How to Stop Foreclosure in California

Most people buy a home by financing part of the purchase price from a bank or a mortgage company. Sometimes, homeowners will borrow money against the equity in their property after they have purchased it with a “home equity loan”. And sometimes, people will refinance their mortgage loan and combine it with a home equity loan. In most of these cases, the lender has a lien against the home to make sure they are repaid for the loan. If the buyer does not make their payments (defaults), then the lender can foreclose, which means they sell the house to repay what is owed to them.

Types Of Foreclosure

There are 2 types of foreclosures in California, Nonjudicial foreclosure and judicial foreclosure.

Nonjudicial foreclosure is the most common type of foreclosure process in California. Nonjudicial foreclosure occurs when there is a power-of-sale clause granting the trustee selling authority if the borrower defaults on the mortgage loan and fails to make required payments. This power-of-sale clause is included in the deed of trust securing the mortgage loan.

When a lender uses the nonjudicial foreclosure process against a borrower rather than collecting a deficiency judgment, it is often quicker and less expensive.
Judicial foreclosure occurs when you file a lawsuit to seek a court order that permits the sale of your home through foreclosure. This process is necessary when there is no power-of-sale clause included in either the mortgage or deed of trust. After the court orders the sale of your property, it will more than likely be auctioned off to whomever submits the highest bid.

Although judicial foreclosures are not as common in California, they do allow the lender to receive a deficiency judgment against the borrower. However, the homeowner has what is called the “right of redemption,” which allows them to buy their home back from whoever wins it at auction for up to 1 year after the sale. Although this process is lengthier and more expensive than a nonjudicial foreclosure, some homeowners feel that it’s worth going through in order to have another chance at saving their home.

The Foreclosure Process

Before the foreclosure process begins, the lender or loan servicer may send you letters (over the course of several months) demanding payment of your mortgage debt. However, these letters are NOT Notices of Default. Before the Notice of Default happens, the lenders must start the foreclosure process as stated below.

1. The lender MUST:
   1. Reach out to you and any other individuals on the mortgage loan in order to get a better understanding of your financial situation and explore “foreclosure avoidance assessment” with you.
   2. Cannot start the foreclosure process until 30 days have passed since they contacted you for this assessment.
   3. The first time they contact you, they must tell you that you have the right to meet with them again within 14 days. At this meeting, you can discuss how to avoid foreclosure.
2. You are allowed to hire a lawyer, HUD-certified housing counseling agency, or other advisor to talk on your behalf with the lender about how to stop foreclosure. You can not be forced into accepting any plan that your agent and the lender come up with during their chat.
3. The lender can record a Notice of Default in the county where your home is located if you have not worked out a plan to avoid foreclosure, but only 30 days after contacting you for the assessment first. This starts the formal and public process of the foreclosure process. The lender must send you a copy of this notice within 10 business days by certified mail post-recording. You will then have 90 days from when it was recorded to “cure” (fix, usually through payment) the default.
4. BE AWARE OF SCAMMERS: Many scammers and fraudulent companies look through public documents for people who have recently been sent a Notice of Default. They promise these individuals that they will help them keep their home and avoid foreclosure, but often times they only want the borrowers money. There are free services available from government agencies and nonprofit organizations to genuinely assist borrowers in this situation.
5. If you don’t pay what is owed, a Notice of Sale will be recorded (at least 90 days after the Notice of Default has been recorded). The Notice of Sale states that the trustee will sell your home at auction in 21 days.
6. The Notice of Sale must:
   1. Be sent by certified mail.
   2. Be published weekly in a newspaper of general circulation in the county where your home is located for 3 consecutive weeks before the sale date.
   3. Be posted on your property and in a public place such as the local courthouse.
   4. Have the date, time, and location of the foreclosed property; the property address; the trustee’s name, address, and phone number; and a statement that the property will be sold at a public auction.
7. At least 21 days after the Notice of Sale is recorded, the property can be sold at a public auction. The highest bidder must pay for their bid in full immediately with cash or a cashier’s check. Upon completion of the sale, the new owner will receive a trustee’s deed. Typically, lenders will make a bid at the foreclosure auction in order to recoup what is owed on the home plus any additional foreclosure costs. If there are no other bidders, then your home goes to the lender by default.

What Are The Financial Consequences Of Foreclosure?

A foreclosure won’t affect you forever, but it will take some time for your credit to return to normal. Your credit score will be negatively impacted and it will be hard to get a mortgage, car loan, and other forms of credit. If you do get approved, it will usually be higher interest rates.

How Do You Avoid Foreclosure?

You can avoid foreclosure by keeping in communication with the lender before they start the legal process. You can explore options like loan modification, foreclosure prevention programs, or short sale to stay on top of your payments. When working with your lender, be sure to prioritize your financial well-being and avoid signing any agreements that aren’t in your best interest. It’s also important to seek out professional help from a foreclosure attorney if you need more guidance.

How Can You Stop Foreclosure?

You can stop the foreclosure by curing the default and reinstating your loan or by filing Chapter 13 Bankruptcy and figuring out a repayment plan that all parties involved can live with. You can also file Chapter 7 Bankruptcy, but this will only stop the foreclosure from happening in the immediate future. You will still be expected to pay back the full amount of the loan balance.