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July 2010 Update
Although California's foreclosure rates have declined somewhat in the past year, they are still close to all-time highs. In the first quarter of 2010, a total of 81,054 Notices of Default ("NODs") were recorded at California county recorder offices, much lower than the same period a year ago, and many people are staying in their homes longer due to new laws imposing waiting periods before the process can be completed. However, many homeowners are now reaching the end of that waiting period without being able to refinance. Their homes are now being sold, meaning that more people than ever before are actually reaching the point of being kicked out of their homes.
Here is some information about this painful, but unfortunately common, issue.
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). However, in 2008, California enacted Civil Code § 2923.5. Now, before a lender can file the NOD, it must contact the homeowner to explore restructuring options, then wait 30 days after contact before filing a default notice. This only applies to loans made between January 1, 2003, and December 31, 2007.
Once that requirement is met (if needed), the foreclosure laws require the following process:
The Trustee records an 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.
As of March 9, 2009: If the lender does not have a comprehensive loan modification program in place, the Trustee must wait an additional 90 days (Cal. Civil Code §2923.52(d)). Many lenders now do have a comprehensive program in place and are exempt. Lists of exempt mortgage loan servicers are available at http://www.dfi.ca.gov/cfpa/default.asp.
- 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"). (Judicial foreclosure, requiring a lawsuit, allow lenders to seek a deficiency judgment, but also provide the borrower with a year to redeem the property in some circumstances.)
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, which provides funding and incentives to encourage banks to refinance loans. 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 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%; 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: legalassistance.law.af.mil/content/locator.php.
What happens if my landlord is foreclosed upon?
Approximately one-third of the property being foreclosed upon in California is rental property. Under current California law (effective Jan. 1, 2013), most tenants are entitled to a 90-day notice of eviction after foreclosure. Tenants or subtenants holding possession of a rental housing unit under a fixed-term residential lease entered into before transfer of title at the foreclosure sale the continue to have the right to possession until the end of the lease term, except in specified circumstances.
The state law does not preempt local laws providing more protection, such as San Francisco's just cause eviction protections or the moratorium the City of Los Angeles has on foreclosure evictions (currently scheduled to expire Dec. 31, 2013).
Foreclosure Rescue Scams
Because of the public nature of foreclosures, anyone can access foreclosure listings. Armed with the owner's name and address, scammers can take advantage of a desperate owner. To en courage fair dealing in the rendition of foreclosure services, the California Legislature enacted the Mortgage Foreclosure Consultants Act, Civil Code 2945, which requires that foreclosure consultant service agreements be in writing, permits the rescission of such contracts, and prohibits representations that tend to mislead. Be on the lookout for these common foreclosure scams:
- The party offers to buy your home, then lets you rent it back. It sounds good at first, but you're losing your property, and your new landlord can now legally kick you out of your home with little notice.
- Scams involve paying large sums of money to some sort of "foreclosure prevention service." These services usually offer counseling, a budget and approaching the mortgage company to consider a payment plan. But the services don't do always do this work thoroughly, or follow through at all. The most important thing to remember when it comes to any foreclosure service is this: Foreclosure advice and direction should always be free.
- Some will prey on the stress and anxiety surrounding the foreclosure process by convincing owners to sign things they don't understand. Don't sign anything without either first talking to an attorney, your mortgage company or a nonprofit foreclosure prevention organization listed below:
Created by the State Bar of California with the support of a grant from the California Bar Foundation, this site lists agencies and organizations providing mortgage foreclosure assistance to consumers. The website also offers resources for home owners facing issues along the full spectrum of foreclosure-related matters, including those individuals who are first time buyers, those who are precariously close to going into foreclosure, and those who are facing foreclosure. The site also provides information and resources for renters who are facing evictions from foreclosed properties.
- HOPE 24 Hour HotLine
Homeownership Preservation Foundation, an independent nonprofit that provides HUD-approved counselors dedicated to helping homeowners.
- State of California Consumer Home Mortgage Information
- Home Loan Counseling Center of Sacramento
2003 Howe Avenue, Suite 100
Sacramento, CA 95825
- NeighborWorks HomeOwnership Center
2400 Alhambra Boulevard
Sacramento, CA 95817
(916) 452-5356, ext. 229
- ByDesign Financial Solutions
4636 Watt Avenue, 2nd Floor
North Highlands, CA 95660
- Senior Legal Hotline - Legal Services of Northern California
444 North Third Street, Suite 312
Sacramento, CA 95814
For more information, visit these links:
By Kelly Browne, Assistant Director for Public Services
Updated by Kate Fitz, 06/10/2010