the california foreclosure process

7/27/2019 The California Foreclosure Process

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The California Foreclosure Process

In the foreclosure process, one thing should be kept in mind: as a general rule, alender would r ather receive payments t han receive a home due to a foreclosure.Lenders are not in the business of selling real estate and will often try to accommodateproperty owners who are having payment problems. The best plan is to contact thelender before payment problems arise. If monthly payments are too hefty, it may be thata lender will be able to make some alternative payment arrangements until the owner'sfinancial situation improves.

Let's say, however, that a property owner has missed payments and has not made anyalternate arrangements with the lender. In this case, the lender may decide to begin theforeclosure process. Under such circumstances, the lender, whether a bank, savingsand loan or private party, will request that the trustee, often a title company, file a noticeof default with the county recorder's office. A copy of the notice is mailed to the propertyowner.

If the default is due to a balloon payment not being made when due, the lender canrequire full payment on the entire outstanding loan as the only way to cure the default. If the default is not cured, the lender may direct the trustee to sell the property at a publicsale.

In cases of a public sale, a notice of sale must be published in a local newspaper andposted in a public place, usually the courthouse, for three consecutive weeks. Once thenotice of sale has been recorded, the property owner has until 5 days prior to thepublished sale date to bring the loan current. If the owner cures the default by making upthe payments, the deed of trust will be reinstated and regular monthly payments willcontinue as before. After this time, it may still be possible for the property owner to workout a postponement on the sale with the lender. However, if no postponement isreached, the property goes "on the block". At the sale, buyers must pay the amount of their bid in cash, cashier's check or other instrument acceptable to the trustee. A lendermay "credit bid" up to the amount of the obligation being foreclosed upon.

With the recent attention given to foreclosure, there also has been correspondinginterest in buying foreclosed properties. However, caveat emptor: buyer beware.Foreclosed properties are very likely to be burdened with overdue taxes, liens andclouded titles. A buyer should do his homework and ask a local title company forinformation concerning these outstanding liens and encumbrances. Title insurance mayor may not be available following a foreclosure sale and various exceptions may beincluded in any title insurance policy issued to a buyer of a foreclosed property.

Foreclosure Process

California has a non-judicial system to carry out a foreclosure of a deed of trust. Thatmeans that no court procedure is required for a lender to sell the property to satisfy thedebt. Some states carry out a formal judicial process which tends to be lengthier, andfrequently have a redemption period after the sale. Here in California, the judicialprocess is available, but rarely used. The following steps will outline what is all involvedin a non- judicial foreclosure.


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1.) MISSED PAYMENTS OCCUR. Usually after the third missed payment the lender willinitiate a foreclosure. There is no law that dictates the number of payments that must bemissed, but most trustees wont proceed unless the loan is more than 30 days in arrears.

This is done by issuing a Declaration of Default and Demand for Sale which is passedon to the foreclosure trustee.

2.) DEPOSIT DEED OF TRUST AND NOTE WITH TRUSTEE. The lender (beneficiary)deposits the deed of trust and note with a foreclosure trustee. If there has been anassignment of the deed of trust, such assignment must also be deposited. If the originalnote has been lost, foreclosure can still be commenced, but the beneficiary must post alost instrument bond in most cases.

3.) The trustee must examine the documents for any special provisions other than thoseprovided by law.

4.) The trustee prepares the NOTICE OF DEFAULT, which must set forth specifically thenature of the breach by the homeowner. It does not have to specify the amount of thedefault, just the nature of the breach. For instance, it could say Failure to pay the April2000 and subsequent payments.

5.) The notice of default must then be executed (signed) by either the trustee or thebeneficiary. Title companies generally prefer it be executed by the beneficiary(s), but asa practical matter it is usually executed by the trustee.

6.) The trustee will cause the notice to be RECORDED IN THE COUNTY WHERE THEPROPERTY IS LOCATED. In California, this notice does not even have to be notarized,which makes it one of the few documents that do not have to be notarized to berecorded.

7.) After recording the notice, the trustee will obtain a Trustees Sale Guarantee (TSG),which will inform the trustee of all persons who have filed a request for notices of defaultand sale, all other persons legally entitled to notice by mail, whether the owner of anyinterest (either the owner of the property of a subordinate lien holder) is either bankruptor in receivership, and whether there are any subordinate Federal Tax Liens. All of thisinformation is necessary for the trustee to properly conduct the sale. The TSG assuresthe trustee that they have this data.

8.) 10 DAY NOTICE BY MAIL is made by certified or registered mail, return receiptrequested, to all parties specified in step seven above. These parties include junior lienholders as well as any others who have recorded a Request for Notice form with thecounty recorder. It is the trustee's obligation to make these mailings. Some of these

requests may be in the Trust Deed itself, and the trustee must take special note of this.Note: The trustor, or borrower, is someone whose request for notice is most often buriedin the Trust Deed.

9.) PERSONAL SERVICE, OR SERVICE BY PUBLICATION WHEN REQUIRED. If theDeed of Trust does not have sufficient information to mail the Notice of Default to thetrustor, then this must be accomplished by hand delivery or published in a newspaper of general circulation in the country where the property is located. If published, it must be


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published once a week for four weeks, commencing no later than ten days from the datewhen the Notice was recorded.

10.) ONE MONTH NOTICE BY MAIL. Within one month of the recording of the notice of default, copies must be sent to the following: the successor in interest (current recordowner) as of the recording date of the Notice, the beneficiary of any junior lien to the onebeing foreclosed, any assignee of such junior lien described above, the vendee of anycontract of sale or the lessee of any lease of the estate or interest being foreclosedwhich is recorded and which is subordinate to the deed of trust being foreclosed, thesuccessor to any interest in the above. The notices to these parties must also be mailedby registered or certified mail, return receipt requested.

11.) REINSTATEMENT WAITING PERIOD. The beneficiary must then wait threemonths from the recording of the notice of default before he proceeds any further. Duringthis time, the trustor may reinstate the mortgage by simply catching up the backpayments plus the costs already incurred in the foreclosure proceedings. The loan mayalso be reinstated by one of the junior lien or trust deed holders. The made-up paymentsthen become part of what the trustor owes him, and the junior lien holder may theninitiate foreclosure proceedings of his own. When the foreclosure proceedings arestopped by the reinstatement, a Rescission of Notice of Default is recorded by thetrustee to clear the record of the notice of default.

12.) FINAL CHECK BEFORE NOTICE OF SALE IS ISSUED. After the three monthsnoted above have elapsed, the trustee then contacts the beneficiary to confirm that thedefault continues and has not been waived or impaired, which might be done byaccepting a payment on the obligation after the filing of the notice of default. In mostcases, the acceptance of a payment not sufficient to make up (cure) the default does notconstitute a waiver. The waiver is usually granted only where the trustor can prove hewas misled by the beneficiary into believing a partial payment would stop theproceedings. If the default has not been cured, the trustee should contact the titlecompany for a date down to see if any recent bankruptcies or federal tax liens haveappeared. The trustee must then get an affidavit from the beneficiary setting forth factualdata that leads to the conclusion that the trustor is not a member of the armed forces,nor has been discharged as a member of the armed forces within the past threemonths.

13.) PREPARATION AND PUBLICATION OF THE NOTICE OF SALE. The trustee mustthen prepare and publish, in a newspaper of general circulation in the country where theproperty is located a notice of sale. The notice must be published once per week for aperiod of at least 20 days prior to the sale date.

14.) POSTING NOTICE OF SALE. The notice must be posted in a conspicuous placeboth on the property and in at least one public place in the city where the property is tobe sold. The trustee should then prepare and have executed an affidavit of posting.

15.) MAILING THE NOTICE OF SALE. The trustee should mail by certified or registeredmail copies of the notice of sale to all of those that were entitled to receive both the tenday and the one month mailings.


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16.) The trustee must RECORD THE NOTICE OF SALE with the county recorder atleast fourteen days prior to the date of the sale. The trustee may also postpone the saleat any time up until the date of sale at his discretion or if the beneficiary so instructs him.

The trustee need merely announce the postponement at the original time, date andplace of the sale, and give the new date and time (the place must be the same).

17.) TRUSTEE'S SALE. The Trustees sale is an auction. The trustee will start the saleby reading aloud the complete notice of sale. He will announce the amount of theopening bid, which is usually the value of the unpaid principal and interest on the trustdeed being foreclosed, along with any advances and trustee's fees paid. The amount of the opening bid is dictated by the Beneficiary. If there are bids over the opening bid, thesuccessful bidder must be pay at the drop of the hammer, either in cash, money order,certified check, or cashier's check. If the beneficiary is the purchaser, the balance due onhis trust deed may offset against the bid price. A junior note holder, however, cannotoffset his trust deed in this way. Such a junior lien holder may arrange with the trusteefor a credit bid for the amount of his deed of trust over the amount due the holder of thelien being foreclosed. In other words, the junior lien holder still has to produce the cashto pay the loan being foreclosed. The trustee does not guarantee title nor express anopinion as to the condition of title. During the sale, the trustee has the right to requireevery bidder to show evidence of his ability to deposit with the trustee his full bid in cashprior to accepting the bid. If the last and highest bidder fails to deliver to the trustee theamount of his final bid in cash or the equivalent of cash in satisfactory form, such biddershall be liable to the trustee for all damages which the trustee may sustain by the refusalto deliver to the trustee said amount of the final bid, including any court costs andattorney's fees. In addition, in the State of California such bidder may be guilty of amisdemeanor.

18.) PREPARATION OF TRUSTEE'S DEED. This deed may be delivered to the highestbidder at the close of the sale and the payment of the bid price, or the trustee mayrecord it as a courtesy.

19.) ENDORSEMENT OF NOTE: The trustee must place on the face of the note theamount of the indebtedness and the amount for which the property was sold.

20.) DISBURSEMENT OF SALE PROCEEDS. Should the property sell for more thanthe amount of the fees, and the principal and interest owed, then the proceeds of thesale shall be paid first to any junior lien holders, and when these are satisfied, to thetrustor or current owner of record. . These, then, are the 20 steps of the foreclosureprocess. As a final word, in the State of California, the sale cuts off all rights of redemption. The purchaser has right to immediate possession. After the required threeday notice, the new owner may evict any person remaining on the premises by unlawfuldetainer procedures. The purchaser receives all fixtures and improvements, whetherinstalled before or after the commencement of foreclosure. Even though the saleeliminates all junior liens, if the maker of such note shall come back into ownership of the property, that lien can be revived.

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