How Does A California Foreclosure Work?
In the state of California, mortgages that are used to secure the purchase of a house normally are created using a deed of trust. A deed of trust is defined by the presence of three parties; the trustee, the trustor, and the beneficiary. The trustor is a borrower who receives the loan. The beneficiary is the financial institution that loans the money. The trustee, a neutral third party, is the one who ultimately receives the right to foreclose on a the loan. There is usually a "power of sale" clause that gives the trustee authority to enforce the collection terms on the loan. It is this right that permits the beneficiary to foreclose and sell the house when the borrower becomes delinquent in the mortgage payments.
The foreclosure process in California begins with the borrower defaulting on the terms of the loan -- in other words, failing to make the required payments on time. The lender then has authority to take possession of the home and sell it in order to recover the sums loaned. After the house is repossessed by the lender and sold at auction, the previous owner is forced to vacate if the lender so desires. Wherever there is a power of sale clause in the deed of trust, which is common in the state of California, it is the non-judicial foreclosure process that is normally used.
The laws of California require that the trustee follows all legal requirements while selling the property in a non-judicial foreclosure. Compared to a judicial foreclosure, a non-judicial procedure is much quicker because court orders and court supervision are not required to conduct the foreclosure process. For that reason, lenders employ a judicial foreclosure process only when the power of sale clause is absent from the deed of trust.
The Foreclosure Timeline In California
The California foreclosure timeline begins with the trustee filing a Notice of Default. This is an official document that notifies the owner that he or she is in default, and includes a statement of intent to foreclose and follow through with the enforced collection of the debt. This Notice should be filed at the County recorder's office in the county where the property is located. It is also mailed to the address that appears on the deed of trust.
The next step in the foreclosure proceedings is the filing of the Notice of Trustee's Sale. Within 90 days after the Notice of Default is recorded, the trustee must publish the Notice of Trustee's Sale in the local newspaper and record the Notice at the County recorder's office at the same time. After 20 days have elapsed after the Trustee's Sale Notice has been filed, the home can be sold at a public foreclosure auction for the amount of the debt plus any costs of the foreclosure. If there are no bidders at the foreclosure auction, the lender takes ownership of the property and may sell it later to recover their initial investment.
Anyone holding a mortgage would be wise to remember that every step of a California foreclosure process constitutes a legal action and becomes part of your legal record. These filings can and do have important consequences for your credit profile. The negative impacts might last for up to seven years, so if you find yourself facing a foreclosure action, it is better to address the situation immediately than to ignore it and live with the financial damage for years afterward.