California’s complex foreclosure laws are causing confusion in the minds of homeowners
Real EstateThe complexity of California foreclosure laws arises due to the fact that there are two types of home loans, namely: recourse loan and non-recourse loan. The explanation of this type of loan under California law can go in volumes. So the simple meaning is: under a recourse loan, a borrower may have personal liability after the foreclosure sale; And a borrower will normally have no personal liability after a Sheriff Sale judicial foreclosure on a non-recourse loan.
California state foreclosure laws allow both judicial and non-judicial foreclosures. This is not the case in many other states, where either is allowed. For example, in Florida only judicial foreclosure is allowed.
What is the difference between the two? Let us see:
A judicial foreclosure is one in which the mortgage lender has to file a lawsuit in County Court. The documentary evidence of the default has to be presented to the Court to take the case for preliminary acceptance of a trial. A notice called Lis Pendens, in plain language, notification of a pending lawsuit, is sent to the mortgage borrower.
The Court decides and issues an order for the foreclosure of the property at public auction. A bailiff’s sale takes place on the court steps and the property is assigned to the highest bidder. The typical time for a judicial foreclosure lasts about 120 days. The borrower will have a maximum of one year, under certain circumstances, to redeem the property. So far so good.
In the non-judicial foreclosure process, it begins out of court. A “Power of Sale” clause is inserted into the mortgage contract, which empowers the lender to sell the property, in case of default in payment through a foreclosure of “Trustee Sale”. Precisely the difference is that the lender does not need a court order to sell the property.
A notice of sale through public auction by a third-party Trustee, usually the representative of the lender, who is authorized to execute the “Power of Sale”, is sent 20 days before the sale and is given to the borrower only 5 days. to settle the default and stop foreclosure. Importantly, lenders cannot request a deficiency judgment and the borrower has no right of redemption here.
For example, in the 9-county San Francisco Bay Area, both foreclosure processes are applicable as it is within the State of California. In practice, lenders primarily take advantage of the speed and ease of the non-judicial foreclosure process.
The most disadvantageous position comes in the form of a “deficiency judgment” in which the court allows the lender to pursue the borrower, even after a foreclosure sale, for the outstanding balance, that is, the difference between the proceeds of the sale made by a foreclosure sale and the actual mortgage balance.
Balance persuasion can take place, just with a court order, and yet some lenders use this section as leverage when borrower-owners approach lenders with a short sale request.
In reality, according to the provisions of the Affordable Home Foreclosure Alternative Program introduced by the federal government, the borrower is completely free of mortgage debt and there can be no persuasion after a Short Sale.
So what’s the best advice for troubled homeowners in California, particularly in the San Francisco Bay Area? You can leave the legal aspects of a foreclosure or short sale in the hands of a trusted Realtor in the area, who will save you from all these confusions and apprehensions regarding your mortgage loan – with recourse or without recourse – and will protect your interests for full.