California Law allows for two types of foreclosures, judicial and non-judicial foreclosures. While judicial foreclosures are considered in situations where there might be a deficiency, due to the time and expense, it is almost never pursued.
Instead, almost all lenders choose the ostensibily “speedier” remedy to foreclose on defaulting mortgages through non-judicial foreclosures by following statutes primarily codified in California Civil Code Section 2923 and 2924. These statutes provide a series of steps that must be followed.
First, under SB 1137 (Perata Mortgage Relief Bill) that was partially codified in Civ Code 2923.5, a lender is required to contact the borrower 30 days prior to recording a notice of default to explore options besides foreclosure. If the borrower is unreachable, the creditor must satisfy due diligence requirements before filing the notice of default.
After the financial consultation and exploration of alternatives is completed or meeting the due diligence requirements, the owner of the note (beneficiary) can issue a notice of default by providing a copy to the borrower and by recording it with the County Recorder’s Office.
The default notice must include information such as the property being foreclosed upon, the lender’s name, the fact that the homeowner has defaulted, and the amount required to cure the default.
From there, the creditor must wait a minimum of 6 months due to two statutes. Under Civ Code 2924, the foreclosing party must wait a minimum of 3 months before proceeding. Under Civ Code 2923.52, the bank must wait an additional 90 days before filing a notice of sale. After the notice of sale has been publicized and recorded, the foreclosing party must wait an additional 21 days to have the foreclosure sale.
Once the trustee’s sale has been completed, the purchaser of the foreclosed home must record the Trustee’s Deed Upon Sale, the document which gives the bidder at the foreclosure sale ownership of the property.
After the sale, the bidder has title, but not possession of the property if the borrower is still living in the property or if tenants occupy the property. From there, if the previous tenants have not vacated the premises, an unlawful detainer action must be initiated. To start the eviction process, the new owner must first provide the residents of the home a 3 day notice to quit.
After the eviction notice period has expired, the landlord must wait an additional 90 days or the length of the lease if the residents were tenants in the home at the time of foreclosure due to the federal Helping Families Save Their Home Act. If there were no renters, an unlawful detainer action (UD) can begin immediately by filing the UD complaint.
Within 5 days of service of the UD, the resident of the property must respond by filing an answer. If the tenant responds, the court will usually set a trial within 20 days. If the bank is successful at the UD trial, the lender will receive an order from the Judge which will let the Sheriff evict the tenant.
In total, the foreclosure and eviction process could take approximately a year to complete.
Practice Pointer – Not all loans are subject to Civ Code 2923.5. For example, the loans must have been made between January 1, 2003 and December 31, 2007. Additionally, it must be the first deed of trust on the borrower’s principal residence.
Further, the borrower cannot have surrendered the property, filed for bankruptcy, nor have hired a company where the primary business is to advise people who have decided to leave their homes on how to extend the foreclosure process.
Additionally, Civil Code 2923.53 exempts any banks that have a commissioner approved loan modification program from the additional 90 day waiting period mandated under Civ Code 2923.52.
Finally, once the bank becomes the owner of the property, they are required to maintain the property. If the bank fails to maintain the property, SB 1137 provides for damages of $1,000 per day and there may be other local housing codes which may have individual fines.