Most Common Foreclosure Type in California
The most common foreclosure type in California is the non-judicial foreclosure. California is a title theory state, which means the title (ownership) of a property remains in possession of a trustee (lender, title company) until the principal loan is paid off in full. The legal document securing the title is typically called the deed of trust, but it may also be known as the mortgage.
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Identification
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A foreclosure is the legal process by which a lender can take possession of your property when you default on your mortgage. The lender can then begin the often lengthy foreclosure procedure, by giving a Notice of Default. During this pre-foreclosure phase, you can pay off the monies owed and avoid eviction and sale of your property, or the foreclosure process continues if payment is not made.
Types
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All states do not follow the same foreclosure procedures, but there are basically two types of property foreclosures: judicial and non-judicial. A judicial foreclosure requires the lender to file a lawsuit with the court to obtain an order to foreclose, due to the absence of a power of sale clause in the mortgage or deed of trust contract. A non-judicial foreclosure happens when a power of sale clause does exist, and the lender can sell the property for payment of the loan in the case of default by the borrower, who pre-authorizes the sale by signing the mortgage or deed of trust contract.
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Significance
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In a judicial foreclosure, once the court issues an order, your property will be sold at auction to the highest bidder, and the lender may be able to get a deficiency judgment against you for any amount not covered by the proceeds of the sale. In a non-judicial foreclosure, the lender has the power to execute the sale of your property without a court order, but he must follow the specific guidelines as set forth in the power of sale clause. The non-judicial foreclosure is the most common foreclosure type in California due to the state's "one-action" rule.
One-Action Rule
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California's one-action rule prevents a lender from obtaining a deficiency judgment once the lender has chosen to foreclose by non-judicial means. Lenders in California are limited to recovering the debt owed on a loan through the foreclosure process, unless the property is worthless or the lender's lien has been eclipsed by a previous foreclosure or senior lien of another secured creditor. Lenders then have the option to initiate sale of the property through foreclosure and auction, or they can opt for a judicial foreclosure and possible subsequent deficiency judgment.
Power of Sale
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The power of sale clause specifies the place, time and terms of the sale of a foreclosure property, and the lender must follow the procedure guidelines as set forth in the clause. The notice of sale must include the location and time of the foreclosure sale, along with the property address, name, address and phone number of the trustee and a declaration that the property is to be sold at auction. A borrower has up to five days prior to the auction to remedy the default and stop the foreclosure process.
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