California Law on Foreclosures
The foreclosure process and laws associated with foreclosures are situated predominantly in state law. About half the states use a judicial process, which requires a lawsuit. Most of the other half allow lenders to choose between a judicial or nonjudicial process. California is one of the states in which lenders have the choice. The vast majority of time, lenders choose the nonjudicial process because it is less expensive and quicker.
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Beginning a Foreclosure
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A nonjudicial foreclosure process is essentially a series of notices spelled out in state law. In California, the steps are laid out in Sections 2923 and 2944 of the state's Civil Code. Before beginning the process, the law requires lenders to contact a borrower in person or by phone to assess the borrower's financial situation and explore the foreclosure option. No sooner than 30 days after this initial contact may the lender initiate the foreclosure process by writing, recording and mailing the borrower a notice of default (NOD), which identifies the mortgage, the borrower and the breach of contract resulting in the loan default.
Notice of Sale
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No sooner than 85 days after the NOD is recorded, the lender or a trustee identified in the property's deed of trust must mail the borrower and tenants, if any, a notice of the property's sale at auction. The sale cannot be sooner than three months and 20 days after the filing of the NOD. The California property is sold to the highest bidder, which is often the lender in cases when the mortgage is more than the value of the property.
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Deficiency Judgments
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A deficiency judgment is a court judgment against a borrower for the difference between a home's value and the outstanding mortgage debt. In other words, it is a judgment for what remains of the mortgage debt after the lender forecloses. Most states allow lenders to file for a deficiency judgment; a few do not. In California, two rules apply to deficiency judgments. First is what is known as the "one-action" rule. This requires lenders that intend to pursue a deficiency judgment combine that process with the foreclosure process -- in one action, through a judicial foreclosure. Second, lenders in California can only obtain deficiency judgments against borrowers with refinanced loans. "Purchase money loans" -- loans used to purchase the property -- are exempt from deficiency judgments.
Other Debt, Other Judgments
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If you have a second mortgage and that lender does not participate in the foreclosure, it has the right to pursue a judgment against you for the loan balance even after you've lost the house. It comes after you in the same way a credit card company does: It starts with collections calls and eventually files for a judgment against you for the unpaid debt. Rather than using foreclosure laws, it uses basic collections laws and the promissory note you signed, promising to repay the loan.
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References
- Foreclosure.com: How Are Mortgage Liens Treated in California?
- State of California: Civil Code Section 2920-2944.7
- RealtyTrac: Foreclosure Laws and Procedures by State
- Bloomberg; Lenders Pursue Mortgage Payoffs Long After Homeowners Default; Kathleen Howley; January 2010
- Maldonado & Markham, LLP; Foreclosure Law in California and Related Matters; William Markham; 2000
- Nolo: Dealing With Collection Agencies FAQ
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