California Foreclosure Laws

Foreclosure laws are the legal procedures by which a lender repossesses collateral for a loan which is in default. These laws are normally applied when one defaults on mortgage repayments. The lender therefore obtains legal right to sell off the property due to non payment by the owner.

California is known a title theory sate. This means that property is held in trust by the lender until the underlying loan is fully paid. A deed of trust or mortgage document is used to secure title.

Non judicial foreclosure

The primary method of foreclosure in this state is non judicial foreclosure that does not involve court action.  The deed of trust document contains a power of sale clause, which allow sale of property to satisfy the underlying loan if the borrower defaults on payments. A trustee, acting on behalf of the lender effectuates the auction. When dealing with a non judicial foreclosure, very strict notice requirements and legal documents that contain the power of sale language are required.

The notice requirements are:

• The trustee/lender is required to record a notice of default in the county where property is located after substantial defaults of up to six months. This givens the borrower a redemption period.  The state requires that a minimum of 60 days must elapse before any further action is taken. At least 14 day before a foreclosure auction, a notice of sale must be recorded in the county where property is located. The notice must contain name and address of trustees, details on the property to be auctioned and the name of the lender.
• It is required that the borrower be given a 20 day notice before a foreclosure auction. The notice must be mailed to the borrower and be posted on the property in question. It should also be posted in a pubic place in the same county. At this point, the borrower can pay all outstanding arrears and stop the auction up to 5 days before the planned auction date.
• Foreclosure sales can occur any business day between 9am and 5pm at the location specified in the notice of sale. Property is auctioned to the highest bidder including the lender.

Judicial foreclosure

This state also allows for a judicial foreclosure where a ruling of foreclosure must be obtained from the court. This happens when the deed of trust does not contain the power of sale clause. A complaint is file in the county court as well as a lis pendens document. This is a public notice document that indicates that a property has a suit pending on it.

Process period

A non-judicial foreclosure that is not contested takes approximately 120 days to effect depending on the time taken to process the required notices. This process may take longer if the borrower contests the action in court seeking adjournment of auction or files for bankruptcy.

Redemption

The state of California has a complicated a statutory right of redemption, giving the borrower one year after foreclosure to redeem property by paying all outstanding mortgage premiums and all fees incurred. If the lender made a full priced bid for the property during a foreclosure auction, the redemption period is reduced to 3 months.

A lender if given a redemption period of 90 days after a notice of default is served during which no further foreclosure action can be taken.

Deficiency judgment

California operates a legal requirement known as a one action rule which means that in cases where a non judicial foreclosure is used a deficiency judgment is not permitted. The lender is only allowed to pursue one legal action.

Notice of sale

The state required that the notice of sale be published once a week for three weeks in a local newspaper, starting at least 20 days before the sale date.

Foreclosure laws may change from time to time. It is therefore important to seek advice from a qualified attorney to ensure that you obtain up to date details on the laws of foreclosure in any state.