Understanding the foreclosure process in California is important if you find yourself having trouble making mortgage payments.
We give you some background on foreclosures and what to do if you find yourself in this situation.
What is foreclosure anyway?
Foreclosure is the legal process that lenders use to take back property securing a loan, generally after the borrower stops making payments.
Foreclosure is no fun. But just know that it’s not the end of the world.
When you know how foreclosure in California works… it arms you with the knowledge to make sure you navigate it well and come out the other end as well as possible.
The Basic Stages of A Foreclosure
There’s a few stages that are important to any foreclosure process.
Foreclosure works differently in different states around the country.
The two ways different states use to foreclose upon a property are: judicial (in court) or non-judicial (out of court). California is a non-judicial state, although judicial foreclosures are allowed (but not common).
In either scenario, foreclosure typically doesn’t go to court until 3-6 months of missed payments have elapsed. Usually (but not always), a lender will send out many notices that you are in arrears – overdue or behind in your payment.
Under Non-Judicial Foreclosure:
- The mortgage lender serves you with papers demanding payment, called a Notice of Default (NOD) and the courts are not required – although the process may be subject to judicial review. This is the “pre-foreclosure” period.
- The NOD is mailed to you and all interested parties.
- Three months after the NOD is filed, a bank can file a sale date, which is done through a trustee (the sale is called a trustee sale).
- You have until 5 days before the sale date to remedy all past due balances and accrued costs for the bank’s filings.
- If the default is not remedied, the trustee can then sell your property for the lender at a public auction (notice must be given).
Anyone who has an interest in the property must be notified during either type of foreclosure.
For example, any contractors or banks with liens against a foreclosed property are entitled to collect from the proceedings of an auction.
What Happens After A Foreclosure Auction?
After a foreclosure is complete, the loan amount is paid off with the sale proceeds.
Sometimes, if the sale of the property at auction isn’t enough to pay off the loan, a deficiency judgment can be issued against the borrower.
A deficiency judgement is where the bank gets a judgement against you, the borrower, for the remaining funds owed to the bank on the loan amount after the foreclosure sale.
Some states limit the amount owed in a deficiency judgment to the fair value of the property at the time of sale, while other states will allow the full loan amount to be assessed against the borrower.
Here’s a great resource that lists the state by state deficiency judgement laws, since every state is different.
Generally, it’s best to avoid a foreclosure auction. Instead, call up the bank, or work with a reputable real estate investment company like Skye Homes to help you negotiate discounts off the amount owed to avoid having to carry out a foreclosure.
Experienced investors can help you by negotiating directly with banks to lower the amount you owe in a sale – or even eliminate it, even if your home is worth less than you owe.
If you need to sell a property in the Bay Area, we can help you.
We buy houses in the Bay Area like yours from people who need to sell fast.