Under early English and U.S. law, the mortgage was treated as a complete transfer of title from borrower to the lender . The lender was entitled not only to payments of interest on the debt but also to the rents and profits of the real estate. This meant that as far as the borrower was concerned, the real estate was of no value, that is, “dead," until the debt was paid in full hence the Norman-English name “mort" (dead), “gage" (pledge).
Foreclosure is a legal process that resulted in the termination of an owner’s right to a property. Usually a lender initiates a foreclosure process when a borrower defaults on a mortgage loan. A foreclosure process usually involves the forced sale of the property by a sheriff, where the proceeds of the sale are applied to the mortgage debt.
II. FORECLOSURE OF CALIFORNIA MORTGAGES
A. Types of Foreclosures in California
California is a title theory state. In California, the property title remains in trust until the loan is fully satisfied. The document that secures the title is the “Deed of Trust", also referred to as a Mortgage. California has a complicated set of rules concerning foreclosures and alternate rules for foreclosures. California foreclosures are governed by the California Civil Code, Section 2924.
The primary method of foreclosure in California is the Non-Judicial Foreclosure. This type of foreclosure does not involve court action.
The “Deed of Trust" is a security agreement making the property collateral for repayment of the loan. The “Deed of Trust" contains a clause called a “Power of Sale" which upon default entitles allows a trustee to sell the property outside of courtin order to satisfy the underlying defaulted loan. The trustee acts as a representative of the lender to effectuate the sale, which typically occurs in the form of an auction. Unlike many states where trustees are appointed by lenders, title companies primarily serve as trustees managing foreclosure sales in California. California has a requirement known as the one-action rule. If a foreclosure is completed by non-judicial means, a second action to recover a deficiency judgment is not permitted.
Using a Judicial Foreclosure, a lender may recover a deficiency judgment in certain circumstances. But since this process takes longer than Non-Judicial Foreclosure, it is rarely used.
California statutory law provides for two steps in the foreclosure process before the lender can sell the house on the courthouse steps.
The first statutory step is to record a Notice of Default (“NOD"). The NOD sets out the amount of the arrearage on the loan and gives the borrower 90 days from recordation to pay the arrears and any costs incurred by the lender in initiating the foreclosure process. Payment reinstates the loan in good standing.
The second statutory step is to provide the borrower with a Notice of Sale (“NOS"), fixing the date the foreclosure sale will take place. Foreclosure sales are typically conducted on the steps of the county courthouse. To keep the property, the borrower must then pay the full amount owed on the loan, or reach some other deal with the lender.
B. Foreclosure Timeline
When a borrower has missed several months of mortgage payments (generally about three months), the lender files a Notice of Default. The NOD identifies the default amount and the date by which the borrower must pay-off the default. If after 90 days the borrower has not remitted the arrearages, the lender may authorize and instruct the Trustee to record the Notice of Trustee Sale. A Notice of Trustee Sale is required to give 20 days notice prior to the sale. The notice contains the date, time and location of the sale and posted on the property and in public location as well. Then the Trustee Sale auction will be held at the place and time mentioned in the NOS. The successful bidder receives a trustee’s deed to the property once the sale is completed.
C. Unlawful Detainer Action
Any lender, who uses the power of sale in the “Deed of Trust" to conduct a foreclosure sale, is prohibited from suing the borrower for any deficiency or loss on the original loan transaction (if there was a refinance then a deficiency action may result after the non-foreclosure). The statutory trade-off is that in exchange for the ability to foreclose without going to court, the lender gives up the right to any remedy against the borrower other than taking the property.
The new owner of the property is then entitled to file an unlawful detainer action to evict anyone in the property. Sometimes, the new owner will offer the occupants cash to facilitate their move from the property. Otherwise, the new owner will provide a written 3-Day Notice to Quit to any former owner occupying the property for them to leave. If the former owners do not leave in three days time, the new owners must file an unlawful detainer lawsuit to evict the occupants.
III. STEPS TO STOP THE FORECLOSURE
Following steps could be helpful to Homeowner(s) in stopping the foreclosure:
Make offer pursuant to CCP 2923.6 with interest 5% or less
Challenge validation of Debt (15 USC 1692(g)); they do not possess the “Note"
Write QWR Qualified Written Request asking for accounts
If Refinance, write TILA rescission letter
Attempt to make payments pursuant to 2923.6 offer
Write hardship letter and ask for Modification
Get Injunction or Temporary Restraining Order.
The causes of action alleged in a wrongful foreclosure action filed in California may include the following:
TORTIOUS VIOLATION OF STATUTE;
BREACH OF CONTRACT;
ACCOUNTING AND/OR PROMISSORY ESTOPPLE;
VIOLATION OF BUSINESS AND PROFESSIONS CODE §17200;
WRONGFUL FORECLOSURE (VIOLATION OF CIVIL CODE SECTION 2924 AND VIOLATION OF 2923.5)
VIOLATION OF CA CIV. CODE §1788.17
VIOLATION OF CA CIV. CODE §1572; &
If you are facing foreclosure, bankruptcy might be able to help. In many cases, filing Chapter 7 bankruptcy can delay the foreclosure by a number of months. Some people may be able to save their home by filing for Chapter 13 bankruptcy.