If you miss a house payment in California, you won’t need to worry about being promptly kicked out of your home. The foreclosure process is lengthy, and it’s likely that an auction won’t occur until almost eight months after your first missed payment, if not later. In this article, you’ll find out more about how the foreclosure process works under California law.
(You can learn more about foreclosure in Foreclosure and Your Home: Understanding the Process, Your Rights, and Your Options.)
When Foreclosure Begins
A foreclosure is a legal process used by banks and mortgage companies to take back your house if you don't make the payments. In 2014, a new federal law gave homeowners facing foreclosure additional breathing room. Now, the lender (the owner of your loan) or mortgage servicer (the company that collects your monthly payment) cannot begin the state foreclosure process until your payment is more than 120 days past due.
(Learn more about the federal law that slows down the foreclosure process in Delaying Foreclosure: The Dodd-Frank Act 120-Day Rule.)
Understanding Foreclosure Procedures
In California, lenders can use one of two types of foreclosure: judicial or nonjudicial foreclosure. Here’s a short explanation of both.
Judicial foreclosure. Judicial foreclosure starts when the lender files a complaint (a lawsuit) with the court seeking a judgment allowing it to sell the home. If the homeowner fails to respond to the lawsuit, the lender automatically wins and receives a “default judgment.” On the other hand, if the owner decides to answer the lawsuit, the case moves to the “discovery” phase and each side can request evidence from the other. If the lender wins the case, a judgment will be entered against the homeowner. The lender can then sell the home at a foreclosure sale.
Nonjudicial foreclosure. In a nonjudicial foreclosure, court approval isn’t needed. Instead, the bank follows procedural steps as described in California law. After completing the steps, the lender sells the property at a foreclosure sale. Most banks choose to use the faster, less expensive nonjudicial process allowed under the power of sale clause in most loan contracts.
(Find out more about the two types of foreclosures by reading What Are the Differences Between Judicial and Nonjudicial Foreclosures?)
Pre-Foreclosure Requirements in California
Under California law, the mortgage servicer (the company that collects your monthly payment) must contact you in person or by phone (or attempt to do so) 30 days before officially beginning the foreclosure. The servicer must assess your financial situation and explore other options, such as a loan modification. If you don’t qualify for a program, the foreclosure will go forward.
Nonjudicial Foreclosure in California
In California, you'll receive two notices: a notice of default and a notice of sale.
Notice of default. To officially start a nonjudicial foreclosure, the trustee (the person appointed to handle the sale) will record a notice of default in the county records, and will mail a copy of the notice to the borrower within ten business days after the recording date. The notice must include information about stopping the foreclosure by curing the default (paying the missed payments plus fees and costs). This procedure is also known as “reinstating” the loan.
Notice of sale. After three months pass, and at least 20 days before the foreclosure sale, the trustee will record a notice of sale in the county recorder’s office and mail a copy to the borrower. The foreclosure sale cannot take place any earlier than three months and 20 days after the recording of the notice of default.
Posting and publishing requirements. The notice of sale must be posted on the property at least 20 days before the sale (usually on the front door). Additionally, it must be posted publicly and published in a newspaper for three weeks.
Reinstating the Loan Before the Foreclosure Sale
“Reinstating” the loan means paying all missed payments, fees, and costs in one lump sum. If you reinstate the loan, the foreclosure will not proceed.
Under California law, the borrower can reinstate the loan at any time up until five business days before the foreclosure sale date. After this deadline, the lender does not have to let you reinstate. Instead, it can go ahead with the foreclosure unless you pay off the entire mortgage loan.
You can, however, stop the foreclosure process by filing for bankruptcy before the sale takes place.
Deficiency Judgments After a Nonjudicial Foreclosure
When the foreclosure sale price isn’t enough to pay off the outstanding debt, the difference between the sale price and the total debt amount is known as a deficiency balance. In California, a lender cannot collect a deficiency balance after a nonjudicial foreclosure of a residential property.
It can get tricky if you took out a loan for something other than the purchase of the house, however. If your first mortgage lender forecloses, the security interest associated with any second mortgage or home equity line of credit (HELOC) is wiped out in that action. In cases where the equity in the property wasn't enough to repay the second mortgage or HELOC, you may face a lawsuit from those creditors for a deficiency judgment--but not if the loan was a purchase money loan. Also, if the same creditor holds both the first and second mortgages, it cannot go after you for a deficiency judgment on the second mortgage after foreclosing the first mortgage.
California Doesn’t Allow Redemption After the Foreclosure Sale
Some states have a law permitting the former homeowner to “redeem” the property (buy it back) after a foreclosure sale. To do this, the previous owner must reimburse the purchaser for the full amount paid at the foreclosure sale, plus interest and various other amounts. In California, however, the former owner cannot redeem the home after a nonjudicial foreclosure.
Questions for Your Attorney
- What are my options after I receive a notice of default?
- How do I know if I qualify for an alternative to foreclosure, such as a loan modification?
- Will the lender evict me from the property after the foreclosure sale?