Looking At Foreclosure In Three Basic Steps
1) Pre-Foreclosure
This part of the foreclosure process begins with a Notice of Intent to Foreclose or Notice of Default, which is referred to as a breach letter or NOI. This letter is delivered from the lender and officially begins the phase known as pre-foreclosure. The NOI is basically a notice in writing that comes from the lender, outlining what a borrower needs to pay and when the payment is due to avoid foreclosure.
Home Retention Programs
At this point, the borrower can elect to avoid foreclosure by taking advantage of home retention programs in the form of long-term loan modifications, forbearance plans, or a short-term repayment option. Short sales can be utilized where the sale of the home is less than the amount owed, or a transfer of title to the lender can be performed, which is called a deed-in-lieu foreclosure.
Never Ignore a Notice of Default
You should never ignore an NOD if you do not want the foreclosure process to continue. While you may not be able to save your property, you may be able to do something to keep a foreclosure from being recorded on your credit report.
Stay in Touch with Your Lender
Always let a lender know early if you have any difficulty making payments. A lenders ability to help a homeowner diminishes after each payment that is missed. Also, remain in your home. Abandoning a property may make it more difficult for you to qualify for any extensions or financial programs meant to help homeowners who fall behind in their payments.
Californias One Action Rule: Your Lender Must Foreclose First
The California Code of Civil Procedure section 726 provides:
There can be but one form of action for the recovery of any debt or the enforcement of any right secured by a mortgage upon real property.
What does this mean? In California, lenders are prohibited from simultaneously suing for the outstanding mortgage balance and foreclosing at the same time. Under California Code of Civil Procedure § 726, a judicial foreclosure must take place in the same action as the pursuit of a deficiency judgment. Only after the proceeds from the foreclosure sale have been applied to what is owed can a lender seek a judgment on the remaining debt. To put it in plain English, when you get behind on your mortgage, your lender must foreclose first, they cannot sue you personally or attach money in your bank accounts before they have foreclosed on your home. Known as the security first rule, the law is intended to shield Californians from multiple harassing lawsuits by lenders. Be aware that the one action rule does not apply in cases where a second mortgage lenders security interest has been wiped out due to the first mortgage lender foreclosing.
How Does The Foreclosure Process Work In California
Day 1 of the California foreclosure timeline is a missed payment. When the home loan is officially in default, the bank must file a Notice of Default with the court, and your servicer must wait 120 days before making a first official notice. After youve received a Notice of Default, you have 3 months in which to attempt to get your loan current.
At day 200, at least 20 days after receiving a Notice of Trustee Sale, the bank can set a date for the public auction. Its possible the sale can be postponed by the courts or the bank for up to a year, after which point they have to send a new Notice of Trustee Sale in order to send the house to auction where its sold to the highest bidder.
Following a foreclosure sale, the new owner must serve the previous owner with a 3-day notice to move out. Technically, if the former owner doesnt vacate the property the new owner isnt legally allowed to remove them, but they can start the formal eviction process through the courts to gain full possession of the home.
Overall, California is considered a consumer-friendly state due to an extensive set of rules that govern the foreclosure process.
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Increased Penalties Related To Post
As described in the Legislative Counsels Digest of the Bill: This bill would increase the above-described civil fine to up to $2,000 per day for the first 30 days, and up to a maximum of $5,000 per day thereafter, subject to the discretion of the governmental entity levying the fine. What does this mean for lenders?
The Bill amends Civil Code section 2929.3 to provide with respect to residential properties2 : The maximum civil fine authorized by this section for each day that the owner fails to maintain the property, commencing on the day following the expiration of the period to remedy the violation established by the governmental entity, is as follows:
The Bill provides with respect to the notice periods prior to imposition of fines:
A Notice Of Default Begins The Process
The Notice of Default or NOD is the first phase of the foreclosure proceedings. The NOD in California is recorded after a borrower fails to meet the terms of the mortgage loan. Usually, the NOD timeframe spans 90 days before the lender takes the next foreclosure step.
At this juncture, the property is deemed to be in pre-foreclosure. The property owner receives a notice by mail with the estimated sale date. Usually, this notice is delivered after the homeowner has missed four months of payments.
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How To Stop Foreclosure In California
There are really only two ways to stop a foreclosure: make a big enough payment to bring the loan current or file bankruptcy.
If you can get the cash together to make up for back payments, interest, and other expenses and fees, you can pull your home out of the foreclosure process. You can also stop the foreclosure by filing bankruptcy. Bankruptcy includes a powerful legal tool called the automatic stay. The automatic stay stops any collection actions against you, including repossession, collection lawsuits, and foreclosures. The banks wont be able to touch your home while you go through the bankruptcy process.
Depending on the type of bankruptcy you choose to file, you may be able to catch up your mortgage through your bankruptcy plan payments. Remember that you can step in at any point along the California foreclosure timeline to stop the process, right up until the auction itself. Its not too late to save your home.
If youre struggling with mortgage or other debt, contact us today to speak to one of our experienced California bankruptcy attorneys. Well go over your case for free and explain your legal rights and options for protecting your home.
Erik Clark
Why It Takes So Long To Buy A Short
Banks prefer short sales to the alternative, foreclosures. Because foreclosures are expensive, banks will usually settle for a short sale to get the most money back on their investment. For the home seller, a short sale is a renegotiation of their debt to one or more lenders. Its a complex process with many requirements. The short-sale package every lender requires from the seller must have every line filled out signed, dated, and initialed, every paper must be present and all documents must be up to date.
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Preforeclosure Contact Requirement Under California Law
In California, the foreclosing lender or servicer must personally contact you , or satisfy the legal requirements for attempting to contact you, 30 days before recording a notice of default. . The purpose of the contact is to assess your financial situation and explore ways to avoid foreclosure, like with a loan modification. .
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 , so you can find a HUD-certified housing counselor.
The California Homeowner Bill of Rights
The California Homeowner Bill of Rights provides legal protections to people facing foreclosure, like requiring the servicer to contact a delinquent borrower, as described above, to discuss foreclosure alternatives.
Judicial Foreclosures In California
California does offer judicial foreclosures, or foreclosures that go through the court system, but theyre rare. Theyre much slower and more expensive than nonjudicial foreclosures. If your home is sold through a judicial foreclosure, you will be liable for the deficiency. Thats the difference between what you owe and what the house sells for at auction. In other words, if you owed the bank $200,000 going into the auction and the house only sold for $180,000, youd be on the hook for the $20,000 difference.
In a judicial foreclosure, you also have the right of redemption. That means you can repurchase your home from whoever bought it at auction. If there was no deficiency, you may repurchase your home for up to 3 months after the sale. If there was a deficiency, you can purchase your home for up to 1 year after the sale. However, if the bank has waived its right to a deficiency judgment, you wont be able to repurchase the home at all. If you do want to redeem your home, youll have to pay the amount the bidder paid at auction plus anything you spent on repairs, insurance, and other expenses, plus interest. In other words, its very difficult to redeem a home even if you qualify.
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Be Mindful Of Your Neighbors
Your unwillingness to leave a home can lead to trouble, especially after your home has been sold. That is why you should speak to a foreclosure attorney. Not only does it upset the equilibrium in the neighborhood, it is disrespectful. A foreclosure attorney knows all the timelines, processes, and eviction guidelines. Attaining legal assistance can help you stay on track on how you should proceed whether you choose to stay or leave.
Also, people who vacate their home during the process can drag down the value of the other homes in the neighborhood. That is why it paysliterallyto use the services of a foreclosure attorney. Abandoned homes hurt both neighborhoods and banks.
Watch Out For Foreclosure Scams
Some companies scam homeowners by posting as a foreclosure rescue company. Be aware if you are close to losing your home to foreclosure, you may be contacted by a foreclosure rescue company. These scammers go through public records and contact homeowners who have received notices of foreclosure.
Foreclosure rescue companies are only out to make money. If you have equity built up in your home, they try to con you out of it, or if you have money in the bank, they use their con artist skills to go after it. If you have a good deal of equity in your home, consider yourself a possible target for a mortgage rescue scammer.
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Learn How California Foreclosures Work
Mortgage Relief During the Coronavirus Crisis
While the COVID-19 national emergency continues, homeowners with a federally backed mortgage loan, regardless of delinquency status, who’re experiencing a financial hardship due directly or indirectly to COVID-19, can get a forbearance under the federal Coronavirus Aid, Relief, and Economic Security Act.
Also, California’s COVID-19 Small Landlord and Homeowner Relief Act of 2020, among other things, requires that a mortgage servicer that denies a forbearance request during the “effective time period” give written notice to the borrower setting forth the specific reason or reasons that forbearance was not provided if certain conditions are met. The act defines the “effective time period” as the period between the operational date of the act and, as amended, December 1, 2021.
Homeowners in California who’ve experienced a financial hardship because of the pandemic can get a piece of the $1 billion allocated to the state under the American Rescue Plan Actup to $80,000 per householdfrom the California Mortgage Relief Program. This program uses federal Homeowner Assistance Fund money to help homeowners get caught up on overdue housing payments and avoid foreclosure.
How Long Do You Have To Move Out After Foreclosure In California
If you don’t vacate the property following the foreclosure sale, the new owner will probably:
- offer you a cash-for-keys deal, or
- take steps to evict you.
The eviction process starts with a three-day notice to quit. If you still don’t leave after three days, the new owner will go through the court system to evict you and get possession of the property.
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A Brief Introduction To Mortgages
In order to fully grasp the information in this post, its important to understand the basics of a mortgage. Most people say Im paying my mortgage. What they actually mean is that theyre paying their note. The mortgage is the legal instrument that gives your lender the right to foreclose when you dont pay the note, which is the instrument that evidences the debt. Mortgage and note are two separate things. This is an important distinction because in many jurisdictions, lenders have two ways of getting their money back from a homeowner who has fallen behind: they can either foreclose and sell the property OR try to enforce the note by suing the borrower personally. Sometimes theyll try do both at the same time, but not in California thanks to the one action rule.
What Are Your Options
You have several options and actions you can take when you are facing foreclosure. The following options are available to you:
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California Deficiency Judgment Laws
In a foreclosure, the borrower’s total mortgage debt sometimes exceeds the foreclosure sale price. The difference between the total debt and the sale price is called a “deficiency.” For example, say the total debt owed is $600,000, but the home sells for $550,000 at the foreclosure sale. The deficiency is $50,000. In some states, the lender can seek a personal judgment against the debtor to recover the deficiency. Generally, once the lender gets a deficiency judgment, the lender may collect this amountin our example, $50,000from the borrower.
A deficiency judgment isn’t allowed following a nonjudicial foreclosure in California. . Because residential foreclosures are usually nonjudicial, most Californians going through foreclosure don’t have to worry about being on the hook for a deficiency judgment.
Deficiency Judgments In California
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. .
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Dual Tracking Isn’t Permitted Under California Law
California law bans dual tracking. If you submit a complete first lien loan modification application at least five business days before any scheduled foreclosure sale, the servicer can’t proceed by recording a notice of default or notice of sale, or conducting a trustee’s sale until:
- it makes a written determination that you’re not eligible and the appeal period has expired
- you don’t accept an offer within 14 days, or
- you accept a written first lien loan modification, but default on or otherwise breach your obligations under the first lien loan modification. .
The California Homeowner Bill of Rights
On September 14, 2018, Governor Brown signed a bill that permanently reinstated expired provisions of the Homeowner Bill of Rights . To learn more about HBOR and how it protects homeowners in the foreclosure process, see California Foreclosure Protection: The Homeowner Bill of Rights.
Include Critical Resources On Their Website
Your mortgage servicer should maintain readily available information on its website homepage to provide you with:
- Foreclosure-prevention options and instructions.
- A list of financial documents necessary when discussing foreclosure-prevention options.
- Mortgage servicer contact information and HUD-certified housing counselor.
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New California Law Makes It Harder For Investors To Buy Foreclosed Homes
Photo by Nolan Issac on Unsplash
A new law aimed at curbing corporate ownership of foreclosed properties is set to take effect on January 1, 2021.
SB 1079, known as Homes for Homeowners, Not Corporations, was authored by Senator Nancy Skinner, D-Berkeley. It passed through the California Legislature in late August and was signed into law by Governor Gavin Newsom the following month.
Under the new law, if an investor wins a foreclosure auction for a residential property with one to four units, owner-occupants, tenants, local governments and housing nonprofits will have 45 days to make a competing offer.
Current tenants would need to match the offer, while other non-corporate entities would have to outbid it. To make this information publicly available, the auctioneer would be required to maintain a website and a telephone number advertising the property in question and its bid price. Bundled auction sales, in which multiple properties are sold to a single buyer, would also be prohibited.
Additionally, SB 1079 permits local governments to impose higher fines on investment properties that are poorly maintained or vacant in an effort to increase housing supply and encourage upkeep.
It can be difficult for individuals to secure financing, conduct an inspection or estimate repair costs on a foreclosed home, while investors often pay all cash and have reserve funds to draw from in emergency situations.
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