Published on November 29th, 2019 | Updated on December 18th, 2021
Receiving a notice of foreclosure is one of the worst pieces of mail you’ll ever receive. But failing to respond or taking the appropriate action can create a situation that’s far worse for you.
So what do you do?
To put it simply, selling your home and reducing what you owe your lender is possibly your best option.
It may not make the problem go away entirely, but it'll greatly help you and give you time to get back on your feet.
In this post, we'll cover everything you need to know to help you avoid the CA foreclosure process.
Table of Contents
In simple terms, foreclosure happens when you’re not able to keep up with your mortgage payments and fall behind.
This allows your lender to eventually seize your home.
In some cases, you may voluntarily give the property over to the lender.
In other cases, you may try to maintain ownership of the property for as long as possible to overcome the default.
Not making any payments for 120 days puts you at risk for foreclosure. Once 120 days have passed, it then varies by state as to how your lender can begin the foreclosure process.
In some states, a judicial procedure needs to take place, while in others, it isn’t necessary.
This is referred to as either a judicial foreclosure or a nonjudicial foreclosure.
As you might expect, nonjudicial foreclosures happen faster than judicial foreclosures.
To see whether you live in a judicial or nonjudicial state, click here.
There’s not a set period of time.
You’ll receive an eviction letter that states how long you have to move out.
The period of time can be anywhere from 3-30 days.
There are two types of foreclosure you may experience: a nonjudicial foreclosure or a judicial foreclosure.
Let’s walk through each one along with their consequences.
It’s important to understand how these processes work.
A nonjudicial foreclosure is the most common method used by lenders to recover their losses in California.
Rather than going through the courts to obtain their investment back, the lender will repossess your home and sell it.
This is possible due to what's called a power-of-sale clause in the deed of trust.
Most lenders prefer non-judicial foreclosures because they’re less expensive.
Rather than dealing with court costs, representation, and debt collection agencies, the majority of lenders would rather cut their losses.
It’s the most economically efficient option for the lender to let the difference go. But before this can take place, several steps must be taken by the lender.
First, the lender must contact you to learn about your financial situation and any solutions that could help you avoid foreclosure.
If you prefer, you can find a lawyer or HUD-certified counselor to help represent you during this discussion.
You’re also entitled to one additional financial assessment meeting within 14 days of the first.
After 30 days of non-payment the lender can initiate the foreclosure process if you haven’t reached an agreement or solution.
The lender starts with a Notice of Default.
If you haven’t caught up with payments within 90 days, the lender can then issue a Notice of Sale.
It can then be sold at auction after 21 days.
f the home is sold, you’ll then receive a three-day written notice to vacate the property.
If your home doesn’t sell during the auction, ownership is then transferred to the lender.
Judicial foreclosure takes a long time, and unless you owe a tremendous amount of money on your mortgage, your lender probably won't want to go that route. In this scenario, your lender will petition the court to formally repossess your home.
Once they've sold your home, you will be mandated to pay the difference between the selling price of the home and the total amount of your mortgage. This is possible through what is called a deficiency judgment. Judicial foreclosures end in debt, and they’re much harder for both parties to handle
On the plus side, a judicial foreclosure in California offers the original property owner the right to redemption. For one year after the auction, you are allowed to buy back the property from the auction winner.
You will have to pay the price the buyer paid at the auction, in addition to some other fees and charges.
It’s rare for property owners to get their property back after a judicial foreclosure, even though the door is open for it to happen. The entire judicial foreclosure process in CA is rare.
It’s much more expensive for lenders to take this route and it’s also a longer process. In most cases, where you’re on the brink of foreclosure, you can expect to go through the non-judicial process.
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In addition to losing ownership of the property, a foreclosure does lasting damage to your financial health.
Your credit score will drop significantly, and you’ll likely find it difficult to buy a home in the near future or qualify for other types of credit.
A foreclosure generally stays on your credit report for seven years unless you can file for Chapter 7 bankruptcy.
After two years, your foreclosure will begin to repair itself.
If you don’t want to wait, your best options are to completely avoid foreclosure by selling the house, attempt to be forgiven for the debt, and be strict with your money from there on out.
It depends on what your credit score is before the foreclosure.
The higher it is, the more it will drop.
With this in mind, you could lose between 85-160 points if your house is foreclosed upon.
Because it’s a negative entry, it’s likely to stay on your credit report for up to seven years.
Thanks to some merciful lawmakers, California homeowners are provided with legal protections when their lender begins the foreclosure process.
These laws came into effect as the California courts’ response to the housing crisis, where many lenders were found at fault for forming unsuitable deals with home buyers.
Lenders want their money, and they’ll stop at nothing to recover their investment.
This sometimes leads to lenders attacking homeowners with defaulted mortgages in several ways at once.
The One-Action Rule forces lenders to pick one of three actions, rather than allowing them to throw the book at you.
This means you can’t be hit with a foreclosure in conjunction with a personal lawsuit.
This is only used in rare cases, if at all.
It’s an unusual situation that hardly comes up, but it’s possible that it will under California’s Security First Rule.
Lawsuits are an alternative traditional foreclosure.
Your lender is highly unlikely to do this, but they actually have the ability to sue you over your promissory note.
After they’ve pursued your real estate, they’ll file a personal lawsuit for the balance of the debt.
If you have multiple mortgages or a HELOC, these are affected by your foreclosure.
During your foreclosure, your additional mortgages and HELOCs (called junior lien-holders) also become foreclosed.
These lenders are now at a loss due to your foreclosure, and they have the right to pursue you as well.
These lenders can personally sue you on your promissory note.
If your home’s equity isn't larger than your debt, your junior lien-holders will have to come after you directly.
If your other mortgages were backed by the same company as your first mortgage, action can't be taken against second and third mortgages.
Purchase-money loans and seller-financed loans are invalid during foreclosure. You cannot be personally sued for these debts.
These rights were written to provide homeowners with transparency as it pertains to lending, borrowing, and foreclosure. This list of laws makes the playing field fair for homeowners by eliminating a lender’s options to bully them during foreclosure.
When you receive your foreclosure notice, the first thing you should try is a loan modification.
You may be able to keep your home if you can meet the terms.
In the past, lenders were allowed to continue the foreclosure process up until a loan modification request was decided.
Now, under California law, a lender has to stop the process to answer loan modification requests. This eliminates what was called “dual tracking.”
The elimination of dual tracking can help you postpone foreclosure.
Even if your lender denies your first request for a loan modification, you can submit an appeal when you receive the notice.
Lawmakers wrote these laws to prevent you from getting the runaround.
When you’re frantically making phone calls attempting to save your home, you cannot be passed from representative to representative.
You won’t have to explain your situation repeatedly, and you won’t receive different answers.
You will be assigned a contact through the lender who is responsible for all of the details of your case.
This person will provide you with necessary information regarding prevention plans and modification programs the lender offers.
Her or she will be able to connect you with the people responsible for making the foreclosure decision.
Robo-signing is exactly what it sounds like.
It's when member of your lender’s organization signs foreclosure documents before reading them.
All documents need to be verified, and the signer needs to be personally aware of your situation.
If a lender is caught robo-signing, they’re liable for a penalty of up to $7,500 for mishandling your foreclosure documents.
If your lender breaks the law when handling your foreclosure, you can to sue them for damages.
In some cases, the foreclosure can be stopped due to misconduct. If the foreclosed home has already been sold, you may be awarded cash.
If the lender is found to have broken the law on purpose, or there is proof that the lender was sloppy, you may also be awarded statutory damages of up to $50,000.
Make sure you’re familiar with the foreclosure process. You should be carefully monitoring your lender’s conduct.
You may have defaulted on your mortgage, but you still deserve fair protection under the law.
In many cases, selling your home to avoid foreclosure is often the best course of action for many home owners.
If you decide to sell, you should commit to that decision from the beginning.
If your lender acts first they have 1 of 3 actions they can take according to the One-Action-Rule law in California.
If you go into judicial foreclosure the court will allow your lender to sell your home and come after you for the difference.
This is because homes at auction will generally sell for less than what is owed.
This is why it's so important to try and sell your home before you receive your foreclosure notice.
While you can still do it, this just gives you time to find a buyer before any of the above can happen.
Up until the foreclosure is finalized, you’re able to sell your home. However, now may not be the time to contend with a Real Estate Agent for several reasons.
A lot of formality goes into selling your home on the Market. Even if you find a Realtor who can help you move quickly to avoid foreclosure, they’re unable to guarantee they'll find a buyer within the timeline.
If they do find a buyer and the buyer can’t secure a loan, you’ve effectively wasted all the time you’ve spent setting up that deal.
Technically, you still own your home until the moment the lender auctions it off. You don’t want to wait that long to make your move though. The second you know you're going into foreclosure and don’t have the funds available to bail yourself out, you need to find the right buyer.
You need a cash buyer in your area that can purchase your home immediately.
Many homeowners trying to beat the clock on their foreclosure opt to sell the house to a Real Estate investor. Real Estate investors are private buyers who already have funds available, which drastically simplifies the selling process.
Since there's no agents to satisfy, there's no fees or commissions involved in the process. On top of that, Real Estate investors will generally pay all closing costs on a house for you and can close escrow in as little as a week.
They'll often times negotiate with your lender on your behalf to push the deal through before the process moves along any further. This removes a major headache and allows professionals to handle the hassle for you.
The second your property goes into foreclosure, you may get bombarded by investors and companies with big wallets who're willing to take your property off your hands.
Some of these companies are reputable, and they may be able to provide you with the help you need.
Others are scam artists preying on desperate homeowners.
You need to learn to distinguish between the two.
Since you're in a touchy situation right now, there's a lot of people who might want to kick you while you're down.
Foreclosure scams are unfortunately common in this day and age.
It's important when speaking with investors or cash buyers, to do your due diligence in researching the companies you're considering.
Because of the dire situation of foreclosure, some people will unfortunately try and take advantage of your situation.
Make sure you investigate all potential investors before you sign anything and read any fine print if their words sound too good to be true.
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There are two common types of bankruptcy, and each has distinct advantages and disadvantages when it comes to working through a foreclosure.
Despite what some homeowners might think, bankruptcy may not eliminate your financial responsibility to your lender or protect your credit score.
It can however put a halt to the foreclosure process until the court reaches a decision regarding the validity of your bankruptcy - but it’s only temporary.
Chapter 13 may allow you to keep your home.
It won’t remove your debts but it will create a plan that restructures your debts in a way that may be more manageable.
This kind of bankruptcy comes with a detailed payment plan that will span over several years.
Unsecured loans will be stricken from the record (which is good news if you’re juggling upside down second mortgages), but the initial debt to your lender will remain.
This is the best strategy for people whose hardships are only temporary.
Cannot and will not save your home.
You’ll still go through a foreclosure with chapter 7.
The only difference is that your lender won’t be able to pursue you for a deficiency judgement if this kind of bankruptcy is granted.
If your goal is to save your home, only chapter 13 will provide you with the tools that you need.
There's a lot more that goes into Bankruptcy which is beyond the scope of this article. Make sure to click the link below to learn more about these two Options.
In many states, lenders aren’t allowed to employ two foreclosure strategies at once. This is called dual tracking, and most homeowners are protected from this type of action.
Requesting a loan modification can temporarily halt a foreclosure, and being granted one can stop the foreclosure altogether as long as you’re willing to comply.
If you don’t wait too long to request a loan modification program, you may be able to get it.
You’ll need to continue to make payments on your home, but they’ll be structured differently.
You need to have your first payment ready when your loan modification plan takes effect however.
If you continue to pay on time, you won’t face foreclosure again.
If you know that you can’t make payments and are attempting this as a last ditch effort, it’s not worth wasting valuable time pursuing a loan modification.
You’ll only be stalling the inevitable, and that time would have been better used attempting a different strategy.
When it comes to avoiding foreclosure you don’t have time to waste.
Selling the house quickly will always be better than trying to squeeze out a few more weeks.
You can sell your home for as much as anyone is willing to pay for it.
This is great news if you don’t owe very much on your defaulted mortgage.
If you owe $40,000 to your lender, and your home is valued at $300,000, the difference belongs to you.
You’re only responsible for paying your lender the amount you owe, as well as any interest that applies to the loan.
The truth is, no matter which company you choose to sell with, you will likely receive lower than full market-value.
This is ok however.
The goal isn't to make profit on the sale (although it's nice if you can) the goal is to pay off what you owe your lender.
As long as you can cover what you owe (or at least most of it) you will be in a much better position than not.
Selling at a lower than market price makes your home immediately attractive to Real Estate Investment companies or property flippers.
Real Estate Investment companies won’t wait around either.
They’ll jump on the opportunity to purchase your home the moment it becomes available.
This is great for you since they pay in cash!
Sales like these can generally close in a matter of weeks instead of months.
With a sale this fast, you’ll be able to pay off your lender before the foreclosure hits and use any profits to set yourself up in a new living situation.
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A short sale is when you owe more money on the house than what you would get if it were sold.
However, for whatever reason, your lender agrees to let you sell the house.
In a nutshell, your lender comes up short once all is said and done.
This means the bank gets less money but has agreed to release you from any further mortgage obligations once the house has been sold.
Since the bank has to approve it, there are a few things that need to happen before the short sale process can occur.
To qualify for a short sale, most of the following need to be demonstrated:
Whether this is because you inherited the home and cannot afford to maintain it, you’re a landlord with unreliable tenants, you lost your job, or you racked up medical bills, if you can show there is a reason for your financial distress, you’ll have an easier time qualifying.
Local recently sold homes need to be shown to the lender to prove the house is now worth less than when it was bought. In other words, you need to be able to prove your house has depreciated since you bought it.
Depending on the lender, it can take 2-3 months before the lender considers beginning the foreclosure process. If you have defaulted on payments, this is a clear sign you are in financial distress.
For this, your lender will want copies of your tax returns to determine that you don’t have any assets. If you do have assets, the lender will likely not approve the short sale. If the lender does, you may be required to pay the difference between what you owe and what you got after the sale.
While it may be worth selling, you won’t profit much - if at all.
If you're facing foreclosure the goal isn't to profit but to pay off what you owe to avoid foreclosure.
If you owe $200,000 on a home that’s depreciated in value by $50,000, you’ll have a difficult time short selling your home.
Even then, you’re still out a significant amount of money and will still end up with a negative mark to your credit, despite this being the preferred route by the bank.
If you plan on going the Short-Sale route, sell the home facing foreclosure for as much as you can get, and hand the money over to your lender.
You won’t get anything out of the process, but your debt will be drastically reduced.
It’s certainly not great.
It’s considered a negative entry, and, as such, will stay on your credit report for up to seven years.
Your credit report will then have one of the following descriptions to indicate a short sale occurred:
Most people who have a short sale usually see, on average, their credit score drop between 120 and 130 points.
In the bank’s eyes, a short sale is often preferred because if you live in a judicial foreclosure state, it saves them any expenses they might incur to foreclose.
Plus, foreclosures are often more difficult for them to sell.
In the end, it’s better for them to get some of what they are owed instead of none at all.
Also, foreclosed homes affects the value of other nearby homes.
This can lead to even more loss of revenue for banks if they are one of the primary lenders in the area (or if widespread depreciation leads to more short sales because of upside-down mortgages).
When it comes to your well-being and welfare, a short sale is also the better option of the two.
This is for a few reasons.
If you are smart and talk with your lender before you are unable to make payments, your credit score won’t suffer from all of the late payments prior to the short sale.
Yes, it’s easier to get approved if you’ve already started to miss payments, but if you know that in the near future you won’t be able to make payments and begin a dialogue with the lender prior to defaulting, you could potentially avoid all of the missed payment entries on your credit report.
If you go through a foreclosure, it is possible the bank will sue you for a deficiency judgment.
They know they will be unlikely to recoup the full amount of the difference between what they received and what they were owed, but it won’t stop them from getting what they can.
To make things worse, this judgment will stay on your credit report for seven years in addition to the missed payment entries and foreclosure entry.
Saying your credit score will take a hit from a foreclosure is quite an understatement.
Homeowners often have to pay legal fees when they are going through a foreclosure.
These fees usually hover around $7,500.
Of course, many people are unable to pay these fees, which results in more negative entries on the credit report.
There are a few investment companies out there (here are some tips to find them), that can typically buy your house with cash in just a few days.
SoCal Home Buyers is one of these companies and is able to help you unload your property before more damage can be done.
We've been helping people in this exact situation for over 15 years now and have many testimonials to back up our experience.
We can make the purchase process fast and simple so you can walk away with cash for your lender and massively reduce the stress this is causing you.
Rather than let your house go into foreclosure or begin the process of defaulting on payments, SoCal will buy your home facing foreclosure before things get complicated and messy.
Submit your contact information and property address in the form below and a member of our team will reach out to discuss how we can help you today.
The sooner you do, the sooner you’ll be able to move on with your life stress-free.
Or, watch the short video below to learn more about us.
We buy houses from homeowners that need to sell homes facing foreclosure in Los Angeles, Riverside, San Bernardino, San Diego, and Orange County. You can either fill out our online form below or give us a call at: 951-331-3844 to find out how we can help you with selling your house facing foreclosure today.
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