Foreclosure is a legal process that allows lenders to recover the balance of a loan from a borrower who has stopped making mortgage payments by forcing the sale of the property used as collateral for the loan. In California, the foreclosure process follows a unique set of procedures, particularly because the state follows a non-judicial foreclosure process, meaning the foreclosure is typically handled outside the court system. Understanding how foreclosure works in California is crucial for homeowners who may be at risk of losing their property.
This article will walk you through the key steps in the California foreclosure process, including the timelines, legal documents, and what you can do to protect yourself and your home.
1. Initial Default and Notice of Default (NOD)
The foreclosure process in California typically begins when a homeowner falls behind on their mortgage payments. After missing a certain number of payments (typically three months or more), the lender will send the homeowner a Notice of Default (NOD). This notice is a formal statement that the borrower has defaulted on the loan and begins the official foreclosure process.
Key Points About NOD:
Timing: A NOD is typically issued after 90 days of missed payments, although some lenders may wait longer.
Contents of NOD: The notice will provide details about the default, including the amount of the missed payments, interest, and any fees due. It also informs the borrower that they have 90 days to cure the default by paying off the delinquent amount.
What You Can Do at This Stage:
Reinstate Your Loan: If you can pay the overdue amount, including any fees, you can reinstate the loan and stop the foreclosure process.
Contact Your Lender: It’s crucial to reach out to your lender early to discuss potential options, such as a loan modification, repayment plan, or foreclosure prevention programs.
2. Notice of Trustee Sale
If the borrower does not cure the default by the end of the 90-day period specified in the NOD, the lender will then file a Notice of Trustee Sale. This notice informs the homeowner that the property will be sold at a public auction.
Key Points About Trustee Sale:
Timing: The Notice of Trustee Sale is typically recorded 21 days before the auction takes place.
Auction Date: The auction will be scheduled at least 20 days after the notice is recorded, but it can be postponed or delayed for various reasons.
Public Auction: The home will be sold to the highest bidder, and if the home does not sell at auction, it may be taken back by the lender as Real Estate Owned (REO) property.
What You Can Do at This Stage:
Request a Loan Modification or Refinance: While the auction may still proceed, there may still be time to negotiate with the lender for a loan modification, refinancing, or other foreclosure alternatives.
Short Sale: If the home’s market value is less than the loan amount, a short sale might be an option to avoid the sale at auction.
Deed in Lieu of Foreclosure: If you cannot sell the home or bring the loan current, you may be able to surrender the home back to the lender through a deed in lieu of foreclosure.
3. The Foreclosure Auction
Once the Notice of Trustee Sale has been issued and the waiting period has passed, the property is sold at a public auction. The auction will be conducted by the lender or a trustee and is typically held on the property’s premises or at a designated public location.
Key Points About the Foreclosure Auction:
Bidder Qualifications: The highest bidder at the auction wins the property. Typically, bidders must have the full amount in cash or a cashier's check to cover the bid.
Opening Bid: The opening bid at the auction is usually set by the lender and may be for the total amount of the loan, including any fees or penalties.
Redemption Period: California does not offer a post-sale redemption period for the homeowner to reclaim the property after the auction.
What You Can Do at This Stage:
Participate in the Auction: In rare cases, a homeowner might be able to repurchase the home at auction, although it requires significant funds upfront.
Seek Legal Counsel: If you’re facing an auction, it’s wise to consult with a foreclosure attorney who can explore options like postponing the sale or contesting the foreclosure.
4. The Property Becomes Real Estate Owned (REO)
If the property is not sold at the foreclosure auction, it becomes Real Estate Owned (REO) by the lender. In this case, the lender assumes ownership of the property and will often attempt to sell it through the typical real estate market. This is usually a final step in the foreclosure process.
Key Points About REO Properties:
Lender-Controlled Sale: The lender will usually list the property for sale through a real estate agent, typically at market value, and it is no longer subject to the foreclosure process.
Eviction: If the homeowner has not already vacated the property, the lender may initiate an eviction process to remove the homeowner.
What You Can Do at This Stage:
Consider a Rental or New Housing Options: Once the foreclosure is complete and the property is REO, you’ll need to find a new place to live.
Negotiate for a Move-Out Agreement: In some cases, homeowners may be able to negotiate a move-out agreement with the lender, sometimes giving them additional time to find housing.
5. Judicial Foreclosure vs. Non-Judicial Foreclosure in California
California primarily uses non-judicial foreclosure, which means the process does not require court involvement unless the borrower files a lawsuit against the lender. This method is typically faster and more efficient compared to judicial foreclosure processes used in other states.
Non-Judicial Foreclosure:
Most common in California.
Does not require a court hearing.
The lender follows a series of steps involving Notices of Default and Trustee Sales.
Used primarily for deed of trust mortgages (common in California).
Judicial Foreclosure:
Rare in California but may occur if the borrower has a mortgage (as opposed to a deed of trust).
Requires court intervention and can take longer.
May result in a deficiency judgment, where the lender seeks to recover the difference if the home is sold for less than what is owed.
6. Protecting Yourself During Foreclosure
For homeowners in California, it’s crucial to understand your rights and options during the foreclosure process. You have several opportunities to negotiate, delay, or even avoid foreclosure entirely, especially if you take action early.
Key Protections for Homeowners:
California Homeowner Bill of Rights: This set of laws provides several protections, including mandatory mediation for homeowners facing foreclosure and restrictions on dual-tracking (when a lender forecloses while simultaneously considering a loan modification).
Foreclosure Assistance Programs: State and federal programs, such as the California Mortgage Relief Program, may help homeowners catch up on payments or even provide financial assistance.
What You Can Do:
Consult a Foreclosure Attorney: If you’re facing foreclosure, it’s helpful to consult with a foreclosure defense attorney who can advise on your rights and potential legal strategies.
Reach Out to Housing Counselors: HUD-approved housing counselors can provide free assistance and guide you through the foreclosure process.
Explore Foreclosure Alternatives: Loan modifications, refinancing, and short sales can be viable alternatives to a full foreclosure.
Conclusion
The California foreclosure process can be lengthy and complex, but understanding the key stages can help homeowners navigate through it with more confidence and clarity. From the initial Notice of Default to the final auction or REO sale, each step provides opportunities for homeowners to take action and possibly avoid foreclosure.
If you’re facing foreclosure in California, the most important thing is to act quickly. Seek out professional advice, explore all available options, and communicate with your lender. By understanding the foreclosure process, you can make informed decisions that may help protect your home and your financial future.