California Foreclosure Process: Know Your Rights and Options

Falling behind on your mortgage payments can be a stressful and overwhelming experience for any homeowner. If you find yourself in this difficult situation, it’s critical to understand the foreclosure process in California and know your rights and options for potentially avoiding losing your home.

In this comprehensive guide, we’ll walk through each step of a typical nonjudicial foreclosure in California, which is the most common type of foreclosure in our state. We’ll also highlight key laws that provide protections to homeowners, discuss alternatives to foreclosure, and share some practical tips for navigating this process and finding the best possible outcome for your situation.

Understanding the Preforeclosure Period

When you miss a mortgage payment in California, you enter into “preforeclosure.” During this time, your mortgage servicer will typically begin charging late fees and may start outreach efforts to discuss your situation and options to avoid foreclosure.

Generally, under federal mortgage servicing regulations, a servicer cannot officially begin the foreclosure process until you are more than 120 days delinquent on your loan. This is intended to give you time to explore loss mitigation options like a loan modification, forbearance, or repayment plan.

However, there are some exceptions where the foreclosure may begin sooner, such as if you are in bankruptcy or have already been through a loan modification review process.

Servicer Outreach Requirements in Preforeclosure

California law imposes additional requirements on mortgage servicers to contact homeowners and assess options to avoid foreclosure before officially starting a foreclosure.

No later than 30 days before recording a Notice of Default (which begins the formal foreclosure process), the servicer must either:

• Have a live, in-person or telephone meeting with you to discuss your financial situation and explore alternatives to foreclosure, or
• Make diligent efforts to contact you, including:
  • Sending a letter with contact information and a statement that you can request a follow-up meeting within 14 days
  • Calling your primary phone number at least 3 times at different hours and on different days
  • If unable to reach you, sending a certified letter stating how you can make contact
  • Posting a link on their homepage with loss mitigation information and resources

During this first contact, the servicer must inform you that:

• You have the right to request a follow-up meeting within 14 days
• You may be eligible for options to avoid foreclosure and should contact a HUD-approved housing counselor

If you request a follow-up meeting, the servicer must schedule it to occur within 14 days, and it can be over the phone. The purpose is to further assess your finances and discuss ways to prevent foreclosure.

Keep in mind, if the servicer has not been able to contact you 30 days prior to recording a Notice of Default despite these efforts, they must wait 30 additional days before starting a foreclosure.

The Official Foreclosure Process Begins

Most foreclosures in California are nonjudicial, meaning they happen outside of court. While less common, judicial foreclosures are also allowed and involve court proceedings.

Notice of Default

The first official step in a nonjudicial foreclosure is the recording of a Notice of Default (NOD) at the county recorder’s office by the trustee, which is the party handling the foreclosure on behalf of the loan owner.

The NOD will state:

• The nature of the default, such as missed payments
• The amount needed to cure the default and stop the foreclosure
• That you have 90 days from the NOD recording date to cure the default

Within 10 business days of recording, the NOD must be mailed to you. Other interested parties like junior lien holders will be mailed the NOD within one month.

Upon receiving the NOD, you have 90 days to pay the specified amount and “reinstate” the loan, which stops the foreclosure. In California, homeowners have the right to reinstate until 5 business days before the foreclosure sale in most cases.

Notice of Sale

If you don’t reinstate within 90 days of the NOD, the next step is for the trustee to record and mail you a Notice of Sale (NOS). This document states the date, time, and location that your home will be sold at a foreclosure auction. The sale date must be at least 21 days after the NOS is recorded.

Leading up to the sale, the NOS must be:

• Recorded at the county recorder’s office
• Posted on your property
• Mailed to you and other parties like junior lien holders
• Published weekly for 3 consecutive weeks in a local newspaper

Foreclosure Sale Auction

If you have not paid the amount to reinstate or worked out an alternative with your lender, your home will be sold at the scheduled foreclosure auction to the highest bidder.

In California, these sales happen on business days, Monday through Friday, usually on courthouse steps. The lender will typically make a “credit bid” up to the amount owed on the loan. If a third party outbids the lender, they must pay in cash or cashier’s check.

If the lender takes back the property at the auction, it becomes bank-owned or REO. If a third party purchases the home for more than you owed, you are entitled to the excess funds.

Understanding the Foreclosure Timeline

Putting the pieces together, here is a summary of the typical California nonjudicial foreclosure timeline:

• Day 1: You miss your first mortgage payment. The preforeclosure period begins but the official foreclosure has not started.
• Day 120: This is generally the soonest your loan can be referred to foreclosure, with some exceptions.
• Day 150 or later: The servicer must attempt to contact you at least 30 days before recording the NOD.
• If no contact occurs after 30 days, the NOD is recorded, triggering the 90-day period to reinstate. This is the official start of foreclosure.
• 90 days after NOD: If you don’t reinstate, the NOS is recorded, setting an auction date at least 21 days out.
• 21+ days after NOS: Foreclosure sale occurs unless you reinstate, work out an alternative, or file bankruptcy.

As you can see, the foreclosure process in California takes approximately 120 days from the recording of the NOD to the sale date. With the initial preforeclosure period, the entire timeline from first missed payment to foreclosure sale is usually at least 7-8 months.

However, in practice, foreclosures often take significantly longer than these minimum timeframes. It is not uncommon for the process to take a year or more, giving homeowners substantial time to explore options to keep their home.

Dual Tracking Restrictions

In the past, homeowners would sometimes be foreclosed on while they were in the process of applying for a foreclosure alternative with their lender. California law now prohibits this practice, known as “dual tracking.”

If you submit a complete application for a loan modification or other foreclosure alternative, the servicer generally cannot move forward with foreclosure steps like recording an NOD or NOS, or conducting a sale, while the application is pending.

This restriction applies to first lien loans and presumes the application is submitted at least 5 business days before a scheduled foreclosure sale.

State Laws Extending Protections for Homeowners

California’s Homeowner Bill of Rights (HBOR), first enacted in 2013, provides important protections to homeowners facing foreclosure. Some of the key provisions are:

• Requiring servicers to provide a single point of contact for the homeowner
• Prohibiting dual tracking while a complete loan modification application is pending
• Requiring servicers to review and make a decision on loan modification applications before starting or continuing foreclosure
• Allowing homeowners to seek an injunction and monetary damages for material HBOR violations

The HBOR was initially temporary and set to expire after five years. However, in 2018, many of the provisions were restored and made permanent, ensuring ongoing protections for homeowners.

In 2020 and 2021, California also enacted laws requiring mortgage servicers to contact homeowners experiencing a COVID-19 related hardship and provide them with specific information about forbearance programs and post-forbearance options before starting or continuing foreclosure activity.

Foreclosure Alternatives to Consider

Foreclosure is a serious situation but you may have alternatives to avoid it, even if you have already received an NOD.

Some options to consider:

• Reinstatement: As mentioned, you have the right to reinstate your loan by paying all missed payments and costs up until 5 business days before the sale. This is helpful if your hardship was temporary and has been resolved.
• Loan modification: If you cannot afford your current mortgage payment, a loan modification may help by extending the term, reducing the interest rate, or even forgiving principal. Many lenders have proprietary (in-house) loan modification programs, and there are also some government programs that may help, like the new Fannie Mae and Freddie Mac Flex Modification options.
• Forbearance: A forbearance allows you to temporarily reduce or suspend mortgage payments for a set period of time to deal with a short-term hardship. You will still owe the payments but they are deferred to the end of the forbearance period.
• Repayment plan: If you can catch up on missed payments over a few months in addition to making your regular payment, a structured repayment plan is an option.
• Mortgage assistance programs: There are state and local mortgage assistance programs that offer loans and grants to eligible homeowners to get caught up on payments. For example, the California Mortgage Relief Program provides grants of up to $80,000 to homeowners who fell behind due to COVID-19.
• Selling your home: If keeping your home isn’t feasible, selling it yourself before the foreclosure sale is better than letting it go to auction. You may be able to take advantage of your equity and avoid having a foreclosure on your credit.
• Short sale: If your home is worth less than the mortgage balance, your lender may agree to a short sale, where they accept the proceeds as full payment even though it is “short” of the full balance. Most lenders would rather do this than foreclose.
• Deed in lieu of foreclosure: As another alternative to foreclosure, you may be able to voluntarily transfer ownership of the property to the lender in exchange for them releasing you from the loan. This is called a deed in lieu of foreclosure.
• Chapter 13 bankruptcy: If all else fails, filing Chapter 13 bankruptcy may allow you to stop the foreclosure and catch up on missed mortgage payments over a 3-5 year repayment plan. A bankruptcy attorney can advise you if this is a viable option.

The key is to communicate with your lender early and often about your situation. Ignoring notices or putting off dealing with the problem will only make it worse. Lenders are often more willing to work with you if you are upfront and respond promptly to their outreach attempts.

Tips for Homeowners Facing Foreclosure

If you are struggling with your mortgage, here are some practical tips to help you navigate the process and work towards a positive outcome:

• Don’t ignore communications from your lender. Open the mail, answer and return phone calls promptly. The more responsive you are, the more willing they will be to help.
• Review your budget carefully and determine what you can realistically afford. This will help you and your lender evaluate your options.
• Gather and organize key documentation like recent paystubs, bank statements, tax returns, and hardship letters. You will need these for any loss mitigation application.
• Respond to requests for additional information quickly and completely. Delays or incomplete applications will only hurt your chances of getting help.
• Seek advice and assistance from a qualified professional. HUD-approved housing counselors can help you navigate the process and talk to your lender for free. An experienced foreclosure defense attorney can assess your case and advise you of your legal rights and options.
• Be wary of scams. Unfortunately there are many foreclosure rescue scams out there that prey on desperate homeowners. Be cautious of any company that asks for upfront fees, guarantees they can stop your foreclosure, or tells you not to talk to your lender or attorney.
• Know your deadlines and don’t delay. It is critical to understand how much time you have to act under California law and your loan documents. The further behind you become, the harder it will be to catch up.

While no one wants to go through a foreclosure, the more proactive and informed you are, the better your chances of finding an alternative to stay in your home or move on in a more positive way.

Foreclosure Protections for Military Servicemembers

If you or your spouse is an active duty military servicemember, you may have additional protections against foreclosure under the federal Servicemembers Civil Relief Act (SCRA) and similar California laws.

For example, if you took out your mortgage before going on active duty, the servicer cannot foreclose on you during your period of military service or for one year after without first getting a court order.

The SCRA and state law also allow you to request a delay in the foreclosure process of up to nine months in certain situations.

Deficiency Judgments after Nonjudicial Foreclosure Not Allowed in California

If your home sells at a foreclosure auction for less than the loan balance, the difference between the sale price and the total debt is called a “deficiency.” In some states, the lender can seek a personal judgment against the borrower after the foreclosure to recover this deficiency.

Fortunately, this is not allowed for most residential foreclosures in California. State law prohibits a lender from pursuing a deficiency judgment against a homeowner after a nonjudicial foreclosure of a deed of trust securing a purchase money loan (one used to buy a home).

There are some limited exceptions for “bad faith” waste or fraud by the borrower, but in general, a homeowner is not personally liable for any deficiency following a typical nonjudicial foreclosure in California.

Keep in mind, this protection does not apply to second mortgages, HELOCs, refinances of non-purchase money loans, or judicial foreclosures.

Understanding Your Post-Foreclosure Options

If your home does sell at a foreclosure auction, title transfers to the winning bidder, either the lender or a third party. You no longer have any ownership interest in the property.

At this point, the new owner will likely either offer you a cash incentive to leave, known as “cash for keys,” or begin the formal eviction process. An eviction begins with a 3 day notice to voluntarily vacate the property.

In California, you do not have any right of redemption after the foreclosure sale. This means you cannot get the home back, even if you come up with the money to pay off the full debt.

After losing a home to foreclosure, you will likely want to start thinking about rebuilding your credit and considering your housing options going forward. It may take several years to qualify for a new mortgage, but it is possible with time and effort.

Foreclosure Help and Resources

Dealing with a potential foreclosure can be challenging to navigate alone. Here are some resources and professionals who can help:

• A HUD-approved housing counselor: Free foreclosure prevention counseling and assistance working with your lender. Find a counselor
• A licensed foreclosure defense attorney: Can review your loan documents, identify legal defenses, and represent you in court if needed. Find a California attorney
• Your mortgage servicer: Call your servicer or send a written request for assistance (RMA) to learn about your options.
• California mortgage relief programs:
  • Housing is Key: State program providing mortgage assistance to homeowners impacted by COVID-19
• Other foreclosure avoidance resources:
  • Making Home Affordable: Federal programs to help homeowners avoid foreclosure
  • HUD Avoiding Foreclosure: Tips and resources from the Department of Housing and Urban Development

While no one enters into a mortgage expecting to face foreclosure, the reality is that unexpected financial hardships can happen to anyone. The sooner you take action to understand your rights and seek assistance, the better your chances of finding an alternative to foreclosure.

Although the process can feel overwhelming, there are laws in place to protect California homeowners and resources available to help. Don’t give up or go through it alone. Be proactive, stay informed, assert your rights, and reach out for professional guidance as you work to resolve your situation.

Frequently Asked Questions

Can I stop foreclosure once it starts in California?

Yes, you have several opportunities to stop a foreclosure in California, even after the process has officially begun with the recording of a Notice of Default (NOD). You can reinstate the loan by paying all missed payments, fees, and costs up until 5 business days before the sale date. You can also work out a foreclosure alternative with your lender, such as a loan modification, short sale, or deed in lieu of foreclosure. Filing bankruptcy will also temporarily stop foreclosure proceedings.

What happens if I don’t respond to a Notice of Default in California?

If you don’t take action after receiving a Notice of Default, the foreclosure will proceed. 90 days after the NOD is recorded, the trustee can record a Notice of Sale (NOS), setting a date for the foreclosure auction at least 21 days out. If you don’t reinstate the loan, work out an alternative, or file bankruptcy, your home can be sold at the scheduled sale.

How long after foreclosure can I buy a house in California?

The waiting period to get a new mortgage after foreclosure varies depending on the type of loan. For conventional loans, Fannie Mae and Freddie Mac require a 7 year waiting period, or 3 years with extenuating circumstances. FHA loans have a 3 year waiting period, which can be reduced to 1 year with extenuating circumstances. VA and USDA loans require a 2 year wait in most cases. Some non-prime lenders may have shorter seasoning periods.

Do I have to pay taxes on a foreclosure in California?

Foreclosures can have significant tax consequences. In general, if your mortgage debt is forgiven through foreclosure, short sale, or deed in lieu, you may have to pay income tax on the cancelled amount. However, the Mortgage Forgiveness Debt Relief Act allows some taxpayers to exclude this income if the debt was used to buy, build, or substantially improve a primary residence. California also has a similar exemption. Consult a tax professional about your specific situation.

Can a lender sue for deficiency after a foreclosure in California?

For most residential foreclosures in California, the answer is no. State law prohibits lenders from pursuing a deficiency judgment after a nonjudicial foreclosure of a purchase money loan (one used to buy the home). There are limited exceptions for bad faith waste, fraud, or reckless damage to the property by the borrower. Note this protection does not apply to second mortgages, HELOCs, refinances of non-purchase money loans, or if the lender uses a judicial foreclosure process.

How long can I stay in my house after foreclosure in California?

After a foreclosure sale, title to the property transfers to the winning bidder, either the lender or a third party. At this point, you no longer have a legal right to occupy the property and can be evicted. The new owner must serve you with a 3 day notice to quit before filing an eviction lawsuit. If you don’t leave voluntarily, the entire eviction process can take several weeks, though the new owner may offer you a cash incentive (“cash for keys”) to leave sooner.

Can I get my house back after foreclosure in California?

In California, you do not have a right of redemption after a nonjudicial foreclosure sale. This means you cannot get your house back after the sale by paying off the loan balance. In a judicial foreclosure, there is a 1 year redemption period, but this process is rarely used. The only way to potentially unwind a completed foreclosure is to file a lawsuit and prove the sale was illegal or fraudulent, which is very difficult to do.

How much does it cost to foreclose in California?

The cost of foreclosure varies depending on many factors, but can easily reach tens of thousands of dollars. Costs include attorney’s fees, trustee’s fees, property maintenance and security costs, court filing fees, service of process fees, title and escrow fees, and more. These costs are typically charged to the borrower and added to the loan balance. Lenders may also suffer loss if the property sells for less than the total debt owed.

Can a foreclosure be removed from my credit report in California?

Foreclosures remain on your credit report for seven years from the date of the first missed payment that led to the foreclosure. During this time, they can significantly damage your credit scores, making it difficult to obtain new credit. After seven years, the foreclosure will automatically drop off your report. In general, you cannot remove a legitimate foreclosure sooner than that, but you can take steps to rebuild your credit in the meantime.

What is the California Homeowner Bill of Rights?

The California Homeowner Bill of Rights (HBOR) is a set of laws that provides protections to homeowners facing foreclosure. Key provisions include requiring lenders to provide a single point of contact, prohibiting dual tracking, providing a right to appeal a loan modification denial, and allowing homeowners to sue for material violations. The HBOR was first enacted in 2013 and made permanent in 2018.

Can I sell my house if it’s in foreclosure in California?

Yes, you have the right to sell your home up until it is sold at a foreclosure auction. Selling your home yourself, either through a regular sale if you have equity or a short sale if you are underwater, is often a better alternative than letting it go through foreclosure. A short sale will still negatively impact your credit, but not as severely as a foreclosure. Talk to your lender about your options and the required process to complete a sale before foreclosure.

What happens to second mortgages in foreclosure in California?

In a foreclosure, second mortgages and other junior liens are wiped out if the senior lender completes the foreclosure. The second mortgage lender may have the right to sue you for the remaining balance on the loan through a deficiency judgment, even though they no longer have a lien on the property. However, California law prohibits lenders from collecting a deficiency on purchase money loans after a nonjudicial foreclosure, whether they are in first or second position.

Can a lender foreclose if my loan is in forbearance in California?

In general, a lender cannot foreclose on you while you are in a forbearance plan and complying with its terms. Forbearance temporarily pauses or reduces your mortgage payments, giving you time to resolve a short-term hardship. However, forbearance does not erase the missed payments – you still owe them and must make them up through a payment plan or other option when forbearance ends. If you don’t resume payments or work out an alternative at that time, foreclosure may be possible.

Can a lender foreclose if I am in the process of modifying my loan in California?

Under California law, a practice known as dual tracking is prohibited. This means if you submit a complete application for a first lien loan modification, the servicer cannot start or continue the foreclosure process while the application is pending. They must review it and make a decision before proceeding with foreclosure steps. If the modification is denied, you have a right to appeal. If it’s approved, you must be given a chance to accept it before foreclosure resumes.

What is the role of a trustee in a California foreclosure?

In a typical California foreclosure, which follows a nonjudicial process, a trustee acts on behalf of the lender to complete the foreclosure. The trustee’s responsibilities include recording and mailing required notices such as the NOD and NOS, handling reinstatement and payoff requests, and conducting the foreclosure sale. Trustees are often title companies, and must be impartial to both the borrower and lender.

What is a Notice of Trustee’s Sale in California?

A Notice of Trustee’s Sale (NOS) is a formal notice in a nonjudicial foreclosure that sets the date, time, and location of the foreclosure sale. In California, the NOS must be recorded, posted on the property, mailed to the borrower and other interest holders, and published in a newspaper. It cannot be issued until at least 90 days after the NOD is recorded. The actual sale date must be at least 21 days after the NOS is recorded.

Can a homeowners association foreclose on me in California?

Yes, a homeowners association (HOA) can foreclose on your property if you fall behind on your HOA dues or assessments. In California, HOAs can use nonjudicial foreclosure for outstanding amounts over \$1,800 or delinquent for over 12 months. For smaller amounts, they must use judicial foreclosure. The process is similar to a mortgage foreclosure, requiring recorded notices and offering you chances to pay off the debt and stop the sale.

How does a judicial foreclosure differ from a nonjudicial foreclosure in California?

Judicial and nonjudicial are two different processes for completing a foreclosure in California. A nonjudicial foreclosure, which is most common, is handled out of court by a trustee, and typically takes around 120 days. A judicial foreclosure involves the lender filing a lawsuit against the borrower, and can take several months or over a year. The key difference is a judicial foreclosure allows the lender to seek a deficiency judgment, while a nonjudicial one does not.

What happens to tenants when a property is foreclosed on in California?

Under the federal Protecting Tenants at Foreclosure Act (PTFA), most tenants have the right to stay in a foreclosed property for 90 days or through the term of their lease. Month-to-month tenants are entitled to 90 days notice before having to move out. Tenants with term leases can generally stay until the end of the lease, with some exceptions, such as if the new owner wants to occupy the property. California law provides similar protections.

What should I do if I am facing foreclosure in California?

If you are facing foreclosure, the most important thing is to be proactive and seek help. Communicate with your lender about your hardship and request information on options to avoid foreclosure. Gather and review your financial information to see what solution may fit your budget. Consult with a HUD-approved housing counselor for free advice and assistance working with your lender. If needed, contact an experienced foreclosure attorney to understand your rights and discuss legal options. Don’t delay or ignore the situation, as time is of the essence.

These are just some of the many questions homeowners facing foreclosure often have. Every situation is unique, so it’s important to seek individualized advice from qualified professionals. With the right information and support, many struggling homeowners are able to find an alternative to foreclosure and move forward on a more positive path.