California is a non-judicial state when it comes to the different types of foreclosure.  Although a lender can pursue a judicial foreclosure in California, it is very rare

As a non-judicial foreclosure state, the lender can foreclose on the property without involving the legal court system.  In California, the foreclosure process starts after the homeowner has defaulted in their loan payments.  Although technically, a foreclosure can start as soon as the first payment is reported delinquent; in reality most lenders wait until loan payments are 90 days late before they begin the actual foreclosure process.

The Foreclosure Begins

The period prior to a Notice of Default (NOD) payment being recorded ,and the first missed payment, is often referred to as the ‘pre-foreclosure period.'  Once the NOD has been filed, the actual foreclosure is underway.

The lender must file and record with the County Recorder a (NOD) that specifies everything pertinent about the defaulted loan and the property being held as security.  There is of course contact information giving the borrower the opportunity to make contact and redeem the loan.  The lender cannot take any further action, unless prompted by the borrower, for a minimum of 90 days from the recording date.

Once in the foreclosure process, the borrower not only has to cure the loan payments in arrears with all of the past due interest, late fees, and other penalties, but, also has to cure the legal fees billed to the account.  In most cases, just to file the NOD, most lenders are billed $1500.  As the process continues and the legal department accumulates more billable hours the fees increase and must be paid in full to cure a default.

Within 10 days of the NOD being recorded, a copy is sent by certified mail to each borrower and guarantor of the note at the address provided.  Anyone who has requested to be notified of any recorded documents, by special request, will also receive a certified copy of the NOD.

Just Who is Notified?

The next 20 days can be critical for the borrower who is looking to redeem.  Within 30 days of the NOD being filed a copy is sent by certified mail to all junior lien holders that the Deed of Trust is being foreclosed on.

During this time period, the lender orders a Trustee’s Sale Guarantee Report, which will provide the mortgage holder with all of the pertinent title information on the property.

The foreclosure remains dormant during the 90 day period that was started by the filing and recording of the NOD.  At this point, all the lender can do is sit back and wait.  This is the time when they (the lenders) will consider a short sale.  So unless the borrower contacts the bank to pay off the arrears or a short sale offer is presented, we just watch the clock tick for 90 days.

NOTE:  The 90 day clock is not an absolute.  There is no rule or law that says something MUST happen on day 91 – the rules of the game just prohibit the bank form taking any action prior to day 90.

The Publication Period

Have you ever seen the pages of PUBLIC NOTICES in the classified sections of the local papers?  Each one is about 3 to 6 inches in length.  They carry all sorts of notices about events that must be made public…and this is the way they do it.  In today’s newspapers  more and more space is being devoted to these public notices since homes in the foreclosure process have to be published no less than 3 times before the bank can take the property back.

Once the 90 Day redemption period ends, the publication period begins when a Notice of the Trustees Sale (NOS) is published in an adjudicated newspaper of general circulation in the city where the property is located. 

Once a week for three consecutive weeks the NOS is published.  The actual sale date is established by adding 20 days to the date it was first published in the newspaper.  In addition, a copy of the NOS must be posted on the property and in a public place.

In theory, this prevents a tenant from finding out about the sale of the property after it has taken place.  The Notice is posted so all occupants know what is going on.

The NOS must also be recorded with the County Recorder.  This must happen no less than 14 days prior to the actual scheduled sale date.

The Trustee’s Sale

Once all of the publication periods have been met, the property is sold to the highest bidder on the auction date.  The bidder must have cash (cashier checks) in the amount of the opening bid.  The opening bid must include the complete outstanding mortgage plus all of the arrears plus all of the legal fees and Trustee sale expenses.  If the home sells at auction for more than the opening bid, the buyer usually has a short period of time to pay the difference.

If there are not any bids at the Trustee’s Sale then the property will automatically revert back to the lender.  The Trustee records a Trustee’s Deed Upon Sale with the County Recorder transferring title to the foreclosing beneficiary and allowing them to immediately start marketing the property to recover as much of their debt as possible.  These properties are referred to as "Real Estate Owned" or "REO" properties by the mortgage industry.

What About the Second???

The second or any junior lien holder will in essence be wiped out by a Trustee’s Sale. In order to protect themselves they basically have a choice of three options…none of which are very pretty.

The first choice is to advance the necessary funds to bring the first lien current and then start the foreclosure process themselves for the amount they had to advance.

The second option is to bid at the auction to pay off all of the existing liens that are in front of them.

Third choice is similar to the second in that it involves bidding on the property at the foreclosure sale. 

What Does a Borrower Owe at the End of the Day?

In California a lender does not have the right to seek a deficiency balance in foreclosure if the debt is for purchase money of the home.  This protection is only for the first lien holder.  As far as I can tell, it has not yet been tested if the protection carries forward on a purchase money second – meaning the borrower took out two loans to close the deal when they bought the property – such as an 80-20 split.

Cash out loans leave the borrower vulnerable to collection and litigation efforts to collect on these debts.

Explaining the foreclosure process is something I do on a daily basis.  It is not very complicated, once you understand the timelines and what takes place during each portion of the cycle.

Please feel free to email or call me at any time if you have concerns or questions about your specific situation.  Remember, if you are experiencing a financial hardship and have, or plan on, missing your mortgage payment(s) you need to make the call now. After a confidential conversation with you, you will have enough information to determine the best course of action for your specific situation.  The worst thing you could do is DO NOTHING.  Unfortunately, the majority of homeowners who have their home foreclosed on never seek professional counseling.  There is an alternative.  Please give me a call.  I look forward to helping you in any way I can.

Glenn I. Revheim
Realtor and Certified Distressed Property Expert
RE/MAX Town & Country
Redding, California
Direct/Cell:  530-410-4242
Toll-free:  1-866-738-4346
Email:  Glenn@RemaxRedding.com