Foreclosure

Foreclosure is the ultimate outcome for homeowners who have exhausted all pre-foreclosure options, including a short sale.  There are two types of foreclosures: judicial versus non-judicial.  How the home mortgage loan was first financed and whether it was subsequently refinanced often determine the type of foreclosures.  When someone buys a home to live in (not for investment) and finance it with a loan, that type of loan is usually a purchase-money non-recourse loan.  When a California homeowner defaults on the payment, lenders do a non-judicial foreclosure by taking back the house.

However, when a homeowner has refinanced their primary residence at least once, the mortgage loan (called a non-recourse purchase-money loan) becomes a recourse loan and is subject to judicial foreclosure, which is done through a court action, resulting in a deficiency judgment against the borrower or homeowner.  The court can order the homeowner to pay the difference between the amount owed and the net proceeds obtained by sale or the fair-market value of the home used to secure the debt.  In California the bank or lender has a 4-year time window to file a court action after the defaulting homeowner of a recourse loan for the deficiency even after foreclosure.  Once filed, that court process can drag on for years.  This information is provided only for educational purposes and should not be taken as legal advice.  Please check with a California real estate lawyer to verify the accuracy of the information given above and elsewhere on this website.

The majority of foreclosures for owner-occupied primary residence in California with a non-recourse loan are not judicial foreclosures.  Rather, they are non-judicial foreclosures through a trustee’s sale, which is quicker and less costly.  A trustee is not the lender, but some entity–a legal firm or an individual–that the lender assigns or subcontracts.  The legal basis for a trustee’s sale is contained in a power-of-sale clause in the mortgage loan document.