Q. Can you explain some of these steps?
A. Other states may have similar procedures but almost all states have a fairly unique system of foreclosure. If you are already in the foreclosure process you would be well advised to consult with an attorney that is familiar with the laws in your state.)