When money’s tight, and you've cut down on your other expenses as much as possible, it still might be impossible to keep up with your mortgage payments. Once you fall far enough behind on the loan, your lender (or the subsequent loan owner) will likely foreclose—that is, go through a specific legal process before eventually selling your home to a new owner at a foreclosure sale.
Here’s a step-by-step explanation of what typically happens in a California foreclosure.
Under Federal Law, Foreclosure Generally Can't Start for 120 Days
If the property is your principal residence, federal law generally requires the servicer to wait until you’re more than 120 days' delinquent on the loan before starting a foreclosure. In some cases, however, the process can begin earlier—like if you violated a due-on-sale clause or if the servicer is joining the foreclosure action of a superior or subordinate lienholder. (To learn more about the federal law that delays the start of the foreclosure process, see When Will Foreclosure Start?)
California's Preforeclosure Requirements
Under California law, the servicer can’t officially begin the foreclosure until 30 days after it has contacted you in person or by phone—or satisfied specific requirements for attempting to contact you—to assess your financial situation and explore alternatives to foreclosure, like a loan modification or repayment plan.
During the initial contact, the servicer has to tell you that you have the right to ask for a subsequent meeting, which can take place over the phone. If you ask for a meeting, the servicer has to schedule it to occur within 14 days. Though, the servicer may assess your financial situation and discuss foreclosure avoidance options during the first contact rather than at a subsequent meeting. The servicer also has to give you the toll-free telephone number for the United States Department of Housing and Urban Development (HUD) so you can find a HUD-certified housing counselor.
The California Homeowner Bill of Rights
If You Apply for a Modification, the Foreclosure Might Have to Stop
Under California law, if you didn't previously apply for a modification—or if you've had a material change in your financial circumstances since your previous application—and you send the servicer a complete application at least five business days before a scheduled foreclosure sale, the servicer can’t proceed with the foreclosure until:
- it makes a written determination that you’re not eligible for a modification, and the appeal period has expired
- you don’t accept a modification offer within 14 days, or
- you accept a modification offer but you default (fail to make the payments) or otherwise breach the agreement.
But if you've already applied and your financial circumstances haven't changed, submitting an application won't prevent the foreclosure from going forward.
This law is more generous than federal law. Federal law requires you to submit your application more than 37 days before the sale in order to stop the foreclosure.
The Foreclosure Sale
If you don’t get current on the loan, work out an alternative to foreclosure, or stop the process by filing for bankruptcy, the sale will take place on the set date. California foreclosure sales happen between the hours of 9 a.m. and 5 p.m. on business days, Monday through Friday.
At the sale, the lender will most likely bid on the property using a “credit bid.” With a credit bid, the lender basically gets a credit in the amount of your debt. The lender can bid the total amount you owe on the loan, including foreclosure fees and costs—or it may bid less. In some states, when the lender is the high bidder at the sale, but bids less than the total amount of the debt owed, it can get a deficiency judgment against the borrower. But in California, deficiency judgments aren’t allowed after a nonjudicial foreclosure.
If the sale results in excess proceeds—that is, money over and above what’s needed to pay off all the liens on your property—you’re entitled to that surplus money.
Eviction
If you don’t move out after the foreclosure sale, the new owner—usually the lender—has to give you a three-day notice to quit (move out) before starting a formal eviction action in court. Generally, though, it's better to leave the property before an eviction starts.
While this article provides an overview of a typical California foreclosure, keep in mind that state and federal laws are complicated—and servicers often make mistakes in the process. Most of the time, though, servicer errors go unchallenged. If the servicer skipped a step, made a mistake, or violated the law, you could have a defense that could force the servicer to start the foreclosure over or provide you with leverage to work out an alternative. So, if you’re facing a foreclosure in California, it’s best to talk to an experienced foreclosure attorney to learn about different options in your circumstances.
