While fewer homes in California are currently entering the foreclosure pipeline in the wake of the Homeowner Bill of Rights, the state still has one of the highest foreclosure rates in the country and many homeowners still face the scary prospect of losing their home. Don’t be caught off guard if you are facing a potential foreclosure. Read on to find out each step in a California foreclosure (from missing your first payment all the way to eviction) and learn about your rights during the process.
(To learn about programs to assist struggling California homeowners, visit our California Foreclosure Law Center.)
California Mortgage Loans
When you take out a loan to purchase a property in California, you sign a promissory note and a deed of trust. A promissory note is basically an IOU that contains the promise to repay the loan, as well as the terms for repayment. The deed of trust provides security for the loan that is evidenced by a promissory note.
Find out more in our article What’s the Difference Between a Mortgage and a Promissory Note?
To learn more about mortgage terminology, see our Glossary of Foreclosure Terms.
What Happens When You Miss a Payment
If you miss a payment, most loans include a grace period of ten or fifteen days after which time the mortgage servicer will assess a late fee. (Mortgage servicers collect and process payments from homeowners, as well as handle loss mitigation applications and foreclosures for defaulted loans.)
The late fee is generally 5% of the overdue payment of principal and interest. To find out the late charge amount and grace period for your loan, look at the promissory note that you signed. This information can also be found on your monthly mortgage statement.
Learn more about fees that the lender can charge if you’re late on mortgage payments.
What Happens When You Fall Behind in a Few Payments
Once you miss a few mortgage payments, your mortgage servicer will probably send a letter or two reminding you to get caught up, as well as call you to try to collect the payments. Don’t ignore the phone calls and letters. This is a good opportunity to discuss loss mitigation options and attempt to work out an agreement (such as a loan modification, forbearance, or payment plan) so you can avoid foreclosure.
Learn the difference between a loan modification, forbearance agreement, and payment plan.
To get more information about these and other options to avoid foreclosure, see our Alternatives to Foreclosure area.
Pre-Foreclosure Loss Mitigation Review Period
Under the federal Consumer Financial Protection Bureau servicing rules that went into effect January 10, 2014, the mortgage servicer must wait until you are 120 days delinquent on payments before making the first official notice or filing for any judicial or nonjudicial foreclosure under state law. This is to give you sufficient time to explore loss mitigation opportunities. (If a servicer's sole purpose of providing a notice is to inform you that you are late on your payments and/or explain what your loss mitigation options are, the servicer can deliver the notice within this pre-foreclosure period.)
Pre-Foreclosure Borrower Outreach Requirements
California law requires that your mortgage servicer personally contact you by phone or in person 30 days before recording a Notice of Default (which is the official start to the foreclosure process) to assess your financial situation and explore options to avoid foreclosure.
What Happens When Your Servicer Contacts You
During the initial contact, the mortgage servicer must advise you that:
- you have the right to request a subsequent meeting, and
- if requested, the mortgage servicer will schedule the meeting (which can occur telephonically) to occur within 14 days.
The assessment of your financial situation and discussion of options may occur during the first contact or at the subsequent meeting. Either way, the servicer must also provide you with the toll-free telephone number to find a HUD-certified housing counseling agency.
Find out more about housing counseling in our article Free Counseling in California for Struggling Homeowners.
What Happens if the Servicer Can’t Contact You
If the servicer cannot get in contact with you, it cannot record the Notice of Default until 30 days after it has doen all of the following:
- Sent a first-class letter that includes the toll-free telephone number made available by HUD to find a HUD-certified housing counseling agency.
- Attempted to contact you by telephone at least three times at different hours and on different days at the primary telephone number on file. (This requirement is deemed satisfied if the servicer determines that the primary telephone number, secondary telephone number, or any other numbers on file have been disconnected.)
- Sent a certified letter two weeks after the telephone requirements are met that provides a way for you to contact it in a timely manner, including a toll-free telephone number that will provide access to a live representative during business hours.
- Posted a prominent link on its website homepage with information about options to avoid foreclosure, financial documents borrowers should collect if they want to discuss such options, a toll-free telephone number to call to discuss alternatives to foreclosure, and the toll-free telephone number to find a HUD-certified housing counseling agency.
Additional Requirements for Certain Mortgage Servicers
Before recording the Notice of Default, certain servicers must also inform the borrower in writing:
- that the borrower may be entitled to protections under the Servicemembers Civil Relief Act, and
- of the right to request copies of the note, deed of trust, assignments, and payment history.
These outreach requirements are applicable to first lien mortgages or deeds of trust that are secured by owner-occupied residential real property that contains no more than four dwelling units.
The mortgage servicer does not have to contact you (or attempt to contact you) to assess your financial situation and explore options to avoid foreclosure if:
- You have surrendered the property as evidenced by either a letter confirming the surrender or delivery of the keys to the lender, servicer, or its agent. (Mailing the keys to the servicer or lender is sometimes called “jingle mail.”)
- You have contracted with an organization, person, or entity whose primary business is advising people who have decided to leave their homes on how to extend the foreclosure process and avoid their contractual obligations to lenders, such as a “walk away” service. (Learn more about "walking away," whichis also called strategic default.)
- You have filed bankruptcy and the bankruptcy court has not entered an order closing or dismissing the bankruptcy case, or granting relief from a stay of foreclosure. (Learn more in our Bankruptcy area.)
The Breach Letter
Additionally, most California deeds of trust contain a clause that requires the lender to send a notification letter (called a breach or demand letter) informing you that your loan is in default before it can accelerate the loan and proceed with foreclosure.
The letter must specify:
- the default
- the action required to cure the default
- a date (usually not less than 30 days from the date the notice is given to the borrower) by which the default must be cured, and
- that failure to cure the default on or before the date specified in the notice may result in acceleration of the debt and sale of the property.
If you don’t cure the default and the mortgage servicer has met all other obligations, the foreclosure process will begin (but not if you’ve submitted a complete application for a first lien loan modification and it is still pending).
Dual Tracking Is Not Permitted
California law bans dual tracking, which is where a servicer simultaneously evaluates a borrower for a loan modification and pursues a foreclosure of the property.
If you submit a complete application for a first lien loan modification, the servicer cannot start a foreclosure, record any foreclosure documents, or conduct a foreclosure sale while the application is pending. Even if the lender denies the loan modification, it still cannot proceed with foreclosure until any applicable appeals period has expired, which is generally 30 days from the date of the written denial.
California Foreclosure Process
Residential foreclosures in California are typically nonjudicial if there is power of sale clause in your deed of trust. This means the foreclosure happens outside of the state court system.
Notice of Default
The nonjudicial foreclosure process formally begins when the trustee, a third-party, records a Notice of Default at the county recorder's office. The Notice of Default includes information such as the nature of the breach and how to cure it.
Within ten days of recording, the trustee mails a copy of the Notice of Default to the borrower and anyone requesting such notice. Within one month, the trustee mails a copy of the Notice of Default to any other interested parties, such as the borrower's successor in interest and junior mortgage holders, among others.
The notice of default gives the borrower three months to cure the default.
Notice of Sale
If you do not cure the default, a Notice of Sale will be recorded. (It can be recorded up to five days before the end of the three-month period.) The Notice of Sale will contain the time and place of the sale, along with other information such as the property address. The foreclosure sale date must be at least 20 days after the end of the three-month period.
The Notice of Sale will be:
- posted at the property and in a public place in the city where the property is to be sold at least 20 days before the sale date
- published once a week for three consecutive weeks with the first publication occurring at least 20 days before the sale date, and
- mailed to the borrower, anyone who requested notice, and any successor in interest (among other parties) at least 20 days before the sale date.
Learn more about the difference between a Notice of Default and Notice of Sale in foreclosure.
The Foreclosure Sale
The borrower’s right to reinstate the loan expires five business days before the foreclosure sale date. (Learn more about reinstating a loan to avoid foreclosure.)
The foreclosure sale must be held between the hours of 9 a.m. and 5 p.m. on any business day, Monday through Friday, where the property will be:
- sold to high bidder, or
- revert to the foreclosing lender and become REO.
Deficiency Judgment Following Sale
A deficiency judgment is not allowed following a power of sale foreclosure in California. Since residential foreclosures are usually nonjudicial, this means that most Californians going through foreclosure don't have to worry about being on the hook for a deficiency judgment.
Find out more about Deficiency Judgments After Foreclosure in California.
Eviction Following Foreclosure
If you don’t vacate the property following the foreclosure sale, the new owner will likely:
- offer you a cash-for-keys deal, or
- take steps to evict you.
With cash-for-keys, the new owner offers you money in exchange for you agreeing to move out. This is cheaper and faster for the new owner than taking you to court for an eviction.
The eviction process starts with a three-day Notice to Quit. If you still don’t leave after three days, the new owner will go through the court system to evict you and obtain possession of the property.