CALIFORNIA FORECLOSURE OVERVIEW
California was among the states hardest hit by the sub-prime loan and foreclosure crisis, and stories about the problem are all over the news. If you are facing foreclosure, but don’t know what to expect, this page will help you understand the process.
The law requires lenders to discuss options with borrowers prior to filing a notice of default to go over the options available to avoid foreclosure. The bill gives the borrower at least 30 days after the meeting to take steps to keep their home. Lenders who aren’t able to set up a meeting with borrowers can begin the foreclosure process 30 days after they have demonstrated a good faith effort to work with the homeowner.
If you want assistance to stop or delay foreclosure, see our Avoiding Foreclosure page.
If you are wondering whether your other property is at risk, see our Personal Liability page.
Most California foreclosures are commenced in a non-judicial foreclosure proceeding, which means no court action is required. Though judicial foreclosure is available, lenders generally prefer non-judicial foreclosure because it is cheaper and faster.
The process is complex and full of technical regulations, so it is easiest to explain by giving an example. The foreclosure process typically follows the timeline below:
(1) PAYMENTS MISSED – A “default” has occurred.
(2) THE LENDER DECIDES TO FORECLOSE & ENGAGES A TRUSTEE – The lender decides to start foreclosure proceedings. The lender issues a Declaration of Default and Demand for Sale which is passed on to the foreclosure trustee and deposits the deed of trust and promissory note (the documents you signed when you got your loan) with a foreclosure trustee. The trustee will look at the documents and determine whether foreclosure should go forward. NOTE that under SB 1137, the lender MUST contact the borrower and make a good-faith effort to work-out the deficiency.
(3) NOTICE OF DEFAULT & SALE SENT – You receive the Notice of Default, signed by the lender or the trustee, that says you have failed to make your payments. This notice is filed at the County Recorder’s Office. It must be sent within 10 days of recording. The trustee will also conduct a search for those entitled to get notice of the foreclosure (tax liens, judgments, etc.)
(4) THREE-MONTH WAITING PERIOD – This waiting period allows you to reinstate payment. If you can get the money to make-up for the missed payments, the lender will stop the foreclosure proceedings.
(5) PUBLICATION OF NOTICE OF SALE – At the expiration of the waiting period, the trustee will place a notice in the local paper once a week for three weeks and place a sign at your home.
(6) NOTICE OF SALE WITH DATE – The trustee will send a certified letter to you and all lien holders advising the date and time of the scheduled sale, and file a copy of it at the County Recorder’s Office at least 14 days prior to the sale.
(7) TRUSTEE’S SALE & DEED – The trustee conducts an auction and the property is sold. The winning bidder has to pay in cash or its equivalent. The trustee then signs the property over to the winning bidder and documents the amount of debt on the property and the sale price.
(8) PROCEEDS DISTRIBUTED – The trustee will distribute the proceeds of the sale to the lenders and lien holders depending on their priority.
Remember, the banks do not want to own your home, and there are many options available that benefit both you and the bank. For more information, go to our Avoiding Foreclosure page to learn about many strategies you might consider to avoid and/or delay foreclosure.