The following foreclosure process description with well-timed, well-informed steps will help you understand the process and develop a plan of action so you can stop the foreclosure process and save your home!

In California, there are two main ways a lender can recover a mortgage debt when a borrower defaults: Judicial sale or power of sale.

Judicial saleis a sale conducted under the supervision and authority of the court, where a lender must apply to the court to get the court’s permission to sell the property.

Power of saleallows a lender to sell property without the involvement of the court. The lender received the right to sell the property from the Deed of Trust, mortgage document which authorizes power if sale to a trustee in that county.

Power of sale is used as the lender’s primary recovery method in most states including California; judicial sale has been adopted as the primary debt recovery vehicle in few other states

Judicial Salevs. Power of Sale

The principal differences between power of sale and judicial sale are:

1. The extent of court involvement.There is virtually no court involvement in the power of sale provinces, while in judicial sale provinces, the court is extensively involved: Ordering that the property be sold; confirming the sale procedure after it occurs, and; Hearing any application for a deficiency judgment.
2. The way in which the process is started.In power of sale provinces, recording of a Notice of Default at the county recorder and sending a copy to the borrower and current owner of the property starts the process. In judicial sale provinces, a lawsuit against the borrower, and others who may be liable, starts the process.
3. The way in which a deficiency judgment is sought.In power of sale provinces, a lender seeking a deficiency judgment must start an action against the borrower after the property has been sold, while a lender cannot claim deficiency on a loan that finance the home purchase. In judicial sale provinces, the deficiency judgment action is started as part of the main action, or suing, of the borrower.

California Foreclosure Process

Foreclosure proceedings in California are quite speedy, as the proceedings are usually laid out in the mortgage documents. Power of sale was initially developed in California by lenders who wanted a faster way to dispose of property and recover debt. As a result, they include power of sale provisions in mortgages that would allow them to dispose of property under the borrower’s default and without having to resort to the courts. Power of sale is a part of the loan documents providing such power to a third party, called trustee.

Foreclosure started, after the lender’s attempted to collect the missing payments, by depositing the deed of trust and note with a foreclosure trustee. The trustee will record a Notice of Default at the county recorder and mail, by certified or registered mail, a copy to the borrower and anyone who have an interest in the property, including subsequent encumbrances, statutory lien holders, or people who have advised the lender in writing, that they have an interest in the property.

The lender must then wait three months from the recording of the notice of default before he proceeds any further. During this time, the borrower may reinstate the mortgage by simply catching up the back payments plus the costs already incurred in the foreclosure proceedings. The loan may also be reinstated by one of the junior lien or trust deed holders. The made-up payments then become part of what the borrower owes him, and the junior lien holder may then initiate foreclosure proceedings of his own. When the foreclosure proceedings are stopped by the reinstatement, a Rescission of Notice of Default is recorded by the trustee to clear the record of the notice of default.

After the three months noted above have elapsed, the trustee then contacts the lender to confirm that the default continues and has not been waived or impaired, which might be done by accepting a payment on the obligation after the filing of the notice of default. In most cases, the acceptance of a payment not sufficient to make up (cure) the default does not constitute a waiver. The trustee must then prepare and publish, in a newspaper of general circulation in the country where the property is located a notice of sale. The trustee must record the Notice of Sale with the county recorder at least fourteen days prior to the date of the sale and should mail, by certified or registered mail, copies of the notice of sale to all of those that were entitled to receive a copy.

The Trustee Sale

The Trustee’s sale is an auction. The trustee will start the sale by reading aloud the complete notice of sale. He will announce the amount of the opening bid, which is usually the value of the unpaid principal and interest on the trust deed being foreclosed, along with any advances and trustee's fees paid. The amount of the opening bid is dictated by the lender. If there are bids over the opening bid, the successful bidder must be pay at the drop of the hammer.

The successful bidder will receive a Trustee’s Deed conveying ownership to the subject property. After recording the trustee’s deed with the county recorder the borrower will no longer hold ownership to his property and is subject to eviction court action initiated by the new owner in order to gain possession to the property.

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