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 very 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 their home back after a foreclosure. They would do so by paying you the purchase price you paid at the foreclosure sale, plus various other charges. This process is called "redeeming" the property.
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.
Most residential foreclosures in California are "nonjudicial," which means the lender doesn't 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, which pulls up a map of the neighborhood. Then, click on the home's address, which is a link to its webpage. Then, 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. And sometimes foreclosure notices are also available online at the local newspaper's website.
In California, foreclosed homeowners have no right to redeem their property after a nonjudicial foreclosure.
If the foreclosure is judicial, the homeowners may redeem the property within:
However, if a deficiency exists and the lender waives the right to get a "deficiency judgment" (a personal judgment against the homeowners for the deficiency amount) 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)).
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:
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. Once the homeowners pay the redemption 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).
If you purchase the home at the foreclosure sale, the foreclosed homeowners are entitled to the possession of the property—that is, they get 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're 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).
It's also possible, but rare, for the IRS to redeem the property after a judicial or nonjudicial foreclosure, if a federal tax lien was on the home before the foreclosure. 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.
Besides the possibility of redemption, some other issues to take into account when considering buying a home at a foreclosure sale include the fact that you won't get any seller disclosures regarding the condition of the property before the sale, and you'll 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.
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. Statutes change, so checking them is always a good idea. How courts and agencies interpret and apply the law can also change. And some rules can even vary within a state. These are just some of the reasons to consider consulting an attorney if you have questions about foreclosures.