California Foreclosure Laws and Procedures

Prior to the 2007 foreclosure crisis, which peaked in 2010, federal and state laws regulating mortgage servicers and foreclosure procedures were limited and tended to favor foreclosing lenders. Now, however, federal and state laws heavily regulate loan servicing and foreclosure processes, giving protections to borrowers. 

Servicers must provide borrowers with loss mitigation opportunities, account for each foreclosure step, and strictly comply with foreclosure laws. Furthermore, most people who take out a loan to buy a residential property in California sign a promissory note and a deed of trust, granting them contractual rights in addition to federal and state legal protections.

In a California foreclosure, you’ll most likely get the right to:

  • a pre-foreclosure breach letter
  • apply for loss mitigation
  • receive certain foreclosure notices
  • get current on the loan and stop the foreclosure sale 
  • receive special protections if you’re in the military
  • pay off the loan to prevent a sale
  • file for bankruptcy, and
  • get any excess money after a foreclosure sale

Don’t be taken by surprise if you are a California homeowner who has fallen behind on mortgage payments. As your California Foreclosure Defense Lawyers, we will explain each step of the  foreclosure process, from missing your first payment to a foreclosure sale. Once you understand the process, you can take advantage of the situation by hiring us to fight to save your home.

What Is Pre-Foreclosure?

The “pre-foreclosure” period is generally the time after you have fallen behind on payments but before a foreclosure officially begins. During this time, the servicer may charge you various fees, such as late charges and inspection fees, and usually must inform you of ways to avoid foreclosure and send you a pre-foreclosure notice known as a “breach letter.”

Fees the Servicer Can Charge During Pre-Foreclosure

Most loans offer a grace period of ten or fifteen days before a late fee is charged for a missed payment. Every month you miss a payment, the servicer will impose this fee. For more info about the late charge amount and grace period for your loan, consult the promissory note you signed or look at your monthly mortgage statement. 

Most California deeds of trust allow the current loan holder, also referred to as the “lender”, to take necessary steps to protect their interest in the property. They usually order property inspections, which are usually drive-by and cost around $10 or $15, automatically once the loan goes into default to ensure that the home is occupied and appropriately maintained.

The lender might also charge fees for broker’s price opinions, which are similar to appraisals, and for property preservation costs, such as pool and yard maintenance.

Federal Mortgage Servicing Laws and Foreclosure Protections

Within 36 days of missing a payment, the servicer must contact you by phone to discuss loss mitigation options, such as a loan modification, forbearance, or repayment plan. After 45 days of missing a payment, the servicer must inform you in writing about available loss mitigation options and appoint personnel to help you avoid foreclosure. Exceptions to these requirements exist if you have filed for bankruptcy or asked the servicer not to contact you in accordance with the Fair Debt Collection Practices Act (12 C.F.R. § 1024.39, 12 C.F.R. § 1024.40).

Additionally, federal mortgage servicing laws prohibit dual tracking (pursuing a foreclosure while application is pending for complete loss of mitigation).

What Is a Breach Letter?

Many California deeds of trust include a provision that requires the lender to send a notice, often referred to as a “breach letter,” to inform you that the loan is in default before they can accelerate it. This breach letter gives you the opportunity to fix the default and prevent foreclosure.

When Can Foreclosure Start?

Federal law generally prohibits servicers from initiating foreclosure proceedings until a homeowner is more than 120 days delinquent on payments, with a few exceptions (12 C.F.R. § 1024.41). This time period gives most homeowners sufficient time to submit a loss mitigation application to their servicer.

What Is the Foreclosure Process in California?

If you default on your mortgage payments in California, the lender may foreclose using a judicial or nonjudicial method.

How Judicial Foreclosures Work

The lender begins a judicial foreclosure by filing a lawsuit and requesting a court order for a foreclosure sale. If you do not respond with a written answer, the lender will automatically win. However, if you decide to defend the foreclosure lawsuit, the court will assess the evidence and decide the winner. If the lender is victorious, the judge will issue a judgment and order your home to be sold at auction.

How Nonjudicial Foreclosures Work

If the lender opts for a nonjudicial foreclosure, they must follow the out-of-court procedures outlined in the state statutes. After completing the necessary steps, they can then sell the home at a foreclosure sale. Most lenders choose the nonjudicial process as it is faster and more cost-effective than taking the matter to court.

Which Is the Most Common Foreclosure Process in California?

Most residential foreclosures in California are nonjudicial. Before recording a notice of default, California law requires your servicer to contact you in person or by phone to assess your financial situation and explore options to avoid foreclosure. This must be done at least 30 days prior to recording the notice of default (California Civil Code § 2923.5).

At the start of contact, the servicer must tell you that you can ask for a follow-up meeting. If you do, the mortgage servicer will arrange the meeting, either by phone, within 14 days.\

Your financial situation will be assessed and options discussed during your first contact or a subsequent meeting. The servicer must also give you the toll-free telephone number to find a HUD certified housing counseling agency.

If the servicer is unable to contact you, they can not record the notice of default until 30 days after the following has been completed:

  • Sent a first-class letter that includes the toll-free telephone number made available by HUD to find a HUD-certified housing counseling agency.
  • Attempted to contact you by telephone at least three times at different hours and on different days at the primary phone number on file. This requirement is deemed satisfied if the servicer determines that the primary telephone number and secondary number or any other numbers on file have been disconnected.
  • Sent a certified letter two weeks after the telephone requirements are met that provides a way for you to contact it in a timely manner, including a toll-free telephone number that will provide access to a live representative during business hours.
  • Posted a prominent link on its website homepage with information about options to avoid foreclosure, financial documents borrowers should collect if they want to discuss such options, a toll-free telephone number to call to discuss alternatives to foreclosure, and the toll-free telephone number to find a HUD-certified housing counseling agency.

These requirements are applicable to first lien mortgages or deeds of trust secured by owner-occupied residential real property containing no more than four dwelling units. 

But if you notify the servicer in writing to cease further communication with you, they do not need to contact or attempt to contact you to assess your financial situation and explore options to avoid foreclosure.

Dual Tracking Isn’t Permitted Under California Law

California law prohibits dual tracking. If you submit a complete lien loan modification application at least five business days before the foreclosure sale (assuming you have not previously applied for one or experienced a material change in your financial circumstances since the last time you applied), the servicer must not record a notice of default, notice of sale, or conduct a trustee’s sale until:

  • There is  a written determination that you’re not eligible and the appeal period has expired
  • you don’t accept an offer within 14 days, or
  • you accept a written first lien loan modification, but default on or otherwise breach your obligations under the first lien loan modification. (California Civil Code § 2923.6).

Notice of Default (NOD)

The trustee formally initiates the nonjudicial foreclosure process by recording a notice of default at the county recorder’s office. This notice contains details such as the type of breach and how to cure it.

The trustee must mail a copy of the notice of default to the borrower and anyone requesting it within ten business days of recording. They must also mail a copy of the notice of default to any other interested parties, such as the borrower’s successor in interest and junior mortgage holders within one month. (California Civil Code § 2924b).

The borrower is given three months to cure the default, as stated in California Civil Code § 2924

Notice of Sale

A notice of sale will be recorded up to five days before the end of the three-month period, if you dont cure the default. The notice will include the time and place of the sale, the property address, and other relevant information. The foreclosure sale must take place at least 20 days after the end of the three months, as per California Civil Code § 2924.

The notice of sale will be:

  • posted at the property, in a public place in the city where the property is to be sold at least 20 days before the sale date
  • published once a week for three consecutive weeks, with the first publication occurring at least 20 days before the sale date, and
  • mailed to the borrower, anyone who requested notice, any successor in interest, and among other parties, at least 20 days before the sale date. (California Civil Code § 2924b, § 2924f).

The Foreclosure Sale

The lender must hold the foreclosure sale anytime Monday through Friday between 9:00 AM and 5:00 PM (California Civil Code § 2924g). At the sale, the lender usually makes a “credit bid”, up to the total amount owed, including fees and costs. In some states, if the lender is the highest bidder but bids less than the total debt, they can obtain a deficiency judgment against the borrower (not allowed in California).

If the lender is the highest bidder, the property becomes known as “Real Estate Owned” (REO). However, if a third party is the highest bidder and offers more than the amount owed, and the sale results in excess proceeds (i.e. money above what is needed to pay off all the liens on the property), the surplus money is entitled to you.

How Can I Stop a Foreclosure in California?

There are several ways to prevent foreclosure, such as reinstating the loan, redeeming the property before the sale, having our California Foreclosure Defense Lawyers file a lawsuit, sending a DVD, a QWR, or a CFPB. You can also negotiate with your lender while in active litigation for a forbearance and/or loan modification. If all else fails, we can file a Chapter 13 Bankruptcy for you to stop the foreclosure sale.

Reinstating the Loan

In California, the borrower can reinstate the mortgage by paying all arrears and foreclosure costs in one lump sum up until five business days before the sale date in a nonjudicial foreclosure, as per Civil Code Section 2924c.

Redeeming the Property Before the Sale

You can prevent foreclosure by “redeeming” the property. To do this, you must pay off the full amount of the loan before the foreclosure sale. In some states, you can buy back the home during a redemption period after the foreclosure sale. However, California does not provide redemption after a nonjudicial foreclosure. Therefore, once your California home has been foreclosed, you cannot redeem it.

Foreclosure Protections and Military Servicemembers

Military personnel in danger of foreclosure are protected by the Servicemembers Civil Relief Act.

California Deficiency Judgment Laws

In some states, when the total mortgage debt exceeds the foreclosure sale price, the difference between the two is called a “deficiency.” For example, if the total debt owed is $700,000 but the home sells for $600,000 at the foreclosure sale, the deficiency is $100,000. The lender can seek a personal judgment against the debtor to recover the deficiency. Generally, once the lender gets a deficiency judgment, they can collect this amount from the borrower. However, in California, a deficiency judgment is not allowed following a nonjudicial foreclosure. Therefore, most Californians going through foreclosure do not have to worry about being held liable for a deficiency judgment.

How Long Do You Have to Move Out After Foreclosure in California?

If you don’t vacate the property following the foreclosure sale, the new owner will probably:

  • offer you cash for keys, or
  • take steps to evict you.

The eviction process starts when the owner gives you a three-day (3) notice to quit. If you do not leave after three days, they will have to go through the court system to evict you and gain possession of the property.

Getting Help

Call us now if you believe your servicer has violated your Bill of Rights. We can stop your foreclosure, save your home, and sue your lender for damages.

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