Foreclosure Process in California: How It Works

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Foreclosure occurs when a homeowner fails to keep up with their mortgage payments, resulting in the lender taking possession of the mortgaged property. In order to recover the outstanding balance on the amount borrowed, the lender will force the sale of the house which was used as collateral for the loan. In this article, we will look at how the foreclosure process works in California.

Types of Foreclosures

There are two types of foreclosure process that a lender may use for homes in California: judicial and nonjudicial. 

Judicial: Judicial foreclosure is a court-ordered process that involves the lender filing a lawsuit requesting foreclosure on a property. It is used when the mortgage or deed of trust does not contain a power-of-sale clause. Judicial foreclosure is not common in California as it is more costly than nonjudicial foreclosure.

The borrower can choose to defend the lawsuit, in which case the court will undertake a review of the facts and make a judgment in favor of one of the parties. If the borrower loses, an order will be made to sell the Californian home at auction. If a house is sold via judicial foreclosure, the borrower will be liable for making up the difference between how much they owe and how much the house sells for at auction. 

This type of foreclosure also offers the “right of redemption” which enables the borrower to repurchase their home at auction from the person who bought it. However, in practice, this is rare.

Nonjudicial: This process does not involve the courts and can be used when the deed of trust or mortgage loan contains a power-of-sale clause giving the lender the right to sell the house to pay off the outstanding balance on the loan in the event that the borrower defaults on their mortgage payments. Under this route, the borrower is not liable to make up the difference once the property is sold. Most lenders choose the nonjudicial process as it is faster and cheaper than taking the matter to court.

Foreclosure Process

  1. If both parties to the loan have not agreed on a way to avoid foreclosure, the lender records a Notice of Default. The lender sends the borrower a copy of this notice within 10 business days of recording it, giving the borrower 90 days to “cure” or fix the default.
  2. If the borrower does not pay what they owe, a Notice of Sale is recorded stating that the trustee will auction the home in 21 days.
  3. At least 21 days after the recording of the Notice of Sale, the property can be publicly auctioned. The person who wins the bid must immediately pay the full amount with cash or a certified check. Once the sale is complete they will then receive a trustee’s deed. The lender also bids and in the event there are no bidders at auction the house will go to the lender.

Borrowers are given up to five days to cure the default and stop the foreclosure process in which case the loan is referred to as being “reinstated”.

With the information in this article, you now have a better understanding of your rights as a homeowner.

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