What Happens If I Foreclose In California?

Foreclosure Processes in California

Are you wondering what happens if you foreclose in California? If you are facing foreclosure in California, there are two different processes that can be used by lenders to foreclose on the home. The processes are judicial foreclosure, which goes through the courts, and non-judicial foreclosure, which does not. The process used depends on the type of mortgage you received when you borrowed money to buy the home.

Most California foreclosures are handled through the non-judicial foreclosure process. In order to use this procedure, there must be a power of sale clause in the mortgage document or deed of trust. Basically, this is a clause saying that the buyer agrees that the lender can sell the home in the event that the mortgage payments are not paid.

Non-Judicial Foreclosure Process

Of course, even though the lender has received prior permission to sell the property, there is still a set of rules and procedures that must be followed. First of all, the lender must send a Notice of Default to the property owner. Besides mailing this notice to the owner, the lender must also record it at the County Recorder's Office.

The amount of time that lapses between the first late payment and the filing of the Notice of Default can be anywhere from a week to months. It is up to the lender when they make the decision to start the foreclosure process.

Once 90 days have passed since the Notice of Default has been recorded and mailed, the lender can move on to the next step, which is the Notice of Trustee's Sale. This notice must be published in a local newspaper and filed with the County Recorder's Office. The lender must then wait at least another 20 days to hold a public auction for the property.

At the location and time advertised in the Notice of Trustee's sale, the lender will put the property up for public auction with a starting bid equal to the amount of the debt plus foreclosure costs. The property will then be sold to the highest bidder. If no one bids on the property at the auction, the lender takes ownership.

If the lender uses the non-judicial foreclosure process, there can be no deficiency judgment made against the borrower. That means that the borrower cannot be made to pay the difference if the property is sold for less than the amount owed. However, there is also no redemption period following the sale. That means that once the auction is over, the borrower is not given a period of time in which they can repay the debt and reclaim the property.

Judicial Foreclosure Process

The judicial foreclosure process can also be used in California, but it is rarely used because it takes longer than the non-judicial process. However, if there is no power of sale clause in the mortgage document, the lender must go through the judicial foreclosure process in order to foreclose on the property.

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Comments 38 comments

Mary O'Reilly 7 years ago

I'm trying to find the financial ramifications after a forclosure has happened. I know the lender (legally) has to sell if for "fair market value" which usually ends up with the lender getting 50 - 75% or more back if they so a short sale - so doesn't that apply when the do a forclosure sale? And I am well aware of the tax issues that follows the sellers the next year. I'm assuming it would be the same or is it? I just don't understand why the government is helping the 1st time buyers with great percents/points/years nad the ones who've been in their homes over 10 yrs are getting screwed (excuse the language) BUT I don't know - it's just getting so hard here in this monopoloized state. Sorry, just venting. We have 1 tried to find out this info in detail with so many people and sites, frankly, I'M TIRED!! Thanks for you listening - and if you know, please share.

Thanks again,

Mary


bethparker profile image

bethparker 7 years ago from Grant, MI Author

Mary,

When you ask about the financial ramifications, I assume you are asking about a deficiency judgment, where the borrower ends up owing the mortgage company money after the foreclosure. In California, if the lender uses the non-judicial foreclosure process, the borrower cannot be held liable for the difference if the home is sold for less than the amount owed. However, a deficiency judgment is possible in a judicial foreclosure.

Of course, foreclosure will also affect your credit and make it harder for you to get loans or credit cards for awhile. It used to be that if you paid everything on time after the foreclosure, you could qualify for a new mortgage within about two years. I'm not sure if that has changed with banks tightening their belts in the loan department.

I agree with you about the government bailout money. I think it would be better spent if the government were to buy up the homes that are facing foreclosure and work out new terms with the borrowers to help them keep their homes.

Let me know if you have any more questions. I wish you the best.


Alberto 7 years ago

Hi, I purchased a home 3 years ago and have had no trouble paying the mortgage. Unfortunatly everyone in my neihborhood since rented or lost there homes. Now the area is a complete mess with low income housing and renters who do not care about there properties. I have had numerous break-ins and trouble with the new renters and such. I am at my wits end. I love my home but I am seriously considering just walking away since I am upside down in my house anyway. I hope I am not rambling (just venting) but what do I face if I just walk away?


Nikki Flower 7 years ago

What tax ramifications are there once the property is sold after a foreclosure? How do I determine if the mortgage company took the non-judical route?


bethparker profile image

bethparker 7 years ago from Grant, MI Author

Alberto,

One of my other articles on HubPages addresses your question. The title is "What Happens If I Abandon My Home and Let It Foreclose" and it is located at http://hubpages.com/hub/What-Happens-If-You-Abando...

I hope that helps.

Beth


bethparker profile image

bethparker 7 years ago from Grant, MI Author

Nikki,

Your questions are best answered by an accountant and an attorney, neither of which I am. However, I do know that in some cases where the home is sold for less than the amount owed and there is no deficiency judgement, the IRS treats the amount of the forgiven debt as income.

If your lender chooses to take the judicial route, the notice you receive should mention the time, date and location for a court hearing. If the notices you receive do not mention anything about a court hearing, then your lender is probably doing a non-judicial foreclosure.

Beth


amontes 7 years ago

We are in California and have a trustee sale date on August 6th. We found a new place to move but it's not available until August 15th. Will we be able to stay in our home for the extra week?


bethparker profile image

bethparker 7 years ago from Grant, MI Author

Amontes,

I found a similar question on another website, and the people who answered all seem to know what they're talking about, so I'll just give you the link here:

How Long Can You Stay in Your House After the Trustee Sale?

http://www.trulia.com/voices/Foreclosure/How_long_...


Connie 7 years ago

We are in CA and in all likelyhood we will have to walk away from home we are upside down in by approximately 100k. Home was bought new in 2006 for 360K we put 70K down at the time of purchase. We have a second @ 50K as well.

My question is about the IRS tax liability piece. The postings say the IRS will tax you on the "forgiven" debt amount between what was owed on mortgage and the sale price of the home at auction.

Do you know if you can claim a LOSS for the amount of your down payment.....in our case 70K It doesn't seem right to be taxed on imaginary income and not be able to claim a loss of your investment of a down payment.


bethparker profile image

bethparker 7 years ago from Grant, MI Author

I'm sorry, Connie. I'm afraid I don't know the answer to your question.


Jan 6 years ago

We co-signed for our son who works in construction. He lost about 50%of his income due to the economy. We helped him for about 7 months. He decided to walk away and we were aware our credit would be ruined, however he has to feed his family. We were in negotiating with the bank, who agreed to a short sale. We had a good offer and two back up offers. After 9 months of waiting, including the buyer, the bank foreclosed. Now I am told the house might be sold for a lot less money than the offers we had submitted to the bank. Now the loss is greater and if it is treated by IRS as income we will have to pay a lot in taxes. What can we do?


bethparker profile image

bethparker 6 years ago from Grant, MI Author

Jan,

The best thing you can do now is talk to a lawyer who has experience with foreclosures.


Mary 6 years ago

Where can you find out if your lender used a judicial or nonjudical foreclosure procedure?


bethparker profile image

bethparker 6 years ago from Grant, MI Author

Mary, look at your mortgage contract. It must include a power of sale clause in order for the lender to use the non-judicial foreclosure process.


Jason 6 years ago

We are upside down on out home. We have a first loan of 48k and a 2nd of 201k. The home is only worth 130k now. We were fortunate to get a home loan mod on the 201k which brought our payment down quite a bit. What happens if we just stop paying on the first loan of 48k? The first has a 10% rate and it was refused for a rate decrease. I appreciate your opinion.


bethparker profile image

bethparker 6 years ago from Grant, MI Author

Jason,

If you stop paying on the first, your home will likely go into foreclosure.


Virginia 6 years ago

Hi Beth, unfortunately even though we tried working out things with our bank, it was to no avail. Our home was to be auctioned off last month on the court steps. Can you tell me what happens next? If it doesn't sell, what happens? Do they continue to harass us? What else should we expect from them? Thanks so much


Elizabeth 6 years ago

I became a widow when my husband took his life under our home. I couldn't afford the mortgage, but my son & his family wanted to buy it. They moved in, and he paid the mortgage for 2yrs. I remarried, and moved. Called the mortgage co. and found my mortgage was 7mos. behind, and foreclosing. Son got job as corrections officer and didn't pay mortgage. He moved and I am out my home. He and wife are not sorry, say I would lose home anyway! I have no contract, just a no good son. And he is an officer who stole my respect and lost my home. Can I do anything to save my credit/name?


bethparker profile image

bethparker 6 years ago from Grant, MI Author

Elizabeth,

I'm so sorry to hear about your situation. It's a terrible thing when we are hurt by the people we love. The only thing I can think to do is call the mortgage company and see if they will work with you.

Good luck.


Annie 5 years ago

Hello Beth,

I let my home go into foreclosure about two years ago but I never filed for bankruptcy. The home was sold in less than one year and of course for an amount much lower than what I paid. Do you know if it is still possible for me to file for bankruptcy?


bethparker profile image

bethparker 5 years ago from Grant, MI Author

Annie,

Foreclosure doesn't affect your ability to file for bankruptcy, but if you have filed before, you may need to wait, depending on how long it has been. Why do you want to file for bankruptcy? Did your lender come after you for a deficiency judgement? Try to find a bankruptcy lawyer who offers a free consultation if you're considering it. He/she will give you better answers than I can.


mactavish 5 years ago

Hi Beth,

Due to some remodeling we did last year (out of pocket)we have misplaced some important papers. They are here somewhere, just haven't been found yet. Our mortgage papers are some of what we are missing. Can I call my mortgage company and request a complete copy of our papers? What exactly do I ask for? I want to see if we have that "power of sale clause". Right now it looks like our home will go into foreclosure next year. If it were to sell at the current prices in our neighborhood, we could end up having a difference of over $200,000.00 between what it sells for and what we owe. So, we desperately need to know how to avoid the IRS tax.

Thank you for your site. When I am up in the middle of the night, sleepless with stress, sites like your's give me a place to try and find answers.


bethparker profile image

bethparker 5 years ago from Grant, MI Author

@mactavish,

A copy of your mortgage was probably recorded with the county office that records property deeds. You should be able to get a copy there more easily than through your mortgage company.


leokingston profile image

leokingston 5 years ago

Thanks for the great info Beth! This is excellent info.


Hope Aguilar 5 years ago

What if you receive a 1099A form after your home has went to foreclosure and sold sold for less than you bought it for EX 207,000 was the balance and it sold for 75,000, Do you have to pay taxes on that/? Or can it be written off as a loss since you did not really make a profit off the foreclosure?


bethparker profile image

bethparker 5 years ago from Grant, MI Author

@Hope,

This is the best article I could find on the topic: http://ezinearticles.com/?IRS-Form-1099-A,-1099-C-...

When dealing with matters related to taxes, it is best to consult a tax attorney or accountant with experience in that area.


ELIZABETH 5 years ago

I HAVE A QUESTION, I LIVE IN CALIFORNIA AND MY HOME IS IN FORECLOSURE, I AM IN REVIEW FOR A MODIFICATION SO MY SALE DATE WHICH WAS TODAY APRIL 1ST WAS POSTPONED FOR MAY 2ND, OR JUNE 1ST. BANK GAVED ME 1 DATE AND NACA WHOM I'M DEALING WITH TOLD ME FANNIE MAE GAVED A 60 DAY POSTPONED FOR THE SALE, ANYWAY MY QUUESTION IS, IN CASE I DO LOOSE MY HOME, HOW LONG DO I HAVE TO LEAVE AFTER IT SELLS, AND ALSO WILL I BE RESPONSIBLE FOR ANY CHARGES ON MY 1ST LOAN AND I ALSO HAVE A 2ND LOAN WITH THE SAME BANK B of A.. EVEN THOUGH I DID BANKRUPTCY IN 2009 AND BOTH LOANS WERE IN THE BANKRUPTCY AND IT WAS DISCHARGED IN 2009.. CAN YOU PLEASE ANSWER MY QUESTION? THANK YOU


Brian 5 years ago

The article is a couple years old. Is it still the case today (2011) that a california non-judicial foreclosure won't have a difficiency judgement? I've heard conflicting stories from different websites.


cordbailey profile image

cordbailey 5 years ago

As an answer to Brian's question regarding whether this information is still relevant today, I know that California just enacted new laws regarding deficiency judgments that are favorable to borrowers and puts more onus on Lenders. Google "Senate Bill 458" and you can find more information regarding how the new law affects you as a consumer.


MamaV 5 years ago

Hi Beth,

My husband bought a home in California before we were married and I am not on title. We want to buy another home closer to my job and babysitter but know that we will not qualify because his house in underwater. If I buy a home with my parents and keep him off the loan, and he lets his home go, will the bank come after my new home if he is not on title? He has a first mortgage loan and a second equity loan. Will we need to still pay on both loans? We know that his credit will be bad for seven years but do you know about any tax penalties? Please let me know what information you may have.


cpo58 5 years ago

We filled for and received a chapter 7 bankruptcy in CA, about two years ago. We kept our home (valued at about (150,000) and although we are upside down about $70,000 have continued to make our payments. Last month my mother died leaving her home in WA. (Which is in disrepair needing $40,000 worth of work) to me, and approx. $80,000 in cash. In light of these new assets, if we walk away from our CA home will they likely come after us for the deficiency and how would they know our assets? I understand that CA is a non-recourse state and most foreclosures are non-judicial so when would a mortgage company use a judicial foreclosure? It was pointed out on one blog that if you do a short sale a financial statement is required, is this not the case with a foreclosure? Is there any protection by being in a different state? Would we be wise to seek legal advice, such as a real estate attorney? Thanks very much for you time


cheapestinsurance profile image

cheapestinsurance 4 years ago from California, USA

Wow, sounds complicated. Hope I never have to foreclose!


bethparker profile image

bethparker 4 years ago from Grant, MI Author

@cpo58: If the lender opts to go through the courts for foreclosure rather than using the quicker and easier non-judicial process, they may be able to come after you. However, you won't know that until they start the process. I'd talk to a foreclosure lawyer in California before deciding what to do.


george 4 years ago

Hi Beth, If my home I purchased 5 years ago was sold at foreclosure auction / trust deed sale and purchased by family, can my wife (a girl I recently married that has perfect credit and plenty of money independent of me) get a loan to buy it back from her family? FYI, she has lived in the home for the past 6 months and is using the address of the foreclosure for the loan. & it was her family (My father in law) that purchased the home at auction.

I am hearing conflicting stories from different sources and want to know if it is possible to get a loan, or do the banks have a good old boys club preventing family deals even after they agree to sell it at auction?

As an additional side note, I did not strategically default. Since purchasing the home in 2007, I was divorced in 2009 and I lost my business and income in 2010. I have since found employment but it is a fraction of what I made and was not enough to save my home from foreclosure.


bethparker profile image

bethparker 4 years ago from Grant, MI Author

George,

I don't see any reason why your wife shouldn't be able to get a loan on the home. If the original bank won't do it, there are plenty of others.


Chris 4 years ago

My wife and I own two homes. We purchased a home in SC while stationed there. We currently rent that home out. When stationed in California we purchased another home (currently our primary residence) with a VA backed loan. The CA home was purchase aug 2011. The value on the ca home has depreciated by over 30k in that timeframe.

We will not be staying in California. At the end of the year my wife will separate from active duty. Upon her separation we will move back to our home in SC.

I have a few questions about my situation. We are considering a strategic default on the CA home.

1--can I default on the VA backed loan and be protected from a deficiency judgement?

2-- if a judgement is placed against us...what actions can the lender take?

3--the difference "owed" is it still taxable in this case?

At this point in time we prob can't even rent the home at what we pay for the mortgage. Right now we are gathering info to attempt to make an informed decision. Thought we bought the CA home at rock bottom prices...lesson learned. It will not be possible for us to afford both homes when my wife separates from active service.

Thanks


bethparker profile image

bethparker 4 years ago from Grant, MI Author

Chris,

1) Deficiency judgment: It depends. If the lender uses the judicial foreclosure process (going through the courts), then they may be able to get a deficiency judgment. If they do a non-judicial foreclosure, they cannot.

2) They can garnish your wages, bank accounts, and tax refunds.

3) It depends. If they get a deficiency judgment, then the debt has NOT been forgiven. You still owe the money, so it can't be counted as income.

If the bank forgives the debt or does a non-judicial foreclosure where they can't get a deficiency judgment, then the forgiven amount is taxable as income since you didn't pay taxes on the money when you received it.

The gray area here is if the lender does a judicial judgment but does not initiate proceedings to obtain a deficiency judgment right away. At this point, you don't really know whether they will attempt collect the debt or not unless they inform you that it has been forgiven.

I hope that helps.


danny 4 years ago

what happens to the second mortgage loan when your house is foreclosed in the the state of california?

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