In spite of the general appearance of our economy rebounding and seeing steady growth, the State of California remains a hot bed for real estate defaults and foreclosure proceedings. While the reasons for this vary, it is important that everyone become more acclimated with the California foreclosure process to better protect oneself from this daunting possibility.
The Deed of Trust
In California the document used to secure the title is typically called a “deed of trust.” These documents are also often referred to as a “mortgage.” As a title theory state, the procedure for a California mortgage falls under the category of a trust, wherein title remains until the loan is paid off in full.
When a home in California is being foreclosed on, it is typical that the non-judicial foreclosure process is used. Meaning, the courts do not get involved. In fact, when you sign the initial deed of trust, a contingency known as the “power of sale clause” is usually part of the documentation. This contingency allows the trustee to sell the property upon default in order to satisfy the underlying defaulted loan. In this case, the trustee is acting as a representative of the lender (typically a bank) in order to push the sale of a property. Once the trustee has notified the owners of the property that a default has occurred and provided them with an opportunity to remedy the default, the next step is that the property is sold, most notably by way of auction.
With that said, it is important to recognize that California non-judicial remedies have meticulous notice requirements and the mortgage documents are required to contain the power of sale language in order to use this type of foreclosure method. If the Power of Sale language is not included in the loan documents, then Judicial foreclosures are permitted in California.
Power of Sale Notice Requirements:
- A notice of default is recorded in the county where the property is located after a default on payment has occurred. However, the foreclosure process does not move forward for a minimum of 60 days. A notice of sale containing the name and address of the trustee, certain disclosures (including that the property is about to be lost to foreclosure sale), the name of the beneficiary, and other information must be recorded in the county in which the property is located at least 14 days before any foreclosure sale. We refer to this time period as the publication period.
- Furthermore, the borrower must be provided with a 20 day notice before any foreclosure sale, The notice must be (a) mailed to the defaulting borrower and other creditors whose liens affect the property, and; (b) be posted on the property being foreclosed upon, as well as, in a public place in the county where the sale is moving forward. At this point, the defaulting borrower may prevent the foreclosure sale by paying off the outstanding balance up to five (5) days before the sale.
- If the payments are not made by the borrower, as specified above, a Foreclosure sale will likely move forward. At that time, the trustee will auction the property to the highest bidder, which can include the lender. Often times, there is a reserve price. If none of the bids come in above that reserve price, then the lender holds onto the property.
As noted above, in the event that the trust does not contain the power of sale language, the lender may seek judicial foreclosure. In this scenario, the property is then sold as part of a publicly noticed sale.
Does California have a Right of Redemption?
In a nutshell, the answer is YES! Borrowers do have an opportunity that would allow a party whose property has been foreclosed to reclaim that property by making a full payment of the total amount of unpaid loan, plus costs. This can occur as follows:
1 year after the foreclosure sale. The exception to this is when the original lender makes a full price bid on the property. In that event, the right of redemption period would fall to 3 months. Granted, it is rare that borrowers are able to act on their right of redemption, as they are required to pay the entire loan, plus costs.
Contact the Real Estate Attorneys at Jafari and Jafari Law today if you are in trouble making your loan payments, have been provided with a notice of default or fear that your home could be foreclosed on. There are legal options available to you that we would be happy to assist you with.