What Are the California Foreclosure Laws?

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Buying a house usually takes a big chunk of your wallet and savings. It’s no surprise that many home buyers close the deal on a property by borrowing some money from a mortgage company or a bank. On the other hand, some individuals take out a home equity loan which enables them to borrow money against the property equity after the purchase. In all such circumstances, if the buyer cannot pay off the loan on time, the lender has the right to foreclose. 

Foreclosure is the process in which the lender forces a sale of the home to pay for the overdue debt. In this article, we’ll look at California’s primary foreclosure laws: Judicial foreclosure and Non-judicial foreclosure. 

Judicial Foreclosure

This kind of foreclosure involves a court hearing, but they’re not very common in California. The process is lengthy and costlier than nonjudicial foreclosures. Selling your house through a judicial foreclosure entails you’ll be responsible for any deficiency – the difference between what you’re obligated to pay and the price at which the home is sold. However, you do have the right to redemption.

This allows you to buy your house from the individual who purchased it at the auction. In the absence of a deficiency, you can receive a buy-back for up to three months after the sale; otherwise, you have up to a year to repurchase it. You should note that you won’t be able to get the house back at all in the case of a deficiency judgment waiver signed by your bank. This waiver ensures that the bank or mortgage company won’t sue you for not covering the remaining balance that is unpaid after the home sale. 

Redeeming your house will require you to pay the winning bid price at the auction along with whatever money has been spent on new repairs, insurance, and other expenditures, including interest, to the current owner of your house. Even when you qualify for redemption, it is a significant hassle in this case. 

Non-Judicial Foreclosure

Non-judicial foreclosures make up most of the foreclosures in California. In this process, the deed of trust or mortgage agreement has a ‘power-of-sale’ clause, entrusting lenders with the right to initiate a house sale and utilize any profits made to pay off the remaining mortgage when the borrower fails to pay the loan. A court hearing is not necessary to carry out this operation. 

Still, the non-judicial foreclosure process is governed by firm laws, requiring documentation detailing the lender’s mortgage ownership and the borrower’s default on loan. Most lenders prefer using non-judicial foreclosure due to how quick and cheap it is compared to judicial foreclosure.

Unlike in a judicial foreclosure, borrowers aren’t given the right of redemption in this foreclosure – they can’t buy back their estate once the foreclosure sale is made. In contrast, obtaining the right to a deficiency judgment to oppose the borrower is given up by the lender. The borrower doesn’t have to cover the gap between the mortgage amount owed and the property sale proceeds. 

Endnote

California foreclosure laws can get complicated and require you to delve deep into their gritty details. It’s wise for both lenders and borrowers to consult legal professionals and hire them to represent their cases. If you wish to sell your house fast in the Bay Area, you can always get in touch with a cash house buyer company and pay off your loans on your new home with the money you receive. These companies can help stop foreclosure. Don’t be afraid to reach out to a real estate attorney for guidance, whatever your situation.

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