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California is known as a title theory state where the property title remains in trust until payment in full occurs for the underlying loan. The document that secures the title is usually called a deed of trust but may also be referred to as a mortgage. California has a complicated set of rules concerning foreclosures and alternate rules for foreclosures; it is generally a consumer friendly state.

How are California mortgages foreclosed?

The primary method of foreclosure in California involves what is known as non-judicial foreclosure. This type of foreclosure does not involve court action. When the deed of trust is initially signed, it will usually contain a provision called a power of sale clause, which upon default allows a trustee to sell the property in order to satisfy the underlying defaulted loan. The trustee acts as a representative of the lender to effectuate the sale, which typically occurs in the form of an auction. Unlike many states where trustees are appointed by lenders, title companies primarily serve as trustees managing foreclosure sales in California. California has a requirement known as the one-action rule. If a foreclosure is completed by non-judicial means, a second action to recover a deficiency judgment is not permitted. Using a judicial foreclosure, a lender may recover a deficiency judgment in certain circumstances. But since this process takes longer than non-judicial foreclosure, it is rarely used. California non-judicial remedies have stringent notice requirements and the mortgage documents are required to contain thepower of sale language in order to use this type of foreclosure method.Judicial foreclosure are permitted in California and these usually occur when no power of sale language is included in the loan documents.

Power of Sale Notice Requirements:

1. A notice of default is recorded after a default occurs in the county in which the property is located. This does not necessarily occur after one or more payments are not met but for logistical reasons may occur after a loan is in substantial default — sometimes six months or more past due. This is known as the redemption period. The foreclosure process does not move forward for a minimum of 60 days. A notice of sale containing the name and address of trustee, certain disclosures (including that the property is about to be lost to foreclosure sale), the name of the beneficiary, and other information must be recorded in the county in which the property is located at least 14 days before any foreclosure sale after that time period. This is known as the publication period.
2. The borrower must receive a twenty (20) day notice before any foreclosure sale, further notice of the foreclosure must: (a) mailed to the defaulting borrower (and other creditors whose liens affect the property) and; (b) be posted at the property being foreclosed upon and in a public place in the county where any sale would occur. The defaulting borrower may prevent the foreclosure sale by paying all arrearages up to five (5) days before the sale. The trustees’ foreclosure sale then occurs at the earliest twenty one (21) days after the first publication.
3. Foreclosure sales must take place on any business day between the hours of 9AM and 5PM and must occur at the location referenced on thenotice of sale. The trustee will auction the property to the highest bidder, including the lender. The borrower is permitted to postpone the sale for one (1) day.

In California, the lenders can also go to court in what is known as a judicial foreclosure proceeding where the court must issue a final judgment of foreclosure. If the deed of trust does not contain the power of sale language, the lender may seek judicial foreclosure. The property is then sold as part of a publicly noticed sale. A complaint is filed in county court along with what is known alis pendens. Alis pendens is a recorded document that provides public notice that the property is being foreclosed upon.
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What are the legal instruments that establish a California mortgage?

The documents are known as the deed of trust,note, and in a commercial transaction, a security agreement. Sometimes the mortgage document is combined with the security agreement. Alternatively, a mortgage is filed to evidence the underlying debt and terms of repayment, which is set forth in the note.

How long does it take to foreclose a property in California?

Depending on the timing of the various required notices, it usually takes a minimum of 120 days to effectuate an uncontested non-judicial foreclosure. This process may be delayed if the borrower contests the action in court, seeks delays and adjournments of sales, or files for bankruptcy.

Is there a right of redemption in California?

California has a complicated statutory right of redemption after the foreclosure sale has occurred, which would allow a party whose property has been foreclosed to reclaim that property by making payment in full of the sum of the unpaid loan plus costs one (1) year after foreclosure sale unless the original lender made a full price bid then that period is shortened to three (3) months. A borrower does have ninety (90) days after the recordation of a notice of default to cure any default and this is commonly referenced as the redemption period although it is not a true statutory redemption. Junior lien holders cannot redeem. There is no statutory right of redemption if a deficiency judgment is waived or prohibited at the time of which effectively negates any possibility of a redemption occurring in the scenario noted above.

Are deficiency judgments permitted in California?

Only in certain circumstances. A deficiency judgment may not be obtained when a property in foreclosure is sold through a non-judicial public sale or if the foreclosure relates to a purchase money mortgage. Different rules apply to guarantors of such loans.

What statutes govern California foreclosures?

The laws that govern California foreclosures are found in California Civil Code, Section 2924. To view these statutes on the Web, you can visit:

http://www.leginfo.ca.gov

There are two primary points to consider. The first is that all of the debt that encumbers the preforeclosure property remains against the property until it is sold at the foreclosure auction. This means that any “junior” or subordinate debt stays in place, including trusts, second and perhaps even third mortgages, tax liens, assessments, and judgments. Any of these debts incurred by the owner and secured by the real estate, which may exist against the property, must be paid off. Most of the time, there is only one trust deed or mortgage on a property; however, it is of vital importance that you find out about any other possible indebtedness before you spend too much time and money pursuing a purchase of the property.

The second issue is that only the individuals who are named on the title can sell the property. This seems obvious, but it can go overlooked and valuable time can be wasted. All of the owners of the property must agree to sell it to you before a legal sales transaction can be completed. Make sure that you know who ALL the owners are and that they are all interested in selling before you start negotiating a deal. Most homes are owned by individuals or couples, so finding them and negotiating with them should be straightforward. Owners who have co-signors or non-resident partners, and owners who have abandoned the property and may have moved out of the area will obviously take additional time and effort to locate, negotiate with, and get documents signed. Just remember that even one deal that nets you thousands of dollars will make your time well spent.

You must submit a written contract directly to the owners in order to buy a preforeclosure, since the property still belongs to them during this stage. You can initiate contact with the owners by mail, by phone, or by visiting them, depending on your personal preference. When you make contact, find out all you can about the physical and financial details of the property in addition to the information you have from our database. For example, find out the condition of the property and its major systems (e.g., roof, plumbing, heating/air conditioning, appliances, and foundation). You are there as a problem-solver, and you MUST learn the full extent of the problems. Also find out the number of liens, type of liens, loan balances, and total amount of arrears. Ask to see any correspondence from the lender(s) that will fill in the details the owners may not be fully aware of or may not full understand. The sooner you can establish yourself as a true professional who needs the complete and honest cooperation of the owners, the sooner you can make a reasonable offer that will help them, and enable you to achieve a profit.

You will need all this physical and financial information to do your research and to determine whether the property represents a good deal, given what you (and your partners, if any) want to do with it. Once you have made the determination, you can then prepare a written contract and submit it to the owners. When you have successfully negotiated the purchase, you must then inform the foreclosure attorney to stop the foreclosure process during the time necessary to proceed to closing and settlement of the purchase transaction.

Absolutely! Most of the great family fortunes in our country have been created through real estate ownership and investments in real properties. People just like you are attracted to the opportunities presented by dealing with foreclosures because frequently they can buy the properties at prices substantially below market value. Buying properties at discount prices is the surest and quickest way to make money in real estate. Individuals who are looking for a home can get a significant amount of equity up front with foreclosures. Of course, there are no guarantees with any investment, but all across the country, people earn almost immediate income by “flipping” foreclosure properties for big profits. And many landlords are able to buy and rent foreclosures, producing positive cash flow and long term wealth accumulation.

Overview

In California, the primary method of deed of trust foreclosure is non-judicial. However, if a deed of trust does not contain the power of sale language or a standard mortgage is used, the lender may seek judicial foreclosure.

There is a rather lengthy notice and cure period between the time a property owner receives a notice of default until the property is sold at a public foreclosure auction sale - usually about four (4) months or more. Accordingly, don’t wait until the property becomes Real Estate Owned (REO) after the auction because the property will cost more than it would in preforeclosure.

A deficiency judgment is only available to a lender in judicial foreclosure. Therefore, a deficiency judgment may not be obtained when a property in foreclosure is sold through a non-judicial public foreclosure auction sale or if the foreclosure relates to a purchase money mortgage.

Please always remember one important item: It is absolutely critical that you learn as much as you can about the foreclosure laws that govern the state in which the property is located. There are many nuances and complicated steps that you must understand before making a bid at a public foreclosure auction sale.

Case in point, several states - including California - allow a homeowner/borrower to reclaim his or her property through right of redemption . And, overlooking a detail like this could cause a major problem. That’s the reason most prospective home buyers in the foreclosure industry prefer to purchase a property during the preforeclosure period.

PREFORECLOSURE

As is often the case, the best time to purchase property in California is during the preforeclosure period. Most properties are bought during this time.

If you wait until the public foreclosure auction sale - or afterwards - the competition may be stronger and the prices will be higher to cover the lender’s legal costs.

Basic steps for you to consider during the preforeclosure purchase process:

Contact the Homeowner or Selling Representative

* If a real estate brokerage company has listed the property for sale, work with that agent directly unless you prefer a certain agent of your own. The listing agent should thoroughly understand the seller’s situation and may even discount the brokerage commission to assist with a quick sale if there is no cooperating broker with whom to split the fee.
* If there is no listing broker, ask the owner directly in a friendly way for an appointment to see the property and to discuss potentially buying it. Anyone undergoing financial difficulty may not be inclined to speak with you directly and we encourage you to make initial contact in a minimally invasive manner. You can do this several different ways such as by sending a card or letter, making a telephone call, or by a personal visit at a time when the owners are likely to be at home.

*Note: All commission fees are negotiable, but providing fair compensation is the best policy to preserve future business opportunities, based upon the effort and expertise the agent(s) has contributed to the success of the transaction.

Inspect the Property

* If the broker/homeowner is receptive, you should schedule a mutually convenient time to visit the property. Once there, carefully examine the entire property, and take pictures for your file - provided the homeowner doesn’t object. You should also prepare a checklist to take important notes throughout the tour.
* If you’ve found your ideal property, work with the broker/owner to schedule independent professional inspections. Even though the home may look like it’s in fine condition, hidden defects may lurk beneath the surface or between walls. From the electrician to the exterminator, these inspections are critical because they will ultimately save you money.

Make an Offer

* If the inspections go well, and you are satisfied with the information you have gathered, you can prepare to make an offer. To do this, you will need current standard contract of sale forms, which you can get from most real estate brokers and attorneys. You may also be able to download and print state promulgated forms if they are available on the Web site of the real estate regulatory commission in the state in which the property is located. When preparing contracts it is always advisable to have an attorney represent you.
* It’s important to clearly explain the terms of your offer to the homeowner and/or the real estate agent. If you are unable to do this in person, write a cover letter that briefly explains to the homeowner the most important points of your offer, especially why it is in his or her best interest to accept it.
* Early in preforeclosure, when the homeowner may feel there is time to market the house for sale, your offer may be ideal because you have the financing already arranged. Or, because you are not making an offer contingent upon further inspections and repairs. If the preforeclosure time is running out and loss of the property through foreclosure is imminent, the biggest advantage is that you can close quickly and - to some extent - preserve the owner’s credit rating.

FORECLOSURE

Many California properties are bought at public foreclosure auction sales, but the competition may be strong and the prices are higher than during preforeclosure to cover the lender’s legal costs. At this point, it is unlikely that the homeowner will be able to avoid foreclosure. Therefore, the property will be auctioned to the highest bidder, including the lender.

By law,foreclosure auction sale must be announced publicly and held at the date, time and place required by state statutes. To find these sales, read newspaper notices prior to the auction date, look for public notice posted - when required - on the property, or search other public places in the county where the real estate is located.

Basic steps for you to consider when purchasing a property at a public foreclosure auction sale:

Contact the Lender’s Representative

* Contact the trustee,lender’s attorney,public trustee, or sheriff and ask what is required to purchase the property at the auction. Traditionally, an earnest money deposit amount in the form of a cashier’s check or money order is acceptable.
* Ask for a copy of the purchase agreement, or contract of sale document, that you will need to complete if you are the winning bidder. Have your attorney review it carefully and negotiate any changes in advance, if necessary. Be aware that the seller, as represented by an attorney,trustee or other official, may not be open to making many substantive changes - if any at all.
* Make arrangements to view and inspect the property if it is vacant. Even if it is still occupied, the attorney,trustee, or the realtor if it has been listed for sale, may be able to gain access for you. Realize that the owners may not be very cooperative.

Inspect the Property

* Once there, carefully examine the entire property, and take pictures for your file - provided the homeowner doesn’t object. You should also prepare a checklist to take notes throughout the tour.
* If you’ve found your ideal property, work with the broker/owner to schedule independent professional inspections. Even though the home may look like it’s in fine condition, hidden defects may lurk beneath the surface or between walls. From the electrician to the exterminator, these inspections are critical because they will ultimately save you money.

Always remember, you are buying the property strictly “as is” at an auction sale!

Bid on the Property at the Auction

* On the day of the public foreclosure auction sale, meet the lender’s representative at the courthouse and show him or her the earnest money deposit and an acceptable form of identification.
* Have your top bid worked out in your mind in advance. When bidding starts, be aware of your competition and increase your bid to exceed theirs by the increment set in advance (usually $100 to $1,000, depending on the value of the property).
* When you have won the bid, complete the transaction per the direction of the lender’s representative by signing the purchase agreement and submitting the deposit.

At this point, your earnest money deposit is non-refundable.
* Be prepared to close within the required time period, which is usually only 30 days.