Foreclosures - Frequently Asked Questions
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What is Foreclosure?
Foreclosure is the legal process that allows a lender or other secured creditor to recover the amount owed on a defaulted loan by selling or taking ownership (repossession) of the property securing the loan.
The foreclosure process begins when a borrower/owner defaults on the mortgage loan payments and the lender files a public default notice, called a Notice of Default. When the process is complete, the lender can sell the property and keep the proceeds to pay off its mortgage and any legal costs.
What Types of Foreclosure are There?
There are two types of foreclosure that are allowed in the state of California - Judicial Foreclosure and Non-Judicial Foreclosure.
Judicial Foreclosure is very rare in California and requires the lender to sue the owner in foreclosure and proceed with a trial in a court of law. Appraisals and other items are required, and there is still an auction. The owner has the right of redemption allowing them to buy it back from the successful bidder at auction for 1 year after the sale. The advantage of judicial foreclosure for the lender is that they can receive a deficiency judgment against the borrower for the difference between the amount owed (including penalties, fees and costs), and the amount received at auction.
Non-Judicial Foreclosure is what most people are referring to when they talk about "foreclosure" in California. This type of foreclosure is often referred to as a "Trustee Sale," as the sale is handled by the trustee appointed in the deed of trust. Although lenders give up their right to collect a deficiency judgment against the borrower, this tends to be the preferred process because it takes place much quicker than a judicial foreclosure. Non-judicial foreclosure sales can be postponed for up to 1 year based on certain postponement reasons, such as the lender’s request due to the property being in the process of being sold.
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How Fast Can a Foreclosure Happen?
The anatomy of a foreclosure is fairly straightforward. In California, it’s typically a non-judicial procedure that usually takes just under four months from the filing of a Notice of Default - unless a lender is willing to negotiate and extend deadlines.
The lender can record a Notice of Default, the first step in the foreclosure process, as soon as the loan is two months delinquent.
When homeowners first get behind in payments is when real estate agents can be most effective by quickly listing the home for sale.
To learn more about the foreclosure timeline and key dates, click here.
How Can I Stop the Foreclosure?
The best way to stop the foreclosure is to bring the loan current. To do that you would need to pay all delinquent amounts as well as the costs and fees incurred by the mortgage company to file and process the foreclosure.
Many borrowers are not able to bring the loan current and are forced to look at other alternatives to avoid foreclosure. Even if you are well into the foreclosure process, most lenders are willing to grant you additional time to remedy the situation if they believe it is reasonably likely they can avoid acquiring your property through foreclosure.
For alternatives the lender might be receptive to, see "What Options Do I Have to Avoid Foreclosure."
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What Options Do I Have to Avoid Foreclosure?
There are several things you can do to avoid foreclosure. It is usually best to let your lender know, right away, that you intend to solve the problem so they won't have to get the property in foreclosure.
Here are some of the options you may consider:
- Refinance
- Negotiate a Loan Workout, such as a Forbearance Agreement
- Sell Your Property
- Short Sale Your Property
If you are falling behind on your mortgage payments or expect you will soon, click here to learn more about what your options are to avoid foreclosure
If My Lender Forecloses, Can They Come After Me for the Loss?
In order for your lender to recover losses incurred on your mortgage as a result of foreclosure, the lender would need to do a Judicial foreclosure. While, theoretically a lender could pursue a deficiency judgment through a Judicial Foreclosure on some mortgages, it almost never happens in California.
The lender is normally left with the proceeds generated at the Trustee's Sale or from a sale after acquiring the property at the Trustee's Sale. This is another reason why lenders would prefer to work with the homeowner to solve the problem and avoid getting the property through foreclosure.
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Can I Deed my Property to Somone Else and Avoid Foreclosure
Quitclaiming or deeding your property to someone without paying off and removing your name from the loan is almost always a bad idea.
You waive all your rights to the property, but the lender still considers you completely responsible for payment on the loan. If loan payments do not get paid, or if the lender ultimately forecloses, this will show on your credit.
Do not deed your property to someone without first consulting with an attorney.
What Will a Foreclosure do to My Credit?
A foreclosure is among the most damaging events your credit report can sustain and will cause a credit hit of approximately 150 points more than a short sale.
If you are able to save your credit report the black mark of foreclosure, this will make a substantial difference when you want to buy another home. The short sale minimizes the credit hit and makes it easier to buy your next home sooner and at better interest rates.
What Does a Notice of Default Mean?
If a Notice of Default has been recorded against your property it means your lender has started the formal foreclosure process. In California, a borrower must be two months delinquent before a lender can commence a foreclosure action by recording a Notice of Default.
A borrower has over three months from the recording of the Notice of Default to work something out with their lender and avoid the completion of the foreclosure.
Once the Notice of Default has been recorded, it is important to act quickly to avoid losing the property and having a foreclosure on your record.
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How do I Avoid Foreclosure Scams?
When you fall behind on your mortgage payments, you may receive mailers or phone calls offering to help you out of a difficult situation. Do NOT Sign anything with anyone offering a service that seems to good to be true.
Many foreclosure or short sale scams involve companies that:
- Charge upfront fees for foreclosure prevention
- Offer to help you “get rid of” your home
- Request you to sign the home over to them in exchange for something
You don't need to pay fees for foreclosure help. And if any company asks you to sign over your deed or have them act on your behalf, you may become a renter in your own home.
Learn more about Foreclosure Scams and what to watch out for.
Will A Short Sale Stop A Foreclosure?
While a Short Sale itself does not stop the foreclosure, lenders normally work with a homeowner and delay the foreclosure process if they receive a legitimate short sale package from a qualified real estate professional.
If they lender sees the home is for sale and earnest efforts are being made to sell the property, they will typically delay the foreclosure process. This is especially true when a purchase offer from a buyer is obtained.
The lender does not want your property, and would rather resolve the situation rather than proceed with foreclosure.
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If My Lender Has Started A Foreclosure, Can I Still Sell My Property?
Yes. Your lender would rather you sell the property than proceed with the foreclosure process.
Even if you have no equity in the property, the lender would prefer a solution such as a short sale, which is far less costly than a foreclosure. This is why lenders often agree to a short sale and accept a discounted payoff on the loan.
Shoud l Speak With My Lender When They Call?
Some people find the whole situation overwhelming and simply ignore all the lender phone calls and letters, knowing that ultimately the home will go into foreclosure and bank will eventually seize the home. Though it may seem like the easiest thing to do at the time, it is not recommended you do this.
We strongly recommend you speak with the lender(s) and determine it there are any good options there. Be sure to keep notes of your conversations with the lender, including dates and times of calls, the name of the representative you speak with, and details of the conversation.
If there are no good options with the lender, we would recommend attempting a short sale, as this will typically be much better for your credit score, and will help you buy your next home sooner and at better interest rates.
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