Foreclosure is, for many, the last resort for property owners. With foreclosure, the homeowner abandons financial responsibility for the loan and ultimately allows the bank to reclaim the property. The official first step in this foreclosure process is the recorded Notice of Default. This occurs after the homeowner has stopped paying on the loan, usually after the third missed payment by the homeowners. After recording the Notice of Default, the homeowner has a right to remain in the home during the foreclosure process.THE CALIFORNIA FORECLOSURE PROCESS
In general, lenders can foreclose on a consumer one of two ways—judicial foreclosure and non-judicial foreclosure.
Common Type of Foreclosure in California: In California, lenders pursue the non-judicial foreclosure because all money-purchase loans in California are non-recourse loans pursuant to the California Anti-Deficiency Statutes. Non-recourse means that the only course of legal action the lender can take should the borrower default is to foreclose on the property.
In almost all foreclosures cases in California, the lender pursues a non-judicial foreclosure under a power of sale in the deed of trust because loans secured by a deed of trust (versus secured by a mortgage) usually have non-judicial foreclosures. (To clarify, the law says that if a loan is taken out in California and is then secured against the home, it’s considered a “deed of trust.” In other states, a loan secured against a home is considered a “mortgage.” In those states, the lender forecloses through a judicial (in court) foreclosure.
Timing Issues : The lender must contact the homeowner at least 30 days before sending a notice of default. The homeowner then receives a 90-day notice of default and a 21-day notice of sale. The minimum time from beginning to end for the foreclosure process is four months. In today’s climate, the time for a foreclosure to be completed by a lender can take much longer than four months—sometimes taking as long as several years.
Redemption After Sale in Non-Judicial Foreclosure : None—if deficiency is waived or prohibited.BENEFITS (YES, BENEFITS) OF FORECLOSURE
No deficiency judgments if loan one and/or loan two are money-purchase loan. If money-purchase loan(s), then the only recourse the lender has is to foreclose on the home. This means that after the home is sold at auction (trustee’s sale), the lender cannot seek a deficiency-judgment against the borrower post-sale.
Free rent : Homeowner can remain in the property for the entire foreclosure process rent-free, allowing the homeowner to SAVE the money—towards moving costs, toward paying down credit-card debt and/or saving money towards a down payment on a new home! For some, the foreclosure process can take several years . . . imagine the savings!
No debt-forgiveness taxes on money-purchase loans because, simply put, there is nothing for the lender to forgive. Pursuant to the California Anti-Deficiency Statutes, the lender is prohibited from pursuing any action to collect on the deficiency; thus, there is nothing to forgive. (Compare: Home equity lines of credit or equity home loans must be foreclosed judicially because these types of loans are not secured by a mortgage or deed of trust, but rather by a security agreement; thus, the borrower is subject to deficiency-judgments.)IDEAL FORECLOSURE CANDIDATE
- Homeowner whose home value is at least 25% less than the current amount owed on the mortgage.
- One or all home loans are money-purchase loans.
- Homeowner does not have any other types of loans, e.g. equity home loan or HELOC.
- Refinance not an option.
- Loan modification is not an option.
- Loan Modification—HAMP loan or in-house loan
- Bankruptcy—to keep house or delay foreclosure (and buy you time to consider other options, e.g. loan modification or short-sale)
- Deed In Lieu of Foreclosure
- Loan Forbearance—to buy time to catch up on arrears
Nolo’s Foreclosure Survival Guide