Don’t be caught off guard if you're facing a potential foreclosure in California. 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 what to do, and what not to do, in a foreclosure, see Foreclosure Do's and Don'ts.)
When you take out a loan to purchase a property in California, you'll likely 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 turns the promissory note's IOU into a debt secured by a lien on your home.
If you miss a payment, the terms of most promissory notes include a grace period of ten or fifteen days after which time the loan servicer will assess a late fee. (Servicers collect and process payments from homeowners, as well as handle loss mitigation applications and foreclosures for defaulted loans.)
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.)
Once you miss a few mortgage payments, your servicer will probably send a letter or two reminding you to get caught up and letting you know about loss mitigation options, 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 ways to avoid a foreclosure, like with a loan modification, forbearance, or payment plan.
Under federal mortgage servicing laws that went into effect January 10, 2014, the servicer must generally wait until you are more than 120 days delinquent on payments before making the first official notice or filing for any judicial or nonjudicial foreclosure under state law. (12 C.F.R. § 1024.41).
This 120-day time period should give you sufficient time to explore loss mitigation opportunities.
California law requires that your servicer personally contact you (or meet specific requirements for trying to contact you) by phone or in person 30 days before recording a notice of default—the official start to the foreclosure process—to assess your financial situation and explore options to avoid foreclosure. (Cal. Civ. Code § 2923.5).
During the initial contact, the servicer must advise you that:
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.
If the servicer cannot get in contact with you, it can't record the notice of default until 30 days after it has done all of the following:
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 servicer doesn't have to contact you—or attempt to contact you—to assess your financial situation and explore options to avoid foreclosure if you notify the servicer in writing to cease further communication with you.
Additionally, most California deeds of trust contain a clause that requires the lender to send a notification letter (called a breach letter) informing you that your loan is in default before it can accelerate the loan and proceed with foreclosure.
The letter must specify:
If you don’t cure the default and the servicer has met all other obligations, the foreclosure process will begin.
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 first lien loan modification application (assuming you didn't previously apply for a modification or you've had a material change in your financial circumstances since your previous application) at least five business days before any scheduled foreclosure sale, the servicer can’t proceed by recording a notice of default or notice of sale, or conducting a trustee’s sale until:
Residential foreclosures in California are typically nonjudicial. This means the foreclosure happens outside of the state court system. (For more information on this topic, see our article What is a Power of Sale Foreclosure?)
The nonjudicial foreclosure process formally begins when the trustee records a notice of default at the county recorder's office. The notice of default includes information like 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. (Cal. Civ. Code § 2924).
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:
The borrower can reinstate at any time until five business days prior to the sale date in a nonjudicial foreclosure. (Cal. Civ. Code § 2924c).
The foreclosure sale must be held between the hours of 9 a.m. and 5 p.m. on any business day, Monday through Friday. (Cal. Civ. Code § 2924g). The property will be sold to the highest bidder, which is usually the foreclosing lender, and then it becomes REO.
A deficiency judgment is not allowed following a power of sale foreclosure in California. Because 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.)
If you don’t vacate the property following the foreclosure sale, the new owner will probably:
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.
This article summarizes the state laws associated with the most common foreclosure process used in California. Keep in mind that various federal laws also protect borrowers in the foreclosure process. If you're going through a foreclosure in California and want to learn more about state and federal laws that apply to foreclosures, as well as whether you have any defenses to the foreclosure, consider talking to a foreclosure attorney.
To get information about different ways to avoid foreclosure, speak to an attorney or a HUD-approved housing counselor.