Home foreclosures in the State of California have become more frequent over the past few years as home owners have been unable to keep up on their mortgage payments and lenders have begun foreclosing on more and more properties. However, not every homeowner may be familiar with foreclosure process or aware of their rights and the proper steps that must take place in order for a lender to legally foreclose a property. The State of California has two types of foreclosure processes that take place: Judicial and Non-Judicial Foreclosures. Furthermore, homes in California are usually purchased through two main financial instruments: mortgages and deeds of trust. There are a variety of resources available in the Sacramento area for homeowners who are being, or at the risk of being, foreclosed on. At the bottom of the page is a glossary of some of the key concepts and terms surrounding mortgages, home purchases, and loan defaults to help you gain a better understanding of the issues and solutions to foreclosure.
See also other housing resources.
In the wake of the sub-prime mortgage crisis, the U.S. Treasury has sponsored several programs to aid borrowers with their loans and mortgages. Renegotiations and loan modifications can reduce the amount of principle owed on a house or decrease the interest rate temporarily to adjust to the drop in housing prices that have trended over the past several years. The most important advice we can give you is to work closely with your lender if the threat of foreclosure is imminent. They may have government sponsored programs taking place to help with such issues. Also, you should consider seeking the advice of an attorney. There are also several government and non-profit organizations which are helping homeowners with foreclosure and refinancing issues. Here are a few of those departments and organizations:
California Housing and Financing Agency (CALHFA)
The California Housing and Financing Agency is a state run agency that assists first time home buyers, minorities seeking to purchase housing, low and middle income families, among others.
National Home Buying Fund Department
The National Home Buying Fund Department offers a variety of services to homeowners and those seeking to purchase a home. They offer program training, marketing support and lender support. For a full list of services offered, please visit their website
Neighborhood Works Homeownership Center for the Sacramento Region is a non-profit organization that seeks to aid potential and current homeowners with many issues, ranging from buying and selling homes, to mortgage assistance and foreclosure prevention. Their website has many resources and workshops to further educate you on the details surrounding home purchases and the processes that proceed them. For additional information on workshops, programs and assistance offered please visit their website
U.S. Department of Housing and Urban Development
The U.S. HUD is designed to assist homeowners and potential homeowners with a wide variety of issues surrounding homeownership, including but not limited to: credit repair workshops, pre-purchase counseling, prevention of mortgage delinquency, financial management counseling, among many others. For a full list of offered services, along with a list of HUD approved counseling services by county, please visit the HUD Counseling Services website
For a list of foreclosure avoidance counseling agencies, please visit the Foreclosure Avoidance website.
For general information regarding foreclosures, loan modifications, and other issues surrounding homeownership, please visit the US Department of HUD website
Other organizations that provide foreclosure assistance or resources
A deed is a legal document that lays out in writing the transfer of any real estate interest from one party to another. Basically, when real estate is transferred, given or sold to someone, it is done with a deed. The new real estate owner receives their rights to the designated property within the deed; any title and warranties given by the previous owner from the deed.
The most formal type of private instrument for property transfer is a deed. In order to register a deed there must be an executing party, it must be signed by a witness or witnesses and must be notarized by a notary public. All of this gives the deed a stance of validity and is less rebuttable than other types of real estate documents.
A valid, enforceable real estate deed in California must fulfill several of the following requirements:
· The grantor must have the legal capacity to grant the interest, and the grantee must have the legal capacity to receive it.
· A deed must adequately describe the real property for which the interest is being transferred.
· It must state on its face it is a deed, using words like "This Deed..." or "executed as a deed."
· It must indicate that the instrument itself conveys an interest in real property to someone.
· A deed must be executed by the grantor(s) in presence of a specific number of witnesses
designated by the local jurisdiction.
· It must be delivered to (delivery) and accepted by the grantee (acceptance.)
· May or may not have conditions or covenants attached to it
Here is a list of the most relevant terms surrounding home purchases and foreclosure cases and a brief explanation on each to help you grasp the concept of foreclosures.
Judicial foreclosures involve the lenders filing for a court order to foreclose against a property. Furthermore, the court must supervise the foreclosure and all of its legalities. Generally, the property will be sold off in an auction to the highest bidder. The proceeds are directed to the lender, firstly, any other lien holders, secondly, and to the borrower, lastly, if there are any proceeds remaining. Once the lender files a lawsuit against the lender to foreclose, all parties must be notified.
Most people are familiar with mortgage loans. They are simply loans from financial institutions made to home buyers or investors. The interest rate (often referred to as premium), down payment and amount of the loan (often referred to as the principal) can vary in large ranges. Loans are also dictated by terms; the length of the loan, and include escrow periods, during which financial capacities are verified, and closing costs.
Non-Judicial Foreclosures take place when the power of sale clause (see below) is included in the original contract of the trust deed or mortgage. In the power of sale clause, the borrower authorizes the lender to sell off the property to pay off the remainder of the loan balance. There is no court order or judicial process involved in the sale of the property. The power of sale clause is beneficial to both the borrower and lender in mortgages and trust deeds. For the borrower, the risk of being sued is forgone because there is no court arbitration. The power of sale clause initially came about because the borrower usually doesn’t have capital to be sued for nor can he afford council due to foreclosure on his property. For the lender, costly legal fees are avoided. For both parties, the power of sale clause is a quick, affordable alternative to the costly and lengthy process of a judicial foreclosure.
Notice of Sale/Auction
At least 20 days before the sale, notice of sale must be posted on the property and in one local public location. The notice must also be published in a newspaper once a week for three weeks at least 20 days before the sale. The notice must contain the date, time and location of the sale along with the trustee’s information. The county recorder must also be notified 14 days prior to the sale. Ownership at the auction is transferred to the winning bidder and anyone is allowed to bid on the auction, including the lender.
Power of Sale
Often times, trust deeds and mortgage loans will contain what is called a Power of Sale clause. It is important to understand this concept in order to understand the two types of foreclosures that can take place in California. A power of sale clause must be dictated in the original contract of the mortgage or trust deed. It states that the trustor or borrower may foreclose and sell properties without court supervision. This concept will be elaborated upon further in the next sections.
Power of Sale Foreclosure Guidelines
For the most part, the power of sales clause dictates the time, place, location and procedure of a foreclosure sale. If not the following guidelines are followed:
- The notice of sale must be registered with the county at least 14 days prior to sale
- Certified notification with request for receipt must be mailed to the borrower at least 20 days before the sale
- Notice of sale must be posted on the property itself at least 20 days before sale
- Notice of sale must be posted in at least one public area in the county of sale
In California, once a notice of default is delivered, the lender can schedule an auction on the foreclosed property after three months. However, the defaulter can settle the default plus any applicable costs up to five business days before the auction.
The redemption period is the allotted amount of time in which a borrower can contest a foreclosure. In California, the redemption period is 365 days, or one year.
In the state of California, trust deeds are frequently exercised in order to complete home sale transactions. A trust deed differs from a mortgage in that in involves three parties. The bank or lender is referred to as the trustor while the borrower or home buyer is referred to as the trustee. The property is initially possessed by a seller who executes a grant deed which transfers the property to the trustor who then lends it to the trustee as collateral for the loan.