The foreclosure process differs significantly depending on a homeowner’s state of residence. In California, mortgage lenders have the right to foreclose either through judicial foreclosure or non judicial foreclosure. Each method provides both the lender and the homeowner with certain rights and responsibilities.
Non-judicial Foreclosures in California
Non-judicial foreclosures are by far the most common variety of foreclosure in California. Through a non-judicial foreclosure, a lender can seize a borrower’s property without going through the California court system to do so.
A non-judicial foreclosure in California begins when a borrower defaults on his mortgage loan. The mortgage company will then issue a Notice of Default to the borrower granting him a certain amount of time to pay his mortgage arrears or face foreclosure proceedings. If the homeowner does not pay the amount due, the mortgage lender sets a sale date for the property and sells it at auction.
After a non-judicial foreclosure, a first mortgage lender has no legal grounds to sue a borrower for his mortgage deficiency. California anti-deficiency laws specifically state that by seeking a non-judicial foreclosure, lenders waive the right to sue for any deficiency owed on the property. Non-judicial foreclosures in California do not carry a right of redemption for the borrower.
Judicial Foreclosures in California
Judicial foreclosures occur when the deed of trust does not grant the lender the power to foreclose. Thus, the lender must file a petition with the court before it has the legal right to repossess the property. Judicial foreclosures are far less common that the non-judicial variety.
Before a lender can seize a home, the court must agree to allow the foreclosure to proceed. This requires a hearing. The borrower may attend and present any evidence he possesses proving that his mortgage is not in default. In general, however, judicial foreclosure hearings are merely a formality and the foreclosure eventually proceeds.
Judicial foreclosures allow California lenders to legally pursue a mortgage deficiency against the borrower. Thus, after foreclosure, the lender may file a lawsuit against the former homeowner demanding that he pay any remaining amount owed on the mortgage loan after the foreclosure auction. The drawback to judicial foreclosures for lenders is the fact that they may take up to one year or longer to complete and provide borrowers with a right of redemption for one year following the property foreclosure.
Anti-Deficiency Laws Only Apply to First Mortgage Lenders
While California is often touted as an “anti-deficiency” or “non-recourse” state, this is only true if the first mortgage lender forecloses using a non-judicial foreclosure and no additional liens exist securing the property as collateral to another creditor.
In the event that the homeowner refinances his loan or takes out a second mortgage, his mortgage lender possesses the right to legally pursue any deficiency he owes after the foreclosure process is complete. This can lead to wage garnishment, bank account garnishment and credit damage.
Homeowners facing foreclosure in California can request a loan modification, deed in lieu of foreclosure or short sale to stop foreclosure proceedings. If the borrower has sufficient credit, he may qualify to refinance his home at a lower interest rate or extended repayment period to lower his monthly mortgage payments. The U.S. Department of Housing and Urban Development recommends that individuals facing foreclosure immediately contact their mortgage lenders and attempt to negotiate their loans to avoid property seizure.
Mortgage Deficiency Judgment After Foreclosure or Short Sale
Cancellation of Debt After Foreclosure: Forgiven Debt and Taxes
The Credit Consequences of Foreclosure
Home Foreclosure Over Unpaid Credit Card Debt
California Board of Realtors: Deficiency Judgments and California Law
U.S. Department of Housing and Urban Development: Avoiding Foreclosure
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