Losing your Home to the Bank
Foreclosure occurs when a property owner misses mortgage payments. Most foreclosures in California do not require a court case, but the lender must follow very specific, detailed procedures. When the property owner is a homeowner, there are special protections and options under the California Homeowner's Bill of Rights
, the National Mortgage Settlement
, the federal Making Home Affordable
programs, and other laws. This guide outlines the process and lists foreclosure material and information available at the Law Library.
TABLE OF CONTENTS:
- Foreclosure Basics
- Self Help
- Practice Guides
- Community Resources
1. FORECLOSURE BASICS:
In California, 99% of foreclosures are non-judicial: the deed of trust or mortgage authorizes the lender to foreclose if the loan is in default, without needing to go to court first. Non-judicial foreclosures must conform to California Civil Code (CC) §§ 2920-2944.7, which contains very specific procedures; in 2013, the California Homeowner's Bill of Rights (HBOR) added significant protections for homeowners facing foreclosure, including new notice requirements and prohibitions on "dual tracking" (pursuing foreclosure while a completed loan modification application is pending).
When a lender or loan servicer decides to begin the foreclosure process, it must follow these steps:
- If the borrower is a homeowner: Contact the borrower (or make diligent efforts to contact the borrower) to assess the borrower's financial situation and explore options for the borrower to avoid foreclosure. These options may include loan modifications, short sales, etc. Until Jan. 1, 2018, large servicers must also provide notice of the homeowner's right to copies of loan documents, and any applicable Servicemembers Civil Relief Act rights. CC §2923, §2923.55. In addition, the servicer must provide a "single point of contact," one employee who handles all communication with the borrower. CC § 2923.7.
- Thirty days after the lender contacts the borrower, if the borrower has not submitted a complete loan modification application, the lender may record a "Notice of Default" (NOD). The Trustee mails the borrower a copy of the NOD within 10 days of recording it. CC § 2924b(b). (If the borrower has submitted a loan modification application, the lender cannot record a NOD until the completed loan modification application has been resolved. CC §2923.5, §2923.55)
- Large lenders only: within 5 business days after recording a notice of default, a mortgage servicer that offers foreclosure prevention alternatives must send a written communication explaining the alternatives and how to apply. CC §2924.9(a).
- Recording the NOD commences a three-month "reinstatement period" in which the borrower may cure the default by paying all delinquent payments and late charges, plus Trustees' fees and expenses. CC §2924. Even after the three months are up, the borrower retains this reinstatement right up until 5 days before a scheduled Trustee's Sale. CC §2924c(e).
- The Trustee schedules a sale by recording and publishing a "Notice of Trustee's Sale" (NOTS), sending the NOTS to the borrower, and posting the NOTS both at the property and in a public place. (If the borrower has submitted a completed loan modification application, the lender cannot record an NOTS until the loan modification application has been resolved. CC §2923.6.)
- The borrower may reinstate the loan by paying all delinquent payments and late charges, plus Trustees' fees and expenses, up until 5 days before a scheduled Trustee's Sale. CC §2924c(e). The borrower may redeem the property by paying the entire debt plus all costs at any time before the Trustee's sale. CC §§2903-2906.
After a non-judicial foreclosure sale, the lender may not sue the borrower for any difference between the selling price at the auction and the balance of the mortgage (a "deficiency judgment"). The borrower no longer has the right to reclaim the property by paying off the mortgage plus costs and fees ("right of redemption"). NOTE: second mortgages do not benefit from this exemption from deficiency judgment.
Homeowners who fall behind on their payments have several options to attempt to avoid losing their house, including refinancing, forbearance (a temporary reduction or suspension of your mortgage payments), payment plans, and loan modifications (permanent change to the mortgage to make the payments more affordable). Information and resources, including links to counseling agencies that provide free assistance, can be found at www.makinghomeaffordable.gov/ or by calling 888-995-HOPE (4673). The first step should be to call the lender to explore some of these options.
If these options do not work for you, you may still be able to avoid the worst consequences of foreclosure by agreeing with your lender on one of these options:
· Short Sale or Short Payoff: In cases where you sell your home for less than you owe, your lender may accept the lesser amount. This forgiven debt may count as taxable income. (Until Jan. 1, 2014, it is excluded from taxable income under the Mortgage Debt Relief Act.)
· Deed-in-lieu of foreclosure: Your lender may accept the voluntary transfer of the title of your home back to them in exchange for cancellation of your mortgage debt. This approach may have tax implications for you, and it may not be possible if there are other liens against your home.
· Assumption: This option permits a qualified buyer to take over your mortgage debt and the mortgage payments, even if the mortgage was originally non-assumable.
Members of the armed services on active duty and their dependents are entitled to special protections under the Servicemembers Civil Relief Act, which limits interest rates to 6% and prevents non-judicial foreclosures during the period of active service and for nine months afterward. If this may apply to you, contact your unit's Judge Advocate or your installation's Legal Assistance Officer. Locate your legal assistance office at this website: http://legalassistance.law.af.mil/content/locator.php.
Homeowners whose loans are owned by Ally/GMAC, Bank of America, Citi, JPMorgan Chase, or Wells Fargo may qualify for principal reduction or refinancing despite negative equity under the National Mortgage Settlement(NMS). For details, contact your bank at the number listed on the NMS Help Page (www.nationalmortgagesettlement.com/help).
Homeowners' Attempts to Resist Foreclosure
Delaying or vacating trustee's sale: Under very limited circumstances, a borrower may be able to halt a trustee's sale or even set aside a trustee's sale after it occurs. The California Homeowner's Bill of Rights specifically identifies violations which may qualify for an injunction, particularly for "dual tracking." CC § 2424.19.
"Produce the note:" Another popular tactic is to demand that the lender produce the promissory note showing its right to foreclose. To foreclose, the lender must be current holder of the promissory note signed by the borrower. Promissory notes are routinely transferred among multiple servicers, and it can be difficult for the foreclosing party to produce the original note. However, in California "[i]t is well-established that non-judicial foreclosures can be commenced without producing the original promissory note." Chilton v. Federal Nat. Mortgage Ass'n, 2009 WL 5197869 (E.D.Cal.).
Tenants Facing Eviction after Foreclosure
Until recently, a foreclosure usually terminated any leases and allowed the new owner to evict the tenants. In the wake of the foreclosure crisis, the federal and California governments both passed laws protecting tenants. Under the California HBOR (California Code of Civil Procedure (CCP) § 1161b), virtually all tenants are now entitled to 90 day notice before eviction. Long-term leases generally cannot be terminated by a new owner. These protections are scheduled to end in 2019. The federal Protecting Tenants at Foreclosure Act of 2009 (Sec. 701-704 of Title VII of Public Law 111-22) offers similar protections, although California's are stronger. The federal law also addresses the rights of Section 8 tenants living in properties undergoing foreclosure. This law ends at the end of 2014. See Landlord-Tenant Litigation (KFC 145 .C36) 8:68A-68F, for more information.
2. SELF HELP BOOKS
The books listed below are in the Law Library's Self-Help Collection. You may also find copies available at your public library, in bookstores, or on booksellers' websites.
California Residential Foreclosures: The Complete Guide to Equity Purchases and the Laws Governing Distress Sales KFC 177 .F6 C35 This book explains the mechanics of buying and selling homes in foreclosure under California law.
Foreclosure Prevention Counseling: Preserving the American DreamKF 697 .F6 R46
This book, from the National Consumer Law Center, offers practical advice on stopping a threatened foreclosure. The 2009 edition details the Obama administration's "Making Home Affordable" program and other new loan modification initiatives. The volume also provides basic steps to obtain a workout. Not California-specific.
The Foreclosure Survival Guide: Keep Your House or Walk Away with Money in Your Pocket KF 697 .F6 E43
This book, from respected publisher Nolo Press, offers strategies for avoiding foreclosure or minimizing its impact, charts of state law, and a useful glossary. Not California-specific.
Electronic Access: Popular chapters free at http://www.nolo.com/legal-encyclopedia/free-books
Foreclosures: Mortgage Servicing, Mortgage Modifications, and Foreclosure Defense KF 697 .F6 R36 This book delves deep into residential foreclosures, with separate chapters on foreclosure rescue scams, manufactured (mobile) homes, land installment sales, and tax liens. The appendices include forms, pleadings, and federal and state statutes.
Electronic Access: On the Law Library's computers, using the National Consumer Law Center's "Consumer Law in a Box" database.
The Realtor and Home Owner's Guide to Short Sales: Step by Step KF 697 .F6 K45
In a short sale, the lender agrees to release a property from a mortgage to be sold and settled despite the fact that the lender is owed more than it is receiving in the transaction. This may avoid the worst effects of a foreclosure, although it will still impact your credit score. This book discusses the options and the process, and closes with a section specifically for realtors interested in these transactions. Not California-specific.
Stop Foreclosure Now: Save Your House if You Can, Save Your Credit if You Can't KF 697 .F6 S44
This book covers some of the same ground as others on this list, but offers two unique sections: a section on the Servicemembers' Civil Relief Act, and a section on using the courts to stop ("enjoin") the Trustee's Sale by filing for a temporary restraining order (TRO) and injunction, including sample forms. Although the book is not California-specific, the samples are compatible with California court requirements.
3. PRACTICE GUIDES
California Mortgages, Deeds of Trust, and Foreclosure Litigation KFC 175 .B47
Previously titled California Mortgage and Deed of Trust Practice, this CEB practice guide was updated in 2009 to reflect the growing importance of foreclosures.
Electronic Access: On the Law Library's computers, using OnLaw.
Foreclosure Defense: A Practical Litigation Guide KF 697 .F6 T39
This 2011 ABA book covers both alternative dispute resolution and litigation practice for lawyers assisting clients facing foreclosure. Not California-specific.
Handling a Real Property Foreclosure: Here's How and When To Do It KFC 177 .F6 B76
CEB Action Guides provide succinct explanations of their topics in checklist format. This guide, written from the lender's perspective, can also be used by borrowers for its clear description of foreclosure law and process.
Electronic Access: On the Law Library's computers, using OnLaw.
Litigating Under the California Homeowner Bill of Rights (online only)
The California Homeowner's Bill of Rights Collaborative, funded by National Mortgage Settlement money, provides assistance and resources free to California attorneys. (No direct service to consumers.) In addition to this regularly-updated, detailed "practice guide" (which discusses the laws and options but does not contain forms or procedures), the website offers a brief bank to registered attorneys, free trainings and material, and a monthly newsletter.
Electronic Access Only: http://bit.ly/1av1VBy.
Non-judicial foreclosure is governed by CC §§ 2920-2924. The rare judicial foreclosure is governed by the Enforcement of Judgments Law, CCP §§ 680.010-724.260. The Law Library has print copies of both the West and Deering annotated codes for California.
Electronic Access: The law itself, with no annotations, is available for free on the Internet at http://leginfo.legislature.ca.gov. West's annotated code is available in the Library only on WestlawNext.
Homeowners may temporarily stop foreclosure by declaring bankruptcy. 11 U.S.C. §§ 1301-1330. Foreclosure can also be postponed if you are a member of the armed services under the Servicemembers Civil Relief Act (SCRA), 50 App. U.S.C. §§ 501-596. The law library has print copies of the United States Code Service (USCS).
Electronic Access: The law itself, with no annotations, is available for free on the Internet at http://uscode.house.gov/. West's annotated code is available in the Library only on WestlawNext.
5. WEB SITES
Federal Reserve's Consumer Help Website http://www.federalreserveconsumerhelp.gov/index.cfm?nav=9493
This website has links to consumer publications about home mortgages, and also contains information about filing complaints against banks and financial institutions.
State of California Consumer Home Mortgage Information http://www.yourhome.ca.gov/mortgage/index.shtml
This site includes tips on avoiding foreclosure, foreclosure scams to watch out for, and a link to file consumer complaints.
6. COMMUNITY RESOURCES
Federal "Homeowner Affordability and Stability Plan"
Information and resources on this federal program, including links to counseling agencies that provide free assistance, can be found at http://www.makinghomeaffordable.gov/ or by calling 888-995-HOPE (4673).
Legal Services of Northern California: Foreclosure Advice
Services provided: Homeowners and tenants facomg possible foreclosure can call for advice about preventing foreclosure, loan modifications, tenants' rights in foreclosure, negotiating cash for keys offers, and responding to improper trustess' sales.
HERA (Housing and Economic Rights Advocates)
Provides legal advice and counseling over the phone to the public in predatory or unfair mortgage lending, abusive mortgage servicing, and foreclosure prevention. In-person counseling available in the San Francisco region.
HUD Foreclosure Avoidance Counseling Agencies.
HUD offers a listing of California foreclosure avoidance counseling agencies. Counseling services are provided free of charge by these nonprofit housing counseling agencies.
NeighborWorks HomeOwnership Center
NeighborWorks is a HUD-certified housing counseling agency, providing free homeownership counseling, realty services, foreclosure prevention counseling, and affordable housing assistance.
Senior Legal Hotline - Legal Services of Northern California
Free legal advice and services by phone to Sacramento County residents 60 and over.
Unlawful Detainer Advisory Clinic and Unlawful Detainer Mediation
Carol Miller Justice Center
301 Bicentennial Circle, Suite 330, Sacramento, CA
Services to tenants facing eviction.
IF YOU HAVE QUESTIONS ABOUT THIS GUIDE, OR IF YOU NEED HELP FINDING OR USING THE MATERIALS LISTED, DON'T HESITATE TO ASK A REFERENCE LIBRARIAN.
Updated 011/13 kf