Foreclosures For Sale Updated On: 03/18/10
California Foreclosure Laws
California Foreclosure Laws
California is recognized as a title theory state wherein the title of a property stays as assurance till the payment of the loan in question takes place in full.
A deed of trust is a document that keeps the title secured and is also known as a mortgage in California.
A complex set of rules are in place in California, in relations to foreclosures and alternative foreclosure rules, making it a rather borrower friendly state.
The method primarily used in California for foreclosure is non-judicial foreclosure. No court action is involved in this process. A power of sale clause is usually inserted in the deed of trust at the initial signing of the deed, making it possible for the property to be sold by a trustee to redeem on the said loan. The trustee plays the role of the lender’s representative and effectuates the sale, usually in the form of an auction. Unlike many other states where lenders appoint trustees, in California, title companies generally act as trustees who manage foreclosure sales.
The one action rule is also in place in California. If a non-judicial mean is used to foreclose on a property then the recovery of a deficiency judgment through a second action is not allowed. A lender can ask for a deficiency judgment through a judicial foreclosure in some instances. But considering that this procedure takes longer than non-judicial foreclosure, it is seldom used.
To make use of the non-judicial process, a power of sale clause must be included in the mortgage documents; and this being a non-judicial process, very strict requirements of notices are in place. Judicial foreclosure usually takes place when the loan document does not contain a power of sale clause.
After a loan is defaulted upon, a notice of default needs to be recorded in the county where the property is located. This though does not need to happen as soon as the first or second payments are missed; sometimes the loan is past due for more than six months before the notice is filed. This is referred to as ‘redemption period’. After the notice of default is recorded, sixty days must pass before the process to foreclose moves ahead. A publication period is where; a notice of sale must be recorded at least fourteen days prior to the foreclosure sale in the county where the property is located. This must contain the trustee’s name and address, the beneficiary’s name, some disclosures (including a mention that the property is to be lost due to the foreclosure sale).
Prior to any foreclosure sale, a borrower should get a twenty day notice. Furthermore, the notice of foreclosure must be mailed to the borrower who has defaulted, other lenders whose liens are attached to the property; and it needs to be put up at the property in question and at any public place within the county where the sale is to take place. The foreclosure sale can be prevented by the borrower if all the arrears are paid at least five days prior to the sale. The trustees’ foreclosure sale will then occur not earlier than twenty one days from the day of the first publication.
The foreclosure sale usually takes place in between 09:00 and 17:00 hrs at the location that has been referred to in the notice of sale. The auction is conducted by the trustee and the property goes to the highest bidder; this could be the lender too. The sale can be postponed by the borrower for one day.
A judicial foreclosure course through a court, where the foreclosure’s final judgment is announced by the court, can also opted for by lenders in California. In the nonexistence of power of sale language in the deed of trust, the lender has the option to seek judicial foreclosure. A lis pendens, which is a document that is used to make known publicly the foreclosure on the property, along with a complaint, needs to be filed in the county court.
The documents used are called the deed of trust or note; or a security agreement the case of a commercial transaction. On occasion, the security agreement is merged with the mortgage document. A mortgage can also be filed to validate the debt in question and the repayment terms, which are included in the note
A non-judicial foreclosure usually takes at least a hundred and twenty days to take effect if it goes uncontested by the borrower; this does depend upon the time required for various notices. If a borrower wishes to contest the foreclosure in court asking for the sale to be postponed, or if bankruptcy is filed for by the borrower, the process could be delayed.
A complex statutory right of redemption exists in California. After the foreclosure sale takes place, it allows the property to be reclaimed for up to one year after the sale, if the total amount on the unpaid loan including costs incurred is made. However, if the lender that makes a full-price bid at the sale, then the period is reduced to three months. After the notice of default is recorded the borrower has up to ninety days to fix existing defaults, this is usually called the redemption period though it is not a real statutory redemption. Holders of junior liens do not have an option to redeem. A statutory right of redemption is not there, in case a deficiency judgment has been prohibited or waived at the time when the loan documents are created. This takes away any possibility of a redemption taking place in the above mentioned scenario.
A deficiency judgment can be obtained only in some instances. If a foreclosure property is sold at a non judicial public sale or if it relates to a purchase money mortgage, then a deficiency judgment can not be obtained. Guarantors of these loans are subject to a different set of rules.
Foreclosures in California are governed by laws present in the California Civil Code, Section 2924.
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