Judicial and non-judicial foreclosure in California

Although the U.S. economy is slowly beginning to recover from the Great Recession that hit around 2008, many people in California are still struggling. Thousands of people had trouble making payments on their mortgages, and mortgage lenders had no choice but to foreclose on properties after people stopped paying. While the number of foreclosures in California has fallen from the peak rates in 2012, California still has one of the top ten foreclosure rates in the U.S. according to Bankrate.com. Because of the rate of foreclosure activity in the state, Californians and lenders who do business in the state should be aware of the two different types of foreclosure processes in the state.

Non-judicial foreclosure

Non-judicial foreclosure is the most common type of foreclosure in California. Lenders may use the non-judicial foreclosure process when there is a "power-of-sale" clause in the mortgage note or deed of trust, which gives the lender the right to sell the house and use the profits to pay off the balance of the mortgage in the event that the borrower defaults on the loan. As the name implies, a lender need not hold a court hearing in order to carry out the foreclosure process. However, there are strict laws governing the non-judicial foreclosure process, and lenders need to provide documentation of the ownership of the mortgage and the borrower’s failure to pay.

The lender initiates the process by sending the borrower a Notice of Default, giving the borrower 90 days to cure the default. If the borrower does not, then the lender files a 21-day Notice of Trustee’s Sale. After 21 days, the house is then sold at auction. However, the borrower has until up to five days prior to the sale to cure the default to stop the sale.

Many lenders prefer to use non-judicial foreclosure because it is often faster and less expensive than judicial foreclosure. Non-judicial foreclosure has an expedited time compared to judicial foreclosure. Borrowers also have no right of redemption in non-judicial foreclosure, meaning they cannot buy the property back after the foreclosure sale like they can in a judicial foreclosure.

However, a lender gives up the right to obtain a deficiency judgment against the borrower to make up the difference between the amount owed on the mortgage and the proceeds from the sale of the real estate.

Judicial foreclosure

Judicial foreclosure is very rare in California. Lenders who do not have power-of-sale clauses in their mortgages must foreclose on borrowers who have defaulted through judicial foreclosure, which requires a hearing. If the lender is successful at the hearing, the court will order the sale of the property at auction. The lender may choose to pursue a deficiency judgment against the borrower in a judicial foreclosure.

The borrower has the right of redemption from the new owner for up to one year after the sale of the property in a judicial foreclosure.

Legal representation in foreclosure proceedings

Laws about foreclosure in California are intricate, and it is wise for both borrowers and lenders going through the foreclosure process to seek legal representation. If you have questions about foreclosure in California, speak with a seasoned California real estate attorney who can advise you about your specific situation.