Virtually all foreclosures in California are non-judicial meaning that the lender can follow certain procedures and time lines mandated under the California Civil Code rather than going to court. Non-judicial foreclosures are initiated pursuant to a “power of sale” clause that is included in the deed of trust securing the loan.
A non-judicial foreclosure is commenced by recording a Notice of Default (“NOD”) in the County where the property is located however lenders are required to contact the borrower “in person or by telephone” to “assess the borrower’s financial situation and explore options for the borrower to avoid foreclosure” 30 days before recording the NOD. As a part of this process the lender will often send a written Notice of Intent to Accelerate giving the homeowner 30 days notice to cure any default prior to initiating foreclosure proceedings. The NOD gives borrowers 90 days to cure any default by bringing all past due payments current. Many homeowners confuse the Notice of Intent to Accelerate with the NOD and should understand that in effect they are getting an additional 30 days to cure before the 90 days under the NOD starts.
If the default is not cured (i.e. all missed payments brought current) within 90 days from the recordation of the NOD the lender can than record a Notice of Trustees Sale (“NTS”) at least 20 days prior to any scheduled foreclosure sale date. The borrower still has until 5 days prior to the sale date to pay all arrearages and thus cure the default and prevent the sale. If after curing the borrower defaults again the lender has to start the process all over again.
The opening bid is set by the lender and is almost always a “credit bid” based on the total amount owing to the lender plus the costs incurred in the foreclosure process. If there are no other bidders the lender ends up with the property which becomes Real Estate Owned (REO). Where a full credit bid would be for much more than the property is worth (which is often the case) the lender will sometimes open the bidding for less than the full amount owed in hopes that a “real buyer” will bid more since the lender normally does not want REO and would rather have the property sold to a third party.
For information about the impact of a foreclosure sale on junior lien holders please refer to the blog on California Anti Deficiency legislation.