CALIFORNIA NON-JUDICIAL FORECLOSURE STEP BY STEP PROCESS
California foreclosure laws are unique for a variety of reasons, the first being that a lender can conduct either a judicial or non-judicial foreclosure sale, however in practice, almost all lenders use the non-judicial foreclosure process. This article will explain the step by step process a lender must take to properly foreclose on a property and eventually take possession of the property from the borrower.
During the mortgage crisis, banks took advantage of the lack of oversight offered to them by the Non-Judicial foreclosure process. Therefore, to correct the abusive tactics utilized by banks in the foreclosure process, the California Homeowner Bill of Rights (“HBOR”) was passed in 2013. (Helo v. Bank of Am. Servicing Co. (E.D.Cal. Nov. 24, 2014, No. 1:14-cv-01522 – — – JLT) 2014 U.S. Dist. LEXIS 164975 at Pg. 7-8; See also Mabry v. Superior Court (2010) 185 Cal. App. 4th 208, 222.) HBOR imposed numerous statutory notice requirements on lenders with the intention of preventing foreclosures.
California Civil Code § 2923.5 Notice
One implementation of HBOR was the enactment of California Civil Code § 2923.5 (“2923.5”), which requires a lender to contact a borrower to explore financial options before issuing a notice of default. 2923.5 does not require a bank to offer a loan modification. See Rockridge Trust v. Wells Fargo, N.A. (2013) 985 F. Supp 2d, 1110, 1153. However, if the appropriate contact is not made, or a 2923.5 declaration is not created, a borrower has a private right of action to postpone the foreclosure sale. (Mabry v. Superior Court (2010) 185 Cal. App. 4th 208, 214.) Therefore, lenders must comply with 2923.5 or risk having their Trustee’s Sale and other foreclosure work postponed, which means it will have to be redone. In summary, lenders compliance with 2923.5 is of critical importance and not something a lender should ignore.
Notice of Default California Civil Code 2924
Once a lender complies with the 2923.5 notice a thirty-day waiting period must expire before it can issue a Notice of Default. (Intengan v. BAC Home Loan Servicing, LP (2013) 214 Cal. App. 4th 1047, 1056. Once the thirty days expire, a lender can record a Notice of Default against the Property. The Notice of Default must comply with the statutory requirements set forth in California Civil Code § 2924 (“2924”). 2924 requires a lender to provide the following information in its Notice of Default:
- Identify the Deed of Trust;
- Identify a breach of the Deed of Trust ;
- Identify the specific breach and inform the borrower of the lenders intent to sell the property.
The lender must then provide the borrower three (3) months to cure the default. (Miller v. Cote (1982) 127 Cal. App. 3d. 888, 894. Throughout this three-month process and once the Notice of Default has been recorded, the lender must comply with another set of strict notice procedures. If the borrower does not cure the default within thirty days of the recordation of the Notice of Default, the lender must mail a Notice to the borrower informing them that the lender will be invoking its power of sale. (See 2924(f)(c)(3). If the requirements of 2924 are not satisfied, a borrower can again set aside the Trustee’s sale. (Toneman v. United States Bank (C.D.Cal. Oct. 21, 2013, No. CV 12-09369 MMM (MRWx)) 2013 U.S.Dist.LEXIS 196516 at Pg. 17.)
Notice of Sale Requirements California Civil Code 2924(f)
Once a lender complies with all matters related to the Notice of Default, the lender must then take steps to record a Notice of Trustee’s Sale. To record a Notice of Trustee’s sale the lender must post a Notice of Sale on a conspicuous place on the property and publish a Notice of Sale in a newspaper of general circulation for three consecutive weeks pursuant to 2924(f)(b)(1). (Knapp v. Doherty (2004) 123 Cal. App. 4th 76, 91.)
Trustee’s Sale California Civil Code 2924(g)
Once the Notice of the Lender satisfies the Notice of Requirements, the final step to take title to the Property is to conduct a Trustee’s Sale. 2924(g) outlines the specific procedures governing a Trustee’s Sale. The main requirements to hold a Trustee’s Sale require the Trustee to issue a Notice of Trustee’s Sale that complies with 2924(g). For the notice to comply with 2924(g) it must contain the following information:
- The date, time and location of the sale of the Property, which must be done Monday through Friday between 9 a.m. and 5 p.m. The sale must also be conducted in the County that the property is located in. Typically, the Trustee’s Sale is conducted outside of a County Courthouse;
- The Deed of Trust information that the borrower breached;
- The date the Notice of Default was recorded, and the Instrument or Record Number of the Notice of Default provided by the County Recorder’s Office;
- The address and APN of the Property;
- The total amount the borrower currently owns;
- The Property must be sold at an auction to the highest bidder.
Unlawful Detainer Eviction Process California Code of Civil Procedure 1161 Process
Once the lender completes the foreclosure process and a new owner takes title to the Property through the Trustee’s sale, the new owner will have to remove anyone occupying the Property. If the original borrowers are occupying the property when the new owner takes title to the property, the new owner will then have to legally take possession of the property through the unlawful detainer process. The unlawful detainer process known informally as “eviction” is outlined at California Civil Code of Procedure “CCP” § 1159-1179.
To complete the unlawful detainer process, the new owner must follow a series of steps starting with 3-day written notice to quit. This notice gives anyone occupying the Property three days to vacate the Property before the new owner can file an unlawful detainer action. An unlawful detainer action is a lengthy process and the tenant is entitled to have the matter heard by a jury. Although this may seem burdensome it is a hurdle the new owner purchasing property through a foreclosure sale must take unless alternative steps are arranged.
One of the common steps taken to avoid an unlawful detainer action is what is known as “Cash for Keys” where the new owner will simply pay the occupants to vacate the premises. This can be mutually beneficial to both parties, because an unlawful detainer on the tenant’s record will make finding new housing extremely difficult. Furthermore, if the new owner prevails in the unlawful detainer action, they are generally entitled to recover their attorney fee’s and litigation costs against the tenant (CCP 1174.2). However, to avoid the hassle of a lawsuit for the new owner, the harm to the tenant’s record, a judgment against the tenant, and the hassle for the new owner in attempting to collect the judgment against the tenant, it is not uncommon for both sides to simply reach an agreement whereby the new owner pays the tenant or borrower to vacate the premises.
One final point is that in the event the defaulting borrower was leasing the property, the new owner must honor the lease the borrower had in place until its expiration (CCP 1161 (b)). If the lease had turned to a month-to-month tenancy, the new owner must provide the tenants 90 days to vacate the Property before it can begin the unlawful detainer process as outlined in CCP § 1159-1179.
Once a lender and new owner complete all the steps above, title and possession will have been successfully transferred to the new owner and the new owner is entitled to occupy, lease, or market the Property in a manner that they wish.
As anyone can see California’s foreclosure process imposes burdensome requirements on lenders and substantially protects borrowers from losing their homes. Whether this is a good or bad policy is always open for discussion.