In California, 99% of foreclosures are non-judicial: the deed of trust or mortgage authorizes the lender to foreclose if the loan is in default, without needing to go to court first. Non-judicial foreclosures must conform to California Civil Code (CC) §§ 2920-2944.7, which contains very specific procedures. In 2013, the California Homeowner’s Bill of Rights (HBOR) added significant protections for homeowners facing foreclosure, including new notice requirements and prohibitions on “dual tracking” (pursuing foreclosure while a completed loan modification application is pending).
When a lender or loan servicer decides to begin the foreclosure process, it must follow these steps:
- Contact the borrower (or make diligent efforts to contact the borrower) to assess the borrower’s financial situation and explore options for the borrower to avoid foreclosure. These options may include loan modifications, short sales, etc. Until Jan. 1, 2018, large servicers must also provide notice of the homeowner’s right to copies of loan documents, and any applicable Servicemembers Civil Relief Act rights. CC § 2923.55. In addition, upon request, the servicer must provide a “single point of contact,” one employee who handles all communication with the borrower. CC § 2923.7.
- Thirty days after the lender contacts the borrower, if the borrower has not submitted a complete loan modification application, the lender may record a “Notice of Default” (NOD). The Trustee mails the borrower a copy of the NOD within 10 days of recording it. CC § 2924b(b). (If the borrower has submitted a loan modification application, the lender cannot record a NOD until the completed loan modification application has been resolved. CC § 2923.5, § 2923.55)
- Large lenders only: within 5 business days after recording a notice of default, a mortgage servicer that offers foreclosure prevention alternatives must send a written communication explaining the alternatives and how to apply. CC § 2924.9(a).
- Recording the NOD commences a three-month “reinstatement period” in which the borrower may cure the default by paying all delinquent payments and late charges, plus Trustees’ fees and expenses. CC § 2924. Even after the three months are up, the borrower retains this reinstatement right up until 5 days before a scheduled Trustee’s Sale. CC §2924c(e).
- The Trustee schedules a sale by recording and publishing a “Notice of Trustee’s Sale” (NOTS), sending the NOTS to the borrower, and posting the NOTS both at the property and in a public place. (If the borrower has submitted a completed loan modification application, the lender cannot record an NOTS until the loan modification application has been resolved. CC § 2923.6.)
- The borrower may reinstate the loan by paying all delinquent payments and late charges, plus Trustees’ fees and expenses, up until 5 days before a scheduled Trustee’s Sale. CC § 2924c(e). The borrower may redeem the property by paying the entire debt plus all costs at any time before the Trustee’s sale. CC §§ 2903-2906.
After a non-judicial foreclosure sale, the lender may not sue the borrower for any difference between the selling price at the auction and the balance of the mortgage (a “deficiency judgment”). The borrower no longer has the right to reclaim the property by paying off the mortgage plus costs and fees (“right of redemption”). NOTE: second mortgages are not exempt from deficiency judgments.