THE NON-JUDICIAL FORECLOSURE PROCESS
1. The Notice of Default (NOD) starts the non-judicial foreclosure process. The lender forwards a Declaration of Default and an Instruction to the Trustee to proceed with the NOD, the Trustee will sign and cause to be recorded the NOD in the Office of the County Recorder of the appropriate county.
A copy of the NOD is mailed to all parties entitled to its receipt. The Trustee will order a Trustee's Sale Guarantee (TSG) from a title company. The TSG assures the priority of each lien or encumbrance recorded against the property and provides the mailing information for the parties entitled to receive the NOD.
2. The Three (3) Month Reinstatement Period. This is the minimum period, required by law, in California, to wait before a Notice of Sale can be published and recorded. Throughout the foreclosure process, up until five (5) days prior to the Trustee’s Sale date, or postponed sale date, the borrower can fully reinstate the loan.
The lender may endeavor to negotiate workout and forbearance agreements.
3. The Notice of Trustee's Sale - 21 Day Publication Period. No sooner than three (3) months from the recording date of the NOD, a Notice of Trustee's Sale, indicating the place, date and time of the sale, must be published in a local newspaper.
Twenty-one (21) days thereafter the property may be eligible to be sold at public auction to the highest bidder.
The borrower has the right to reinstate the loan up until five (5) days prior to the published sale date, or postponed sale date. In the event the NOD was filed due to a balloon payment and/or maturity date, the lender(s) may require the loan be paid in full at any time during the foreclosure. Otherwise, in the five (5) days preceding the sale or postponed sale, the lender(s) may accept reinstatement, or require that the loan be paid in full.
4. The Trustee's Sale. The Notice of Trustee's Sale will designate the date, time and location of the auction. The property is typically sold along with other properties auctioned by the Trustee. Full Credit Bidding. The lender(s)’ opening bid for the property (also known as the "Credit Bid") may be the total amount due on the loan, including principal, accrued interest to the date of the sale, late charges, legal fees, foreclosure fees, advances, interest on advances, etc. (referred to as a full credit bid). Under Bidding. The opening bid requested by the lender(s) may be less than the total amount due. These circumstances may require the advice of an attorney, an accountant or other professional. Specific bidding instructions to the Trustee are required if under bidding is elected by the lender(s). Bidding Instructions. While full credit bidding may not be appropriate, unless otherwise instructed in writing, no later than three (3) days prior to the sale date, or postponed sale date, the lender will direct the Trustee to proceed with a bid usually in the amount of the unpaid principal balance of the loan, directing the Trustee to increase the Lenders’ bid to the unpaid debt if a third party is bidding at the sale.
The property is sold to the highest bidder. If no one bids at the sale, the property is sold to the foreclosing lender(s) for the opening bid, whatever it may be. The Trustee conveys title by signing and recording a Trustee's Deed Upon Sale.
QUESTIONS AND ANSWERs
When Can a Lender Foreclose?
To exercise a non-judicial foreclosure against a borrower's property, the lender(s) must follow certain statutory procedures set forth in the Civil Code. A lender can begin a non-judicial foreclosure (without proceeding with a lawsuit to foreclose) when a borrower defaults under the terms, covenants and conditions contained in the Note and/or Deed of Trust. Most often a non-judicial foreclosure is begun because a borrower has not paid one or more of his/her/their regular installment payments.
How can a Lender Try to Collect from the Borrower?
The Lender may begin following up with borrowers if their payments are not received within the normal 10 day grace period. The first contact is attempted by telephone with a follow up letter. If the borrower fails to respond to both telephone and/or written notice of the late payment, a letter is written letting them know of the Lenders intention to foreclose.
What are the Costs Associated with a Foreclosure?
The Lender may use a specialist company to provide foreclosure services, from filing the NOD through conducting the Trustee’s Sale. Acting as the Trustee, the company can charges fees as allowed by law. In addition, the Trustee passes along their mailing, posting, recording and other related costs and expenses of the foreclosure. The Trustee purchases a Trustee's Sale Guarantee, described above, from a title company. Required publication of the Notice of Sale in newspapers or other publications local to the property result in additional costs and expenses. Depending upon where the property is located and the length of the legal description of the property, the publishing and posting fees vary.
Who Pays For the Foreclosure?
If the borrower reinstates the loan, or enters into a Forbearance Agreement, the foreclosure fees, costs and expenses are collected from the borrower. The lender(s) is/are otherwise responsible for the payment of all foreclosure fees, costs and expenses.
California
California Civil Code Sections 2920 et seq.; 2924 et seq.; 1695 et seq.
Judicial Foreclosure Available: Yes
Non-judicial Foreclosure Available: Yes
Non-judicial Sale Typically, a title insurance company is named as the trustee to arrange the sale of the real estate.
California is famous for its one-action rule, in which a lender must carefully elect one action to take against the borrower if the borrower defaults. If the lender forecloses the deed of trust out of court, the lender has chosen one action and may not bring a lawsuit to recover a deficiency, which would be a second action. If the lender chooses to sue the borrower and obtain both a foreclosure order and if the proceeds of the judicial sale of the real estate are not sufficient to repay the loan balance, then a deficiency for the balance. Such a suit is permitted as the lender’s one action.
California lenders rarely elect judicial foreclosures.
Preliminary Notice: Non-judicial
Notice of Sale: The notice of sale must contain the name, street address and phone number of the trustee conducting the sale and the original trustor, along with a statement warning borrowers that their property is about to be lost at a public foreclosure sale and to contact a lawyer for an explanation.
The notice must give the street address. If no street address exists, the notice must state the address of the beneficiary from whom a set of directions to the property may be obtained I they are requested in writing within ten days from the first publications of the foreclosure notice.
Advertising: A copy of the notice of sale must be posted in a conspicuous place on the property to be sold at least 20 days before the sale. If access to the property is restricted by means of a central guard gate, then the notice must be posted on the guard gate. A copy of the notice must be posted at one public place in the city where the property is to be sold (or judicial district in rural areas) at least 20 days before the sale.
Recording: A notice of trustee sale must be recorded at least 14 days before the sale.
Mailing: A notice of trustee sale must be mailed by certified mail, return receipt requested, 20 days before the foreclosure sale to the borrower, to anyone who requests notice or recorded a request and to the trustors, beneficiaries or parties at interest.
Sale Procedures: Non-judicial
Time: All sales under a power of sale in a deed o f trust will be made between the hours of 9:00 a.m. and 5:00 p.m. on any business day, Monday through Friday, at the time specified in the notice of trustee sale.
Place: The sale shall commence at the location specified in the notice of sale.
Manner: The sale must be made a public auction to the highest bidder. The trustee has the right to require every bidder to show evidence of ability to pay the full bid in cash, cashier’s check or certain bank checks. Each bid is by law an irrevocable offer to purchase. However, a higher bid cancels an earlier bid. It is unlawful and a criminal offense (a fine of $10,000 or up to one year in jail) to offer anyone consideration not to bid, or to fix or restrain the bidding process in any manner.
Postponement: Sales may be postponed by announcement at the time and location specified for the intended sale. The borrower may postpone the sale in order to obtain cash, provided the written request for postponement identifies source from which the funds are to be obtained, and the postponement is only for one business day. The borrower may obtain one such postponement.
Reinstatement: Debtors may reinstate up to five days before non-judicial foreclosure sale.
Junior: Junior lien holders may no longer redeem, so they may try to protect themselves by (1) advancing funds to bring the senior loan payments current, then foreclosing for the sums advanced; (2) bidding at the foreclosure sale so the price will be sufficient to pay off the senor and the junior liens; or (3) acquire the property by bidding at the foreclosure. If the debtor has a right to redeem and does so, the junior who purchased the home must be reimbursed. Junior liens do not reattach the property if a borrower redeems a senior lien whose foreclosure extinguished the junior. This helps borrowers by encouraging the junior to bid up to the property to fair market value at the foreclosure sale, or else lose out, giving borrowers closer to fair value at sale.
Deficiency: Lenders may not seek a deficiency judgment if (1) the foreclosure is non-judicial or if (2) foreclosure is on a purchase money obligation. The same rules do not apply to guarantee or later lien holders. The lenders may seize alternative collateral. If the lender forecloses by filing a lawsuit, then the lender can obtain both a foreclosure sale order and a judgment against the borrower for a deficiency after the court-ordered sale, but only for the difference between the judgment and the fair value of the security.
Redemption: A borrower’s right to redemption is terminated when a deficiency judgment is waived or prohibited. When redemption is permitted, after judicial foreclosure, only the borrower can now redeem and junior lien holders or "redemptionors" may not. When the lender is permitted to seek a deficiency, elects to pursue a deficiency and forecloses judicially, the borrower may redeem 12 months after sale, but a full credit bid by the lender cuts it to 3 months.