Many situations lead a homeowner to fear foreclosure and it’s important to understand the process and your rights throughout to make the best decisions for you and your family. In this article, we review the foreclosure process in California.
What Is Foreclosure
Foreclosure is a legal process whereby a lender reprocesses and forces the sale of a property due to the borrower’s failure to cover a debt. Most often foreclosure is due to the homeowner’s failure to pay their mortgage, but it can also be due to other types of debts including unpaid Home Owner’s Association (HOA) fees and penalties.
In California, the foreclosure process usually follows a non-judicial and structured set of rules. There is also usually a deed of trust which grants the lender a security interest in the property, but also gives the homeowners some contractual rights in addition to state and federal protections.
Foreclosure On The Rise in California
Foreclosure rates were up 41% compared to the last three years, which is less than the national pace which was up 55%. However, this is not necessarily a reason to panic as it is suspected that much of the increase is due to deferred foreclosures during 2020-2022. During this time, lenders offered loan modifications and restrictions were placed on repossession through the CARES Act.
Additional factors contributing to the rise of foreclosures in California include:
- Rising interest rates averaged 6.81% in 2023 vs 2.96% in 2021.
- Rising housing prices which rose 7.4% last year.
- Inflation
What Is Pre-Foreclosure?
In California, pre-foreclosure refers to the period in which a homeowner has defaulted on their debt, but the lender has not formally foreclosed on the property. Pre-foreclosure starts when you miss a payment and includes the full process of getting your property foreclosed on. The property is officially foreclosed when the lender takes possession of the property.
The homeowner still owns the property during this process and has several options to avoid foreclosure.
What Is The Foreclosure Process?
1. Missed Payment
The process starts when you miss your first payment. At this point, most lenders are willing to work with borrowers to allow them to pay the missed payment without further action. You may start to accumulate penalties such as late fees and interest, which can compound the amount that you have to pay back to the lender.
2. The Default Stage
A borrower enters default when they miss three consecutive mortgage payments, usually after 90 days.
Many lenders will still be willing to work with you at this point and you may choose to explore alternatives such as loan modification to avoid further legal action. However, you must take action quickly as you’ll only have an additional 90 days before the lender can repossess the property.
3. NOD Issued
At this point, the lender issues a Notice of Default (NOD). The NOD formally starts the foreclosure process and is recorded with the county. Once recorded, the lender has ten business days to mail copies of the notice to the homeowner. The notice of default gives the borrower three months to cure the default.
4. The Notice of Trustee's Sale
Should the borrower fail to resolve the default within a specified period, usually 90 days, the lender issues a Notice of Trustee's Sale. This notice means that the lender is moving ahead with the foreclosure and can be recorded up to five days before the end of the NOD period.
The notice of sale will:
- Sets the date, time, and location of the public auction where the property will be sold.
- Be posted on the property at least 20 days before the sale date.
- Be published once a week for three consecutive weeks starting at least 20 days before the sale date.
- Be mailed to the borrower and anyone who requested notice at least 2- days before the sale date.
5. Foreclosure Sale
The Trustee's Sale is a public auction where the property is sold to the highest bidder. These sales often take place on the courthouse steps or another public location. The sale must be held between 9am and 5pm on any business day, Monday through Friday)
The winning bidder, usually the lender, acquires ownership of the property. It's important to note that the winning bid amount might not necessarily cover the full outstanding loan amount. In some states, this can lead to a deficiency judgment against the borrower. However, California law generally prohibits lenders from pursuing deficiency judgments against the borrower. This means that once the property is sold, the borrower is not liable for the remaining loan balance if the auction proceeds fall short of the debt amount.
What Are My Options?
California homeowners facing foreclosure have several options available to them. These include loan modification, short sales, and deeds in lieu of foreclosure. Additionally, housing counseling agencies approved by the Department of Housing and Urban Development (HUD) can provide guidance and assistance to those in need.
Loan Modification
Most lenders are open to working with borrowers to find solutions to avoid the foreclosure process. Open communication early on can help you avoid losing your property. Lenders have options available to them such as loan modification or forbearance.
Loan modification invoices negotiating changes to the original mortgage terms. This can include anything from extending the term, reducing the principal amount, or lowering the interest rate. The goal is to get you to a more affordable monthly payment.
Forbearance allows homeowners to pause or reduce mortgage payments temporarily and can be helpful for those who need a short-term solution. It’s important to understand the terms and conditions.
Sale Options
Selling the property is an option if keeping the property is no longer feasible. This allows homeowners to avoid foreclosure and minimize the impact on their credit score. However, selling can often be a lengthy process and you may not be able to sell your home traditionally.
A good option in this case is to sell to a Cash Home Buyer like Haven Homebuyers. We will make a fair cash offer on your property, no matter its current condition and can close in as little as five days. Call us at 714-515-5615 or fill out the form below to get a cash offer within 24 hours. Learn more about how it works.
The Right of Redemption
You can talk to your borrower about reinstating the loan up until five business days before the sale date. However, California does not provide a redemption period for the borrower once the sale has been made. Once the property is sold at auction, the borrower loses ownership rights. However, borrowers may explore legal avenues to contest the foreclosure, such as filing wrongful foreclosure claims, though success in these cases can be challenging.
Bankruptcy
Filing for bankruptcy will immediately stop the sale and foreclosure process. Once you’ve filed for bankruptcy, an “automatic stay” will go into effect that prohibits the lender from foreclosing on the property.
Additional Resources
- Housing Counseling Agencies: HUD-approved housing counseling agencies offer free or low-cost assistance to homeowners facing foreclosure. These agencies can provide guidance on negotiating with lenders, understanding foreclosure laws, and exploring available options.
- Explore Government Assistance Programs: California offers various government assistance programs aimed at helping homeowners facing financial hardship. These programs may include mortgage assistance, principal reduction, or relocation assistance.
Conclusion:
Navigating the foreclosure process in California requires a comprehensive understanding of the legal framework and available options. While the non-judicial nature of foreclosure streamlines the process, homeowners must be proactive in exploring alternatives and seeking professional advice to protect their homes and financial stability. Legal assistance and housing counseling can be invaluable resources in challenging times, offering guidance to mitigate the impact of foreclosure on homeowners.
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