If you default on your home loan payments in California, the servicer (on behalf of the loan owner, called the "lender" in this article) will eventually begin the foreclosure process. The method will most likely be nonjudicial, although judicial foreclosures are also allowed.
California law specifies how foreclosure procedures work, and both federal and state laws give you rights and protections throughout the foreclosure.
If you get a loan to buy a home in California, you'll likely sign two documents: a promissory note and a deed of trust. The promissory note is the document that contains your promise to repay the loan along with the repayment terms. The deed of trust, which is very similar to a mortgage, is the document that gives the lender a security interest in the property and will probably include a power of sale clause. If you fail to make the payments, the power of sale clause gives the lender the right to sell the home nonjudicially to recoup the money it loaned you.
If you miss a payment, the servicer can usually charge a late fee after the grace period expires. Most mortgage loans give a grace period of ten to fifteen days, for example, before you'll incur late charges. To find out the grace period in your situation and the amount of the late fee, review the promissory note or your monthly billing statement.
If you miss a few mortgage payments, the servicer will probably send letters and call you to try to collect. In most cases, federal mortgage servicing laws require the servicer to contact you (or attempt to contact you) by phone to discuss foreclosure alternatives—called "loss mitigation" options—no later than 36 days after a missed payment and again within 36 days after each following missed payment. (12 C.F.R. § 1024.39).
No more than 45 days after a missed payment, the servicer must let you know in writing about loss mitigation options that could be available and assign personnel to help you. Some exceptions to a few of these requirements exist, like if you file for bankruptcy or tell the servicer not to contact you under the Fair Debt Collection Practices Act. (12 C.F.R. § 1024.39).
Many deeds of trust in California have a provision that requires the lender to send a breach letter if you fall behind in payments. This notice tells you that the loan is in default. If you don't cure the default, the lender can accelerate the loan (call it due) and go ahead with the foreclosure.
Federal law generally requires the servicer to wait until the loan is over 120 days delinquent before officially starting a foreclosure. However, in a few situations, like if you violate a due-on-sale clause or if the servicer is joining the foreclosure action of a superior or subordinate lienholder, the foreclosure can begin sooner. (12 C.F.R. § 1024.41).
Again, most foreclosures in California are nonjudicial, so this article focuses on those procedures. Lenders usually choose the judicial route only if it's necessary for a court to resolve problems with the property's title or if planning on seeking a deficiency judgment.
In California, the foreclosing lender or servicer must personally contact you (the borrower), or satisfy the legal requirements for attempting to contact you, 30 days before recording a notice of default. (Recording a notice of default officially starts the foreclosure process). The purpose of the contact is to assess your financial situation and explore ways to avoid foreclosure, like with a loan modification. (Cal. Civ. Code § 2923.5).
During the initial contact, the servicer has to tell you that you have the right to ask for a subsequent meeting, which can take place over the phone. If you request a meeting, the servicer has to schedule it to occur within 14 days. The servicer may assess your financial situation and discuss foreclosure avoidance options during the first contact rather than at a later meeting. The servicer also has to give you the toll-free telephone number for the U.S. Department of Housing and Urban Development (HUD), so you can find a HUD-certified housing counselor.
Under California law, you'll get two separate foreclosure notices: a notice of default and a notice of sale.
To start the foreclosure, the lender or trustee records a notice of default in the county recorder's office and mails a copy to you within ten business days. The notice of default gives you three months to reinstate the loan (bring it current). (Cal. Civ. Code §§ 2924, 2924b).
Notice of Sale
After three months expires, the lender or trustee then issues and records a notice of sale and mails a copy to you at least 20 days before the sale date. (Cal. Civ. Code §§ 2924, 2924b). While the notice of sale may be recorded up to five days before the lapse of the three months, the sale date can't be earlier than three months and 20 days after the notice of default's recording date. (Cal. Civ. Code § 2924).
At least 20 days before the sale, the notice of sale must also be:
California foreclosure sales happen between the hours of 9 a.m. and 5 p.m. on business days, Monday through Friday. (Cal. Civ. Code § 2924g).
The sale is an auction, open to all bidders. At the sale, the lender usually makes a bid on the property using a "credit bid" rather than bidding cash. With a credit bid, the lender gets a credit up to the amount of the borrower's debt. Sometimes the lender bids the full amount of the debt; sometimes, it bids less. The highest bidder at the sale becomes the new owner of the property.
"Reinstating" is when a borrower pays the overdue amount, plus fees and costs, to bring the loan current and stop a foreclosure. Under California law, borrowers may reinstate the loan at any time until five business days prior to the date set for the sale of the property. (Cal. Civ. Code § 2924c).
Sometimes, a foreclosure sale doesn't bring in enough money to pay off the full amount owed on the loan. The difference between the sale price and the total debt is called a "deficiency balance." Many states allow the lender to get a personal judgment, called a "deficiency judgment," for this amount against the borrower.
California law prohibits the lender from getting a deficiency judgment after a nonjudicial foreclosure. (Cal. Code Civ. Proc. § 580d). (For a summary of the deficiency judgment laws in California, see California Laws on Post-Foreclosure Deficiency.)
Some states have a law that gives a foreclosed homeowner time after the foreclosure sale to redeem the property. But in California, foreclosed homeowners don't get a redemption period following a nonjudicial foreclosure.
If you don't move out after the foreclosure sale, the new owner—usually the lender—has to give you a three-day notice (excluding Saturdays, Sundays, and other judicial holidays) to quit (move out) before starting a formal eviction action in court. Generally, though, it's better to leave the property before eviction starts.
Foreclosure laws are complicated. Servicers and lenders sometimes make errors or forget steps. If you think your servicer or lender failed to complete a required step, made a mistake, or violated state or federal foreclosure laws, you might have a defense that could force a restart to the foreclosure, or you might have leverage to work out an alternative.
Consider talking to a local foreclosure attorney or legal aid office immediately to learn about your rights. A lawyer can also tell you about different ways to avoid foreclosure. Likewise, a HUD-approved housing counselor can provide helpful information (at no cost) about various alternatives to foreclosure.