If you stop paying your mortgage payments or the payments on your home equity loan, the lender may choose to try to foreclose your home. This means that the bank can force a sale of your home to pay for the unpaid loan.
There are a couple of different types of foreclosures in California, judicial foreclosures and nonjudicial foreclosures. In California, nonjudicial foreclosures are much more common. In the paperwork the homeowner signed when obtaining the mortgage, the homeowner signed a deed of trust, which gave the lender the authority to sell the home if the borrower stops making payments.
In a nonjudicial foreclosure, if the home sells for less money than is owed on the mortgage, the lender cannot later sue the homeowner for the unpaid amount. For example, if a borrower owes $400,000 on their home, but the bank was only able to sell the home for $350,000 in the non-judicial foreclosure, the foreclosing lender cannot sue the borrower for the unpaid $50,000.
Although the banks can lose money in this type of foreclosure, they often prefer it because it’s cheaper and quicker.
Conversely, a judicial foreclosure involves filing a lawsuit to get a court order to sell the home. In a judicial foreclosure, a home is usually auctioned, and the lender is allowed to obtain a judgment against the borrower if the home is sold for less than the amount of the unpaid mortgage. Fortunately, judicial foreclosures are far less common in California than non-judicial foreclosures.
In a non-judicial foreclosure, before foreclosing, the bank must call you to attempt to talk about your financial situation and to see if there is a way to avoid a foreclosure. After this conversation, the lender cannot start foreclosing for at least 30 days.
After the 30 days expires, the lender can record a Notice of Default, which is the beginning of the non-judicial foreclosure process. Once this notice is issued, the foreclosing lender must wait 90 days before taking further steps toward a foreclosure sale.
If you don’t pay the amount of the default during that 90 day period, a Notice of Sale will be recorded and mailed, which states that your home will be sold in about 21 days. After the 21 days, the property can be sold at public auction. You have until five days before the foreclosure sale to stop the process by “curing” the amount of the default.
Finally, after the home is sold, the new owner has to give you a three-day notice to move, and if you refuse to move, the new owner must go through an eviction process in court which can take weeks.
The prospect of a foreclosure can be extremely scary for a homeowner. The good news is that if you are falling behind on your payments, you can’t be kicked out of your home immediately.
You have a substantial amount of time during which you can try to work with the bank, come up with the funds to pay, or make alternative plans for housing if you decide that the home cannot be saved.
If you want to stop a foreclosure, there are a variety of different methods to do that. Which one is best for you depends on your particular situation. You could choose to file for bankruptcy, ask the bank to allow a short sale, attempt to do a refinance, offer a deed in lieu of foreclosure (handing over your property before the foreclosure), challenge the foreclosure in court, or ask the lender for a forbearance.
All of these options are used in different circumstances, and all may prevent the foreclosure process.
If you are facing foreclosure, don’t go it alone. An experienced real estate attorney can be a valuable asset on your behalf to help you navigate which options are best for you. The attorney can also help work with the lender on your behalf, or attempt to stop the foreclosure entirely, depending on your particular situation.
If you are in the Bay Area, feel free to call Attorney Robert I. Levy, at 510-465-0025. He works with homeowners who are facing foreclosures to help them understand their legal options.