When you take out a loan to purchase a property in California, you’ll likely sign a promissory note and a deed of trust. A promissory note is basically an IOU that contains the promise to repay the loan, as well as the terms for repayment. The deed of trust turns the promissory note’s IOU into a debt secured by a lien on your home.
What Happens When You Miss a Payment?
If you miss a payment, the terms of most promissory notes include a grace period of ten or fifteen days after which time the loan servicer will assess a late fee. (Servicers collect and process payments from homeowners, as well as handle loss mitigation applications and foreclosures for defaulted loans.)
To find out the late charge amount and grace period for your loan, look at the promissory note that you signed. This information can also be found on your monthly mortgage statement. (Learn more about fees that the lender can charge if you’re late on mortgage payments.)
What Happens When You Fall Behind in a Few Payments?
Once you miss a few mortgage payments, your servicer will probably send a letter or two reminding you to get caught up and letting you know about loss mitigation options, as well as call you to try to collect the payments. Don’t ignore the phone calls and letters. This is a good opportunity to discuss ways to avoid a foreclosure, like with a loan modification, forbearance, or payment plan.
Preforeclosure Loss Mitigation Review Period
Under federal mortgage servicing laws that went into effect January 10, 2014, the servicer must generally wait until you are more than 120 days delinquent on payments before making the first official notice or filing for any judicial or nonjudicial foreclosure under state law. (12 C.F.R. § 1024.41).
This 120-day time period should give you sufficient time to explore loss mitigation opportunities.
Preforeclosure Borrower Outreach Requirements
California law requires that your servicer personally contact you (or meet specific requirements for trying to contact you) by phone or in person 30 days before recording a notice of default—the official start to the foreclosure process—to assess your financial situation and explore options to avoid foreclosure. (Cal. Civ. Code § 2923.5).
What Happens When Your Servicer Contacts You?
During the initial contact, the servicer must advise you that:
You have the right to request a subsequent meeting, and
If requested, the mortgage servicer will schedule the meeting—which can be over the phone—to occur within 14 days.
The assessment of your financial situation and discussion of options may occur during the first contact or at the subsequent meeting. Either way, the servicer must also provide you with the toll-free telephone number to find a HUD-certified housing counseling agency.
What Happens if the Servicer Can’t Contact You?
If the servicer cannot get in contact with you, it can’t record the notice of default until 30 days after it has done all of the following:
Sent a first-class letter that includes the toll-free telephone number made available by HUD to find a HUD-certified housing counseling agency.
Attempted to contact you by telephone at least three times at different hours and on different days at the primary telephone number on file. This requirement is deemed satisfied if the servicer determines that the primary telephone number, secondary telephone number, or any other numbers on file have been disconnected.
Sent a certified letter two weeks after the telephone requirements are met that provides a way for you to contact it in a timely manner, including a toll-free telephone number that will provide access to a live representative during business hours.
Posted a prominent link on its website homepage with information about options to avoid foreclosure, financial documents borrowers should collect if they want to discuss such options, a toll-free telephone number to call to discuss alternatives to foreclosure, and the toll-free telephone number to find a HUD-certified housing counseling agency.
These outreach requirements are applicable to first lien mortgages or deeds of trust that are secured by owner-occupied residential real property that contains no more than four dwelling units.
The servicer doesn’t have to contact you—or attempt to contact you—to assess your financial situation and explore options to avoid foreclosure if you notify the servicer in writing to cease further communication with you.
The Breach Letter
Additionally, most California deeds of trust contain a clause that requires the lender to send a notification letter (called a breach letter) informing you that your loan is in default before it can accelerate the loan and proceed with foreclosure.
The letter must specify:
The action required to cure the default
A date (usually not less than 30 days from the date the notice is given to the borrower) by which the default must be cured, and
That failure to cure the default on or before the date specified in the notice may result in acceleration of the debt and sale of the property.
If you don’t cure the default and the servicer has met all other obligations, the foreclosure process will begin.
California law bans dual tracking, which is where a servicer simultaneously evaluates a borrower for a loan modification and pursues a foreclosure of the property.
If you submit a complete first lien loan modification application at least five business days before any scheduled foreclosure sale, the servicer can’t proceed by recording a notice of default or notice of sale, or conducting a trustee’s sale until:
It makes a written determination that you’re not eligible (and the appeal period has expired)
You don’t accept an offer within 14 days, or
You accept an offer but default or breach the modification. (Cal. Civ. Code § 2923.6).
The California Homeowner Bill of Rights
On September 14, 2018, Governor Brown signed a bill that permanently reinstated expired provisions of the Homeowner Bill of Rights (HBOR). To learn more about HBOR and how it protects homeowners in the foreclosure process, see California Foreclosure Protection: The Homeowner Bill of Rights.
California Foreclosure Process
Residential foreclosures in California are typically nonjudicial. This means the foreclosure happens outside of the state court system. (For more information on this topic, see our article What is a Power of Sale Foreclosure?)
Notice of Default
The nonjudicial foreclosure process formally begins when the trustee records a notice of default at the county recorder’s office. The notice of default includes information like the nature of the breach and how to cure it.
Within ten days of recording, the trustee mails a copy of the notice of default to the borrower and anyone requesting such notice. Within one month, the trustee mails a copy of the notice of default to any other interested parties, such as the borrower’s successor in interest and junior mortgage holders, among others.
The notice of default gives the borrower three months to cure the default. (Cal. Civ. Code § 2924).
Notice of Sale
If you do not cure the default, a Notice of Sale will be recorded. (It can be recorded up to five days before the end of the three-month period.) The Notice of Sale will contain the time and place of the sale, along with other information such as the property address. The foreclosure sale date must be at least 20 days after the end of the three-month period.
The Notice of Sale will be:
Posted at the property and in a public place in the city where the property is to be sold at least 20 days before the sale date
Published once a week for three consecutive weeks with the first publication occurring at least 20 days before the sale date, and
Mailed to the borrower, anyone who requested notice, and any successor in interest (among other parties) at least 20 days before the sale date. (Cal. Civ. Code § 2924b, § 2924f).
The Foreclosure Sale
The borrower can reinstate at any time until five business days prior to the sale date in a nonjudicial foreclosure. (Cal. Civ. Code § 2924c).
The foreclosure sale must be held between the hours of 9 a.m. and 5 p.m. on any business day, Monday through Friday. (Cal. Civ. Code § 2924g). The property will be sold to the highest bidder, which is usually the foreclosing lender, and then it becomes REO.
Deficiency Judgment Following Sale
A deficiency judgment is not allowed following a power of sale foreclosure in California. Because residential foreclosures are usually nonjudicial, this means that most Californians going through foreclosure don’t have to worry about being on the hook for a deficiency judgment. (Find out more about Deficiency Judgments After Foreclosure in California.)
Eviction Following Foreclosure
If you don’t vacate the property following the foreclosure sale, the new owner will probably:
Offer you a cash-for-keys deal, or
Take steps to evict you.
The eviction process starts with a three-day Notice to Quit. If you still don’t leave after three days, the new owner will go through the court system to evict you and obtain possession of the property.
Allow the Law Office of Ashish Patel to fight for you to save your home from foreclosure or to fight the eviction that may come thereafter. We have a well-deserved reputation for representing individuals and against big businesses that try to gain unfair advantages. If a lender harmed one person or one family, chances are that lender harmed hundreds or even thousands. We have the resources and the passion to file and litigate lender liability lawsuits.
If you would like more information, or would like to discuss your situation with a skilled mortgage attorney, please contact us today. We represent clients throughout Southern California.