California's foreclosure rates continue to decline, but are still high. According to Realty Trac, California's foreclosure activity in the first quarter of 2012 was down on a quarterly and annual basis, but the state still had the second-highest foreclosure rate in the nation. ("Q1 2012 Foreclosure Activity Lowest Since Q4 2007," April 5, 2012, RealtyTrac.) Many people are facing difficult choices. This guide outlines the process and lists material and information available on foreclosure at the Law Library.
TABLE OF CONTENTS:
- Foreclosure Basics
- Self Help
- Practice Manuals and Treatises
- 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 §§ 2920-2924.
The process officially begins when the lender records a "Notice of Default" (NOD). (If your loan was made between January 1, 2003, and December 31, 2007, Civil Code § 2923.5 requires the lender to contact the homeowner to explore restructuring options, then wait 30 days after contact before filing the NOD.)
Once that requirement is met (if needed), the foreclosure laws require the following process:
- The Trustee records a NOD with the county recorder where the property is located.
- 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.
- The Trustee mails the borrower a copy of the NOD within 10 days of recording it.
- The Trustee waits three months (plus 90 days if necessary) before scheduling a sale.
- 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.
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").
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 (fixed amount of time to repay the amount you are behind by combining a portion of what is past due with your regular monthly payment), and loan modifications (permanent change to the mortgage to make the payments more affordable). 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.
- 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.
On March 4, 2009, the "Homeowner Affordability and Stability Plan" took effect. Homeowners who are unemployed, "under water," or otherwise struggling to make payments may benefit from the "Making Home Affordable" portion of this program. It offers the opportunity to modify or refinance a mortgage, or to learn about using a short sale or deed-in-lieu of foreclosure as an alternative to foreclosure. Information and resources, including links to counseling agencies that provide free assistance, can be found at http://www.makinghomeaffordable.gov/ or by calling 888-995-HOPE (4673).
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' Attempts to Resist Foreclosure
Trustee's sale: Under very limited circumstances, a borrower may be able to set aside a trustee's sale after it occurs. An action to set aside the trustee's sale requires both an irregularity in the procedure outlined in California Civil Code §§ 2920-2924 and a grossly inadequate sale price. Moeller v. Lien, 25 Cal.App.4th 822 (1994).
Produce the note: Another possible defense that has gotten recent publicity is to demand that the lender "produce the note." To foreclose, the lender must actually be current holder of the promissory note signed by the borrower, and a homeowner may be able to delay foreclosure by demanding the note as proof. This may work in some states, but under California law, "It 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. Under a temporary California law, most tenants whose landlords lose their property to foreclosure are entitled to at least 90 days notice before being evicted by the new owner. If they have a fixed-term lease, they are entitled to stay until the end of the term unless the new owner plans to live in the property themselves. Cal. Civil Code 2924.8. This law ends at the end of 2019. See Landlord-Tenant Litigation (KFC 145 .C36) 8:68A-68F, for more information.
Investing in Distressed Property
The chance of "easy money" to be made may be overstated – investors must be prepared to comply with various laws, possibly pay in cash, invest additional money in repairs and renovations, and hold the property until sales conditions are better – but it may be a good investment opportunity. Investors can learn what properties are in default by visiting the county clerk/recorder or courthouse, reading the appropriate newspapers, or subscribing to a pay service to obtain the information. Some free information is available at sites such as NetrOnline (http://netr.foreclosure.com/) and Auction.com (http://www.auction.com/pre-foreclosure-trustee-real-estate-auctions.html).
Be wary of pricy seminars offering to teach you how to make "easy money" in this market. The Law Library has several books, listed below, that can introduce you to the opportunities of, and restrictions on, this type of investment. Nolo Press also has a very good article on investing in distressed property (http://tinyurl.com/c2zz3s9).
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.
American Foreclosure: Everything U Need to Know about Preventing & Buying KF 697.F6 R56
Primarily focused on preventing foreclosure, this book closes with a chapter on investing in foreclosed property. Not California-specific.
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 Dream KF 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: Free at http://www.nololawlibrary.com/foreclosure/
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 MANUALS AND TREATISES
California Foreclosure: Law and Practice KFC 177 .F6S53 1991 (last updated 2000)
This well-used book is now significantly out of date, but still receives heavy use for its valuable information on foreclosures (also includes enforcement of Commercial Code liens on personal property).
California Foreclosure: What You Need to Know Now KFC 177 .F6C34
This timely anthology contains information about the mortgage crisis and response. It contains news and analysis, recent cases, statutes, statistics, and pleading and forms for attorneys who represent both homeowners and lenders. It also contains excerpts from the foreclosure chapter of the Rutter Group's "Real Property Transactions."
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. While it is timely, it is not California-specific.
Foreclosures: Defenses, Workouts, and Mortgage Servicing KF 697 .F6 R36 (Self-Help)
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 computers, using the National Consumer Law Center's "Consumer Law in a Box" database.
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.
Non-judicial foreclosure is governed by California Civil Code §§ 2920-2924. The rare judicial foreclosure is governed by the Enforcement of Judgments Law, California Code of Civil Procedure §§ 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 www.leginfo.ca.gov. Annotated codes are available in the library 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 Annotated (USCA) and 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/search/criteria.shtml. Annotated codes are available in the library on WestlawNext.
5. WEB SITES
Sponsored by LawHelpCalifornia.org and the State Bar of California, this site lists agencies and organizations providing mortgage foreclosure assistance to consumers. The website also offers resources for home owners and renters who are facing evictions from foreclosed properties.
En Español: http://foreclosureinfoca.org/RTF1.cfm?pagename=Recursos%20en%20español%20
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
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).
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 Centerhttp://nwsac.org/
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 brief services by phone to Sacramento County residents 60 and over.
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 08/11 kf