My husband and I live in California and have been having trouble finding a home to buy in the area we like. (Median home prices here are going through the roof!) I just heard that there's a house being foreclosed in a neighborhood where we'd love to live. We’re super-interested, but also worried about buying a home at a foreclosure sale. I heard that the homeowners might be able to get the house back even after the foreclosure. Can this be real? Could the former homeowner really undo our purchase of the property and make us move out again?
Yes, it is possible, although very rare, for California homeowners to get the home back after the foreclosure. They would do so by paying you the purchase price you paid at the foreclosure sale, plus various other charges. This is called redeeming the property.
However, foreclosed homeowners in California get the right to redeem the property only if the foreclosure was judicial (as opposed to nonjudicial) and meets certain other criteria.
We’ll describe below what these different types of foreclosures are and how California’s redemption laws might affect your ability to settle into your new home without fearing that you’ll eventually lose it.
California Foreclosures May Be Carried Out in Two Different Ways
Most residential foreclosures in California are nonjudicial, which means the lender does not have to go through state court to foreclose. Judicial foreclosures, in which the lender files a lawsuit in court, are also possible.
As you’ll see below, if the foreclosure is nonjudicial, the former homeowners won’t have the right to redeem the property, which is good news for you.
How to find out whether the foreclosure is nonjudicial or judicial. One way to find out which type of foreclosure process the lender is using is to go to www.zillow.com. You’ll first need to sign up for a free account and log in, otherwise you won’t be able to view all of the foreclosure information. Find the home by entering the address in the search box. This pulls up a map of the neighborhood. Then click on the home’s address, which is a link to its webpage. Scroll approximately one-third of the way down and click on “More foreclosure information.” This will tell you if the foreclosure is nonjudical or judicial. (If you want to call someone to get information about the foreclosure, you can typically find the name and phone number of the foreclosure trustee or attorney on this screen as well.)
You can also check the foreclosure sale notice in your local newspaper. If a “trustee” (a third party that administers nonjudicial foreclosures) is selling the home at a trustee’s sale, this means the foreclosure is nonjudicial. (Sometimes foreclosure notices are also available online at the newspaper’s website.)
California Homeowners Can’t Redeem After a Nonjudicial Foreclosure
In California, the foreclosed homeowners have no right to redeem the property after a nonjudicial foreclosure.
California Homeowners’ Right to Redeem After a Judicial Foreclosure
If the foreclosure is judicial, the homeowners may redeem the property within:
- three months after the foreclosure sale if the sale proceeds were sufficient to cover the total debt that the homeowners owed, or
- one year after the foreclosure sale, if there was a deficiency (Cal. Code Civ. Proc. § 729.030.) (A “deficiency” occurs when the foreclosure sale price is less than the total debt that the homeowners owed. To find out whether there was a deficiency, check with the court.)
However, if there is a deficiency and the lender waives the right to get a deficiency judgment (a personal judgment against the homeowners for the amount of the deficiency) or California law prohibits a deficiency judgment under the circumstances, the former homeowners don’t get any redemption period (Cal. Code Civ. Proc. § 726(e)).
(Learn more about when the lender cannot pursue a deficiency judgment in Nolo’s article Deficiency Judgments After Foreclosure in California.)
How Much the Foreclosed Homeowners Must Pay to Redeem
In order to redeem the property, the foreclosed homeowners would have to pay you the amount you paid at the foreclosure sale, plus all allowable charges such as:
- the amount of any assessments or taxes
- reasonable amounts you paid for fire insurance, maintenance, upkeep, and repairs
- the amount of any prior liens that you paid, and
- interest (Cal. Code Civ. Proc. § 729.060.)
You can see why redemption is so rare in California. A homeowner who, perhaps no more than a year ago, was unable to keep up on the home’s mortgage payments would have to turn around and come up with not only the purchase price, but additional amounts to cover interest and your expenses.
If the foreclosed homeowners did take steps to redeem, you would probably first learn about it when they (or their attorney) request a redemption amount from you. Once the homeowners pay the redemption amount you requested (or the amount that the court determines is appropriate if you and the foreclosed homeowners can’t agree on an amount) to the levying officer who conducted the foreclosure sale, the officer will promptly deliver the payment to you (Cal. Code Civ. Proc. § 729.080).
Who Gets to Live in the Property During the Redemption Period
If you purchase the home at the foreclosure sale, the foreclosed homeowners are entitled to the possession of the property -- that is, to keep living there -- from the time of sale until redemption (or until the redemption period expires).
You are entitled to receive compensation from the foreclosed homeowners for their use and occupation of the property during this period, but any amounts collected must be applied as a credit on the redemption amount (Cal. Code Civ. Proc. § 729.060).
You are also entitled to repair and maintain the premises during the redemption period and may obtain an order from the court preventing the foreclosed homeowners from damaging the property, if necessary (Cal. Code Civ. Proc. § 729.090).
Can Others Redeem?
It's also possible, but rare, for the IRS to redeem the property after a judicial or nonjudicial foreclosure, if there was a federal tax lien on the home. The IRS gets 120 days (or the allowable period under state law, whichever is longer) to redeem. If the IRS considers redeeming the house, it would send you a notice beforehand.
Other Things to Think About When Buying a Foreclosed Home
Besides the possibility of redemption, there are other issues to take into account when considering buying a home at a foreclosure sale. For example, you won’t get any seller disclosures regarding the condition of the property before the sale, and you will have to purchase the property “as is,” without negotiating over repairs. And the fact that the owner was in financial distress means the property could be in bad condition. (Learn more in Nolo’s Buying Foreclosed Properties area.)
Finding California’s Redemption Laws
To find the California statutes that discuss the right to redeem after a judicial foreclosure, go to the California Code of Civil Procedure and look at §§ 729.010 to 729.090.