Foreclosure is the final step in a process of a lender trying to recoup their money from a borrower who has defaulted on their loan. The bank either sells or takes back the home resulting in a foreclosure auction or bank foreclosure.
The primary method of foreclosure in California involves what is known as non-judicial foreclosure. This type of foreclosure does not involve court action. When the deed of trust is initially signed, it will usually contain a provision called a power of sale clause which, upon default, allows a trustee to sell the property in order to satisfy the underlying defaulted loan. The trustee acts as a representative of the lender to effectuate the sale, which typically occurs in the form of an auction. Unlike many states where trustees are appointed by lenders, title companies primarily serve as trustees managing foreclosure sales in California.
California has a requirement known as the one-action rule. If a foreclosure is completed by non-judicial means, a second action to recover a deficiency judgment is not permitted. Using a judicial foreclosure, a lender may recover a deficiency judgment in certain circumstances. But since this process takes longer than non-judicial foreclosure, it is rarely used. California non-judicial remedies have stringent notice requirements and the mortgage documents are required to contain the power of sale language in order to use this type of foreclosure method. Judicial foreclosures are permitted in California and these usually occur when no power of sale language is included in the loan documents.
The Foreclosure Process Explained
The first step on the road to foreclosure is the NOD or notice of default. After this there is a reinstatement period in the foreclosure process before the house is put up for auction. If the defaulted loan is not paid current in this time period, a notice of sale is sent to the owner, posted on the property and in the newspaper and the home is put up for auction. In this turning point in the foreclosure process, the home can be sold to the highest bidder at auction. The following explains the different stages of non-judicial foreclosure in greater detail.
Notice of Default
A notice of default is recorded after a default occurs in the county in which the property is located. This does not necessarily occur after one or more payments are not met but for logistical reasons may occur after a loan is in substantial default — sometimes six months or more past due.
The Redemption Period
After the Notice of Default is recorded, the foreclosure process does not move forward for a minimum of 60 days. This time period is to give a homeowner time to save money and pay the balance due on the property. If a notice of sale containing the name and address of trustee, certain disclosures (including that the property is about to be lost to foreclosure sale), the name of the beneficiary, and other information must be recorded in the county in which the property is located at least 14 days before any foreclosure sale after that time period. This is known as the publication period.
The borrower must receive a twenty (20) day notice before any foreclosure sale, further notice of the foreclosure must: (a) mailed to the defaulting borrower (and other creditors whose liens affect the property) and; (b) be posted at the property being foreclosed upon and in a public place in the county where any sale would occur. The defaulting borrower may prevent the foreclosure sale by paying all arrearages up to five (5) days before the sale. The trustees’ foreclosure sale then occurs at the earliest twenty one (21) days after the first publication.
The Foreclosure Auction
Foreclosure sales must take place on any business day between the hours of 9AM and 5PM and must occur at the location referenced on the notice of sale. The trustee will auction the property to the highest bidder. A homeowner can come and bid on their own house at the auction.
AVOIDING FORECLOSURE SCAMS
Unfortunately there are quite a few people that might try and take advantage of your temporary misfortune. These people will try and convince you that they can provide a quick and easy solution to your mortgage problem. As a general rule, if it seems too good to be true, it usually is. Here are a few examples of the scams you could encounter:
1) You need to sell your property fast or you will be ruined.
Don’t be bullied in to listing your property for sale. There are a lot of options available to homeowners in foreclosure that allow them to keep the home. Make sure you have explored your options first and then only list the house if you determine that is the best solution for you.
2) Someone offers you quick cash for your property.
If you have equity, these guys want it by providing fast cash they solve your problem and they get your equity. On occasion they offer a small amount of money to you – which is normally a signal they are getting lots of your equity.
3) Sign the deed to the property to us and we will take care of everything.
Sometimes called the “Bailout” scam, the investor tells the homeowner that he will be allowed to stay in the home and pay “rent” to the investor until a long term solution can be worked out. Once the owner signs the deed to the property over to the investor, big trouble usually follows. If the investor has the deed, the investor has control. Here is the big kicker – the homeowner who signed over the deed is still responsible for the loan. The investor nearly never makes the mortgage payments and the homeowner gets hit with the foreclosure.
4) For a consulting fee I will work with your lender to find a solution.
It is almost always illegal in the state of California for anyone other than an attorney to collect a fee as payment for making arrangements with your lender. See California Civil Code Sections 2945-2945.11 for details. Your lender will work with you directly if you want to make arrangements to make up past payments and keep your property. This would normally involve a Forbearance Agreement.
5) For a fee I will sue your lender for predatory lending practices.
Many law firms charge very large up front fees to sue a lender. What they don’t tell you is that the most common outcome of predatory lending lawsuits is a home loan modification that you can negotiate for without the exorbitant legal fees. Do not enter into an hourly fee agreement for a lawsuit without exploring all of your options.
6) For a fee I will audit your loan for violations.
These forensic audits rarely get you anywhere. Lenders do not even look at forensic audits to determine loan modification eligibility, so it makes no sense to pay large up front fees to have one done.