Understanding Foreclosure in
There is still a significant amount of foreclosure activity in the state of California. Even while there was a 15 percent drop in the overall number of foreclosures in 2016 compared to the previous year, there were still more than 78,000 residences that were put up for auction. In the second quarter of 2017, around 3.6 percent of mortgage loans in the state were underwater, which is a decrease from the 5.2 percent that were underwater a year earlier.
Despite all of this, homeowners all around the state of California are still having trouble making their payments and dread hearing from the bank that they have decided to foreclose on their homes. The question now is, how does the process of foreclosure actually work? And how can Californians face foreclosure?
Here we explain the basics of foreclosure in California—and how to stop it—, and what to know about this process in California.
What is Foreclosure?
When a borrower is having financial hardship and is unable to keep up with their mortgage payments, the mortgage lender has the right to take ownership of the property and sell it at auction. This process is known as foreclosure. The vast majority of mortgage loan arrangements give the lender the legal right to repossess the property in the event that the borrower fails to repay the debt. This allows the lender to recoup as much of the unpaid loan amount as feasible.
There are distinct variations of the process of foreclosing on a home used in different jurisdictions in federal and state laws across the United States. The steps that must be taken to foreclose on your home depend in part on the laws that govern your state—California law, in this case—and community and in part on the terms of your mortgage loan contract.
Types of Foreclosure
These are the most common types of foreclosure in California:
The term "judicial foreclosure" is used to describe foreclosure cases that are heard in the judicial system. When a home is sold to satisfy outstanding financial obligations, this process is known as foreclosure. The process is carried out in accordance with the legal requirements of the jurisdiction in which the property is located, which is generally always under state legislation.
In the event that the court determines that the mortgage payment has been missed, the court may order an auction to be held in order to sell the property and gather the necessary funds to reimburse the mortgage lender. This is in contrast to nonjudicial foreclosures, which involve no involvement from the courts in the processing of the foreclosure. In judicial foreclosures, the borrower is also entitled to the right of redemption, which is the right to retake the home from any new owner for up to one year after the sale of the property through a judicial foreclosure. Overall, judicial foreclosures are rare in California for this reason.
Non-Judicial Foreclosure (Power of Sale)
This technique, also known as statutory foreclosure, is legal in California and it is one where the mortgage contract has a power of sale clause.
This contract provision permits a lender to conduct an auction to sell a foreclosed property without involving the courts, as long as the lender provides appropriate notice to the borrower and adheres to a mandatory waiting period that varies by state and location. Although the power of sale foreclosures typically take less time than judicial proceedings, in California, a borrower only has five days up to the day of the sale to find a solution to the foreclosure, mostly acquiring the funds to pay back the mortgage.
Non-judicial foreclosures are the most common type in California because it’s an easier process for lenders. Borrowers don’t have a right to redemption through the courts, but lenders also don’t have the right to a deficiency judgment and thus have to rely solely on the auction to make up for the amount owed on the mortgage.
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Why Foreclosure Occurs in California
Foreclosure affects many states, but in recent years, it has been affecting California more than usual. Some states that posted the most significant number of foreclosures in 2021 are California with 3,434 foreclosure starts, Texas with 2,827 foreclosure starts, Florida with 2,546 foreclosure starts, and New York with 1,363 foreclosure starts.
How Foreclosure Affects Your Credit
Because of the foreclosure process, the homeowner's credit score may be severely impacted. According to FICO, a foreclosure can lower your credit score by as much as 100 points. Foreclosures can lower your credit score by as much as 160 points if your credit rating is actually even better than average.
The Foreclosure Process in California
Non-judicial foreclosures are common in California. That means that a judge and a court are not involved in the foreclosure process. To proceed with a foreclosure, the lender and their designated trustee must merely file and record documents on the title to the property they wish to foreclose on in accordance with the letter of the law. This is both good and bad at the same time. It's bad for borrowers because it can move at a rapid pace. Even so, a non-judicial foreclosure is quicker than a judicial foreclosure in Florida, where a judge must always sign off on the foreclosure procedure.
California Foreclosure Timeline
The foreclosure process in California usually happens within the next phases:
If the terms of your mortgage or deed of trust require it, the bank may send you a breach letter giving you a 30 days notice of its intent to launch an action to foreclose on your home. In addition, the law of several jurisdictions mandates that the lender provide the borrower with a pre-foreclosure notice.
When Foreclosure Starts
You'll get a summons and complaint when a judicial foreclosure action is filed in the proper court. Most persons have 20 to 30 days to reply to a lawsuit after receiving notice of it. The foreclosure process can take months or even years to be decided by a judge if a response is filed in opposition.
Notice of Default
The lender or bank may send a breach letter to you if the conditions of your loan agreement have been violated. In California, the Notice of Default gives the borrower 90 days to “cure” the default, meaning they have to pay what they owe in the mortgage. If that does not happen, then the lender files a Notice of Sale.
Notice of Sale
The Notice of Trustee Sale announces that the lender will auction the property in 21 days. The Notice is sent through certified mail, published weekly in a local periodical (news outlet), posted on the property, and even in a public place like a library or town hall. Included in the Notice of Sale are the date, time, and location of the auction.
The borrower can still get their home back if they pay or cure the default five days before the sale. If not, the home is sold at an auction. The highest bidder must deliver the payment in full right away, with cash or a certified check.
A foreclosed property can lead a homeowner to leave their house, but they can't be evicted. When a mortgage holder is unable to collect on a loan, foreclosure is the only option left to them to recuperate their losses. And even so, the new owner can’t just enter, change the locks, and move in if the previous homeowner (who lost the home in the foreclosure) is still living there. The new owner will have to evict the old resident through a process known as an unlawful detainer. If there were tenants on the property, those tenants have the right to stay there even after foreclosure unless the leases depended on the deed of trust.
The Rights You Get In a California Foreclosure
In California, judicial foreclosures are extremely uncommon. A shortfall judgment against the borrower can be obtained in a judicial foreclosure. However, for a period of one year following the auction, the victorious bidder may lose the home to the original owner who exercised his or her "right of redemption."
A "breach letter" clause is frequent in mortgages and deeds of trust, requiring the lender to notify the borrower first that the loan is in default before accelerating the loan and starting the foreclosure process. The foreclosure process cannot begin until at least 30 days after the breach letter or initial contact with the borrower. The lender must let the borrower know they have the right to meet with the lender about how they can avoid foreclosure and “cure” the problem.
How to Avoid Foreclosure
While facing the possibility of foreclosure on your house is frightening, it is not always unavoidable. There are many tools and solutions available to assist you with staying in your house, as well as loss mitigation strategies if staying in your home is no longer possible. Here's how to avoid losing your home to foreclosure before it's too late.
Reach Out to Your Lender Before You Miss a Payment
Prior to the due date, contact your mortgage lender and explain your circumstance. They might be able to provide solutions. Loan forbearance, which allows you to continue making payments while your income fluctuates, and loan modification, which extends the duration of your mortgage while lowering your monthly payment, are two options you may want to consider. Your credit rating, the number of payments you've already made on your loan, and whether you've previously missed or been late on payments all play a role in a lender's readiness to make concessions.
Reinstating the Loan
In a nonjudicial foreclosure, the legislation of the state of California states that the borrower has the right to restore the loan at any moment up until five working days before the foreclosure sale date. This is called “cure the default.”
Redeeming the Property Before the Sale
"Redeeming" the property after it has been foreclosed on is one approach to stop the process. Before the foreclosure sale, you will need to make full payment on the loan balance in order to avoid losing your home.
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Foreclosed borrowers in some states are also afforded the opportunity to buy back their homes during a period of time called the redemption period, which follows the sale of the property at auction. However, after a nonjudicial foreclosure, borrowers in California are not granted a statutory right of redemption under the state's legal system. You are unable to reclaim your California house after the foreclosure process has been completed. (The current balance owed as well as all accounting details about your mortgage can be found on monthly mortgage statement.)
Get a Mortgage Forbearance
Mortgage forbearance is a short-term adjustment to your payment schedule that is agreed upon between you and your lender. Your monthly payments may be reduced or even suspended for a period of time, usually no more than 12 months, depending on the terms of the forbearance agreement.
There is no permanent change to your mortgage as a result of forbearance, and the provisions of the agreement call for recovery of any cash not paid during the forbearance period.
Ask For a Mortgage Modification
In order to lower your monthly payments and get your account current, a mortgage modification will permanently change the terms of your loan. Your total debt is increased by the amount of any forbearance relief granted to you, and the new payment schedule takes this additional debt amount into account. Mortgage modification might result in a considerable increase in the amount of money you'll have to pay back over the course of the loan, as well as an extension of the time period over which you must make payments.
Under federal foreclosure laws and federal mortgage servicing laws, your servicer has to—or at least attempt to—contact you by phone to discuss loss mitigation options such as loan modification no later than thirty-six days after missing a payment, and again within the same amount of days after each consecutive delinquency. If you have more questions about the foreclosure laws, like the California Homeowner Bill of Rights or California's COVID-19 Small Landlord and Homeowner Relief Act of 2020, consider talking to a foreclosure attorney.
Contact the U.S. Department of Housing
If you're having trouble making your mortgage payments, you should speak with your lender or loan servicer immediately about your financial situation to learn about the foreclosure avoidance measures available. Suppose you're having trouble articulating your need for mortgage relief with your mortgage servicer or lender. In that case, organizations such as the US Department of Housing can assist you by contacting lenders and servicers on your behalf.
Wrongful Foreclosure Litigation
Wrongful foreclosure occurs when a foreclosure lawsuit is filed using inappropriate means. Many people are unaware that wrongful foreclosure is more widespread than they think. Because each case is different, the best technique for proving a wrongful foreclosure complaint will differ from case to case. In any case, the plaintiff must be able to demonstrate that the mortgage lender acted in bad faith.
Last Resort Methods to Avoid Foreclosure
Is nothing working out? Try these last-resort methods to avoid foreclosure:
One of the potential solutions is to declare bankruptcy. Your home's foreclosure will most likely be delayed rather than stopped as a result of this action. You might be able to negotiate a lower payment schedule with your lender after filing for bankruptcy. This is almost the same as getting a loan modification.
There is another option if you don't have any equity in your home: a short sale. This has become so widespread in the last few years that most of the population understands it well. While most lenders have improved their short-sale management, the process can still be lengthy.
Finding a Cash Buyer
A cash buyer may be your only choice if all other options have failed. A cash buyer like Sell My Home Fast will be able to pay off your debt up until the point of sale. The closer the sale gets, the fewer options you'll have, and the lower the cash price will almost certainly be.
Anyone buying a foreclosed home in California must include special wording in the contract that gives the seller five days to change their mind. Furthermore, the buyer is unable to pay the seller until the five-day period has passed.
Where to Find Help
There are options available to assist you in avoiding foreclosure. If you wish to keep your house, for example, you may be eligible for a loan modification, forbearance, or repayment agreement —by contacting your lender and seeing if you are eligible. Also, you might be able to negotiate a short sale or deed in lieu of foreclosure if you want to leave the property without going through a foreclosure. Now, if your loan is owned or backed by the government, you may be eligible for a special repayment plan by contacting the US Department of Housing.
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The process of going through a foreclosure can be extremely upsetting. However, you may be able to avoid foreclosure if you take action as soon as you begin to struggle with your mortgage payments. To help avoid foreclosure, here are some pointers:
Avoid Foreclosure Scams
Unsavory persons and groups exploit people facing financial trouble and foreclosure, and one way of doing it is by using antiquated programs. Be aware of groups who suggest outdated programs like the FHA Home Affordable Program or Making Home Affordable. These legal programs were created following the 2008 subprime mortgage crisis and aren't taking new candidates.
It's not always possible to avoid foreclosure — yet it's not a death sentence for your finances. It's best to look for safe housing for yourself and anyone else who lives with you. Keeping calm will maintain you with better chances of overcoming this hardship.
Familiarize Yourself with California Deficiency Judgment Laws
Deficiency judgments are only allowed in California following a Judicial Foreclosure and if the Anti-deficiency Act does not apply. The California statute expressly states that shortfall is not permissible on purchase money loans. If you have a chance to understand more of the California Deficiency Laws, you’ll be a step ahead of it all.
It is our goal at Sell My Home Fast to make your home-selling experience as painless as possible, so you can reap all of the benefits of selling without having to worry about commissions, hidden fees, pricey significant repairs, or any strings attached. Are you facing foreclosure? Let us help you and contact our team today!
If you have any further questions, please contact our team at Sell My Home Fast and let us assist you.