Residential Foreclosures (CA)

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Resource ID: W-013-8580

MARK S. BOSCO, LEONARD J. MCDONALD, MEGAN E. LEES, AND MICHAEL F. BOSCO,

TIFFANY AND BOSCO P.A., WITH PRACTICAL LAW REAL ESTATE

A Practice Note discussing residential

foreclosure procedures and proceedings under

California law. This Note outlines the primary

considerations, requirements, and processes

for non-judicial and judicial foreclosures of real

property secured by deeds of trust. This Note

also addresses the appointment of receivers,

deﬁciency judgments, and the borrower’s right

to reinstate the loan and right of redemption.

Foreclosure is the legal process by which a lender (beneficiary or

mortgagee) liquidates secured real property to obtain payment

following the borrower’s (trustor’s) default on the underlying debt.

This Note outlines California law governing residential foreclosure

proceedings including:

 Non-judicial foreclosures.

 Judicial foreclosures.

 Redemption rights.

 Deficiency judgments.

This Note also provides step-by-step guidance for conducting

residential foreclosures under California law.

AVAILABLE METHODS OF FORECLOSURE IN CALIFORNIA

Lenders in California use the following instruments to secure loans

against real property:

 Deeds of trust.

 Mortgages.

Deeds of trust are the most common security instruments in

California. California recognizes mortgages, but lenders rarely use

them. For more information, see State Q&A, Real Estate Finance:

California: Question 1 (7-500-5701).

Under California law, a lender may foreclose a loan secured by

residential real property by either:

 Non-judicial foreclosure. Foreclosure is authorized under a deed

of trust or other contract containing a power of sale clause and

is conducted at a public auction without judicial assistance (see

Non-Judicial Foreclosure). Non-judicial foreclosures are the most

commonly used form of foreclosure in California and are governed

by the California Civil Code (Cal. Civ. Code §§ 2923.3 to 2944.10).

 Judicial foreclosure. Foreclosure of a mortgage or other

contract by court order after a judgment in a lawsuit (see Judicial

Foreclosure). Judicial foreclosure is rarely used with deeds of trust

due to its lengthy and expensive nature and is governed by the

California Code of Civil Procedure (Cal. Civ. Proc. Code §§ 725a

to730.5).

PRE-FORECLOSURE REQUIREMENTS AND

CONSIDERATIONS

Counsel for the lender should review the terms of the note and

deed of trust or mortgage for any contractually required notification

requirements before foreclosure.

Most California lenders provide defaulting borrowers with a demand

letter before beginning the foreclosure process. The demand letter

should state:

 The terms of the loan.

 A description of the default.

 That the loan documents are to be strictly enforced if any default is

not remedied.

Some California cities also require lenders to register properties

that are in the process of being foreclosed. For example, Oakland

has a Foreclosed and Defaulted Residential Properties Registration,

Inspection, and Maintenance Program. Counsel should verify any

registration requirements with the municipality where the real

property is located.

RESTRICTIONS ON CONSUMER DEBT COLLECTION

Most institutional residential lenders are subject to the oversight

of the Consumer Financial Protection Bureau (CFPB). The CFPB

Residential Foreclosures (CA)

imposes additional limitations when seeking to foreclose on a loan

secured by residential real property. For guidance on the authority

of the CFPB, see Practice Note, Summary of the Dodd-Frank Act:

Consumer Financial Protection: Subtitle A: Consumer Financial

Protection Bureau (2-543-6265).

The CFPB requires that subject lenders wait at least 120 days after

a loan becomes delinquent before initiating the foreclosure process

(12C.F.R. § 1024.41(f)). Under the CFPB regulations, a lender

cannot:

 Record a notice of sale before 120 days have passed relating to

non-judicial foreclosures.

 File a civil complaint for foreclosure before 120 days have passed

relating to judicial foreclosures.

Counsel for lenders should confirm the 120-day delinquency with the

lender before taking any action to foreclose the secured loan.

CALIFORNIA HOMEOWNER BILL OF RIGHTS

The California Homeowner Bill of Rights (CAHBOR) provides

protections and rights to borrowers with residential mortgage loans

secured by owner-occupied real property (Cal. Civ. Code §§ 2923.4

to 2924.11).

Before commencing a non-judicial foreclosure (by recording a notice

of default) or a judicial foreclosure (by filing a foreclosure complaint),

the lender must either:

 Contact the borrower in person or by telephone to assess the

borrower’s financial situation and explore foreclosure prevention

alternatives, including:

z

advising the borrower that the borrower has the right to request

a follow-up meeting within 14 days; and

z

providing the borrower with the toll-free telephone number for

the US Department of Housing and Urban Development (HUD)

to find HUD approved counseling agencies.

 Conduct “due diligence” to prove that the lender is exempt from

the initial contact requirements:

z

sending a letter to the borrower that includes the HUD toll free

number by first class mail and includes a toll-free number to

the lender that provides access to a live representative during

business hours;

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after sending the letter, calling the borrower at least three

times, at different hours and on different days, at the borrower’s

primary telephone number on file;

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sending a certified letter to the borrower, return receipt

requested, if the borrower has not responded to the initial letter

or phone calls within two weeks; and

z

posting a prominent link on the lender’s homepage of its

website that provides the borrower with a description of the

options to avoid foreclosure and instructions on how to explore

the options, a list of the financial documents the lender requires

from the borrower for discussing foreclosure avoidance options,

and the lender’s toll-free telephone number, and the toll-free

telephone number made available by HUD to obtain a HUD-

certified housing counseling agency.

(Cal. Civ. Code § 2923.5(a)(2), (e))

The lender may commence the foreclosure process 30 days after

satisfying one of these pre-foreclosure requirements (Cal. Civ.

Code§2923.5(a)(1)(A).)

CAHOBOR also prohibits the lender from simultaneously working

with the borrower on foreclosure prevention alternatives (loan

modifications) and moving forward with the foreclosure process

(known as “dual tracking”) (Cal. Civ. Code § 2924.11).

Participate in Foreclosure Prevention Alternatives

CAHOBOR defines foreclosure prevention alternatives as including

loan modifications, short sales, or other loss mitigation options

(Cal.Civ. Code § 2920.5(b)).

If the borrower responds to the lender’s initial contact and requests a

follow-up meeting to discuss foreclosure prevention alternatives, the

lender must:

 Establish a single point of contact to:

z

communicate the application process and deadlines;

z

coordinate receipt and review of the borrower’s documents to

determine eligibility for the foreclosure prevention alternatives,

if any, and notify the borrower of any missing documents

necessary to complete the application;

z

be responsible for monitoring the borrower’s file and timely,

accurately, and adequately communicate with the borrower

about the status of the application;

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ensure that the lender considers the borrower for all available

foreclosure prevention alternatives; and

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have access to the individuals with the authority to stop the

foreclosure proceedings, if necessary.

 Provide the borrower with one or more direct means of

communication with the single point of contact.

(Cal. Civ. Code § 2923.7.)

The lender must ensure that the borrower’s application and

supporting documents are competent and reliable (Cal. Civ. Code

§2924.17).

ORDER A TITLE SEARCH

Before beginning foreclosure, the lender must conduct a title search

to identify liens and other encumbrances that affect title to the real

property.

Liens for property taxes and certain homeowner association fees,

should be paid to protect the lender’s interest in the real property.

The lender should also conduct a search of the bankruptcy court

records to determine whether the borrower has filed for bankruptcy.

If the search reveals that a bankruptcy has been filed, the foreclosure

action must stop until the lender applies for and is granted relief

from the automatic stay (11 U.S.C. § 362).

CONSIDER APPOINTING A RECEIVER

In cases of both judicial and non-judicial foreclosure, to the extent

a property is in danger of waste or deterioration, a lender may

move for the appointment of a receiver to protect and preserve the

property.

Residential Foreclosures (CA)

Lenders may seek a receiver to collect rents (relating to residential

rental property) or to protect and preserve the property.

A receiver is responsible for paying:

 Real estate property tax.

 Property insurance for the residence.

 Homeowner association or condominium association dues.

The California Code of Civil Procedure and Rules of Court govern

receiverships (Cal. Civ. Proc. Code §§ 564 to 570; Cal. Rules of

Court, rules 3.1175 to 3.1184). For more information on receiverships

in California, see State Q&A, Provisional Remedies: California

(W-000-3315).

NON-JUDICIAL FORECLOSURE

Non-judicial foreclosure is a contractual right arising only where

the borrower expressly grants the lender a power of sale in the

subject deed of trust. The power of sale clause allows a lender to

foreclose the security interest and sell the secured property if the

borrower is in breach of a material obligation under the terms of the

promissory note, the deed of trust, or another contract, without court

proceedings. (Biancalana v. T.D. Serv. Co., 56 Cal. 4th 807, 813 (2013).)

Examples of material breaches that can lead to foreclosure include:

 Failure to make timely payments on the promissory note.

 Failure to keep the secured property insured.

 Failure to pay property taxes when due.

 Transfer of title or interest in the secured property to certain

parties without prior written consent of the lienholder.

In California, deeds of trust typically contain a power of sale.

Mortgages in California generally do not contain a power of sale.

A beneficiary under a deed of trust may not simultaneously pursue a

suit on the promissory note and foreclose non-judicially. In California,

the beneficiary is limited to one form of recovery (known as the “one-

action” rule). (Cal. Civ. Proc. Code § 726(a).)

SUBSTITUTION OF TRUSTEE

The trustee named in the original deed of trust often is unqualified,

unwilling, or unable to conduct the foreclosure sale. In these

instances, the lender must record a substitution of trustee (SOT). In

an SOT, the lender or the appointed attorney-in-fact appoints a party

authorized and willing to conduct the foreclosure sale as trustee. The

SOT must be:

 Signed by the current beneficiary or the beneficiary’s power of

attorney.

 Recorded in the county where the real property is located.

RECORD A NOTICE OF DEFAULT

The first step to initiating a non-judicial foreclosure sale under a

deed of trust secured by residential real property is for the trustee

to record a notice of default. The trustee cannot record the notice of

default until at least 30 days after either:

 The lender’s initial contact with the borrower to explore foreclosure

prevention options.

 The lender completes the CAHOBOR due diligence requirements.

The notice of default must include all the following:

 A statement identifying the deed of trust, including the borrower’s

name, recording information and legal description.

 A statement that the borrower is in default or has breached the

deed of trust.

 A description of the breach or event of default.

 A statement that the trustee intends to sell the property if the

borrower does not cure the default.

 If the default is curable, a description of the steps necessary and

the deadlines for the borrower to cure the default.

 A statement that:

z

the lender has contacted the borrower;

z

the lender has tried, with due diligence, to contact the borrower

as required; or

z

the lender is not required to contact the individual because the

individual did not meet the definition of borrower.

z

(Cal. Civ. Code § 2923.5.)

(Cal. Civ. Code § 2924c(b)(1).)

The trustee must mail a copy of the notice of default by certified mail

to the borrower and any party that recorded a request for notice

within ten days after recording the notice of default (Cal. Civ. Code

§2924b(b)).

The trustee must mail a copy of the notice of default, by certified

mail, within 30 days after recording to all the following parties:

 The borrower’s successor-in-interest, if any.

 The beneficiaries under any junior deeds of trust or mortgages or

their assignees.

 The purchaser (vendee) under a recorded contract of sale or their

successors-in-interest, if any. The tenant under a recorded lease or

memorandum of lease.

 The Office of the State Controller if there is a recorded property

taxlien.

(Cal. Civ. Code § 2924(c).)

California law prescribes the form for the notice of default (Cal. Civ.

Code §§ 2923.3(c) and 2924c(b)(1)).

POST AND PUBLISH THE NOTICE OF SALE

The trustee may set a sale date for the trustee’s sale at least 90 days

after recording the notice of default (Cal. Civ. Code § 2924c). The

notice of sale must include:

 The time and place of the sale

 The location where the trustee intends to conduct the sale.

 The name of the original borrower (trustor) named in the deed

oftrust.

 The street address, assessor’s parcel number, and legal

description of the real property.

 The terms of sale.

 The name, address, and telephone number of the trustee.

 The total amount of the unpaid balance secured by the real

property.

Residential Foreclosures (CA)



An estimate of the costs, expenses, and advances incurred by the

trustee.

 The following language (if the property contains four or less single-

family residences):

”NOTICE TO POTENTIAL BIDDERS: If you are considering bidding

on this property lien, you should understand that there are risks

involved in bidding at a trustee auction. You will be bidding on

a lien, not on the property itself. Placing the highest bid at a

trustee auction does not automatically entitle you to free and

clear ownership of the property. You should also be aware that

the lien being auctioned off may be a junior lien. If you are the

highest bidder at the auction, you are or may be responsible for

paying off all liens senior to the lien being auctioned off, before

you can receive clear title to the property. You are encouraged to

investigate the existence, priority, and size of outstanding liens

that may exist on this property by contacting the county recorder’s

office or a title insurance company, either of which may charge you

a fee for this information. If you consult either of these resources,

you should be aware that the same lender may hold more than

one mortgage or deed of trust on the property.

NOTICE TO PROPERTY OWNER: The sale date shown on

this notice of sale may be postponed one or more times by

the mortgagee, beneficiary, trustee, or a court, pursuant to

Section 2924g of the California Civil Code. The law requires

that information about trustee sale postponements be made

available to you and to the public, as a courtesy to those not

present at the sale. If you wish to learn whether your sale date

has been postponed, and, if applicable, the rescheduled time and

date for the sale of this property, you may call [telephone number

for information regarding the trustee’s sale] or visit this Internet

Web site [Internet Web site address for information regarding the

sale of this property], using the file number assigned to this case

[case file number]. Information about postponements that are

very short in duration or that occur close in time to the scheduled

sale may not immediately be reflected in the telephone

information or on the Internet Web site. The best way to verify

postponement information is to attend the scheduled sale.”

(Cal. Civ. Code § 2924f(b)(1-7), (8)(A).)

Common Errors in the Notice of Sale

Certain mistakes in the drafting of the notice of sale can lead to the

cancellation of the sale. Those errors include:

 The wrong date, time, or place of sale.

 An incorrect legal description that makes it impossible to identify

the property to be sold.

MAIL THE NOTICE OF SALE

At least 20 days before publishing the notice of sale, the trustee must

mail the notice of sale to:

 The trustor (borrower).

 Any party with a recorded interest in the property (see Order a

Title Search).

 Any party that recorded a request for notice of sale with the county

recorder for the county where the real property is located (Cal. Civ.

Code § 2924b(b)(2)).

If the property contains no more than four residential dwelling units,

the trustee must include a separate summary document of the

notice of sale information that is attached to the notice of sale. The

summary must be both:

 In English.

 In Spanish, Chinese, Tagalog, Vietnamese, or Korean (depending

on the language the borrower’s language).

(Cal. Civ. Code §§ 2924f(d) and 1632(b).)

Give Notice to the IRS

If there is a federal tax lien attached to the property, the trustee must

give notice of the foreclosure sale to the IRS at least 25 days before the

sale date by certified mail or personal service (26 U.S.C. § 7425(c)(1)).

The foreclosure does not extinguish the tax lien if the trustee does not

give notice of the sale to the IRS. The IRS has 120 days following the

sale to redeem the property. (26 U.S.C. § 7425(a), (d).)

In practice, while it is rare for the IRS to redeem the property, an IRS

right of redemption creates a post-foreclosure cloud on title delaying

further conveyance of the foreclosed property acquired by the lender

after foreclosure.

Publish and Post the Notice of Sale

The trustee must:

 Post the notice of sale at least 20 days before the sale date, once

a week for three consecutive calendar weeks, in a public place

in the city where the real property is located (if in a city) or in a

public place in the county seat where the property is located (if

not located in a city) (usually at the courthouse) (Cal. Civ. Code

§2924f(b)(1)).

 Publish the notice of sale at least 20 days before the sale date in a

newspaper of general circulation published:

z

in the city where the real property is located (if in a city);

z

in the public notice district (if not located in a city);

z

in the county where the real property is located (if no newspaper

is published in the city or public notice district); or

z

in a contiguous county with the highest population of all

contiguous counties (if no newspaper is published in the county).

(Cal. Civ. Code § 2924f(b)(2).)

Post a copy of the notice of sale in a conspicuous place on the

property at least 20 days before the sale date including, if possible,

on a door of the residence (Cal Civ. Code § 2924f(b)(3)).

The trustee, lender, and authorized agents of the lender or trustee

have a duty to make a good faith effort to provide up-to-date

information on the sale and any postponements to any person that

wants the information. The information must be available:

 Free of charge.

 Available 24 hours per day, seven days per week by:

z

internet web site;

z

telephone number; or

z

any other method that is available for free.

(Cal. Civ. Code § 2924f(b)(8)(B).)

Residential Foreclosures (CA)

Mail the Homeowner Protection Notice (Owner-Occupied Properties)

For deeds of trust secured by owner-occupied single-family

residences, the trustee must mail an additional warning statement to

the borrower if the borrower has not cured the default within 30 days

after the trustee recorded the notice of default.

The trustee must send the following statement:

”YOU ARE IN DEFAULT UNDER A [DEED OF TRUST/

MORTGAGE] DATED [DATE]. UNLESS YOU TAKE ACTION TO

PROTECT YOUR PROPERTY, IT MAY BE SOLD AT A PUBLIC

SALE. IF YOU NEED AN EXPLANATION OF THE NATURE OF

THE PROCEEDING AGAINST YOU, YOU SHOULD CONTACT A

LAWYER.”

(Cal. Civ. Code § 2924f(c).)

Do not alter this statement, except to complete the bracketed items.

BORROWER’S RIGHT TO REINSTATE THE LOAN

The borrower has the right to reinstate (also known as a right to cure)

the loan at any time until five business days before the sale date. To

reinstate the loan, the borrower must pay:

 The entire amount then due, other than the accelerated portion of

the principal due and owing after default (all installments past due

without regard to acceleration of the loan balance).

 The costs and expenses incurred by the lender resulting from

enforcing its rights under the deed of trust, including:

z

insurance premiums paid by the lender, if any;

z

delinquent taxes paid by the lender, if any;

z

interest to the date of reinstatement;

z

costs of recording and publication;

z

costs of service;

z

attorneys’ fees; and

z

any other expenses necessarily paid by the lender.

(Cal. Civ. Code § 2924c.)

CONDUCTING THE SALE

The trustee conducts foreclosure sales between 9:00 a.m. and 5:00

p.m. and can be held on any business day Monday through Friday.

The foreclosure sale must take place:

 At the time specified in the notice of sale.

 At the location specified in the notice of sale (typically at the

courthouse).

 In the county where the real property is located.

(Cal. Civ. Code §§ 2924f(c)(4) and 2924g(a).)

The trustee or its agent conducts the sale and may schedule more

than one sale for the same time and place.

The trustee is entitled to a $50 fee for conducting the sale, in addition

to any fees permitted by statute (Cal. Civ. Code §§ 2924f(c)(5)

and2924c).

On the date of sale, the trustee must offer the property for cash sale

by public auction. The order approving sale and the notice of sale set

the terms.

The trustee has the right to require:

 Every bidder to show evidence of the bidder’s ability to deposit the

full amount of the final bid with the trustee and actually deposit

the bid amount to be held by the trustee:

z

in cash;

z

by cashier’s check drawn on a state or federal savings and loan

association or national bank;

z

by a check drawn on a state or federal credit union;

z

by a check drawn by a state or federal savings and loan

association, savings association, or savings bank authorized to

do business in California; or

z

by cash equivalent designated in the notice of sale.

 The last and highest bidder to deposit, if not previously deposited,

the full amount of the winning bid.

(Cal. Civ. Code § 2924h(b).)

If the winning bidder does not deliver the bid amount in the form

designated or fails to deliver the bid amount, the bidder is:

 Liable to the trustee for all damages, including court costs and

attorneys’ fees.

 Guilty of a misdemeanor punishable by a fine of nor more than

$2,500, where failure to deliver was willful.

(Cal. Civ. Code § 2924h(d).)

The beneficiary (lender) may make a full credit bid equaling the

amount owed on the debt.

POST-SALE REQUIREMENTS

Trustee’s Deed

After the foreclosure sale and payment of the bid amount, the trustee

has 15 business days to execute and deliver a trustee’s deed to the

successful bidder. (Cal. Civ. Code § 2924h(c).)

A purchaser acquiring property by a trustee’s deed acquires title that

is free and clear of:

 All liens junior to the deed of trust.

 Any title, interest, or claim of:

z

the trustee;

z

the trustor;

z

the beneficiary; and

z

their respective successors in interest.

There is no right of redemption relating to a non-judicial foreclosure

in California (see Right of Redemption).

Taking Possession of the Property

If the property is abandoned at the time of the sale, the purchaser

may take possession immediately. If the property remains occupied,

the purchaser may take possession only after successfully completing

an unlawful detainer action (eviction) (see Practice Note, Tenant in

Default: Landlord’s Rights and Remedies (Residential) (CA): Eviction)

(W-004-8305).

Common practice for beneficiaries (lenders) that end up owning the

property after the sale is to negotiate voluntary delivery of possession

Residential Foreclosures (CA)

with the occupants of the property. This type of arrangement is

typically referred to as a “cash for keys” arrangement and many

lenders attempt this effort to avoid the time and expense of a forcible

entry and detainer action.

California adopted a state equivalent of the federal Protecting Tenants

at Foreclosure Act. In California, the winning bidder mustgive:

 A 90-day written notice to quit to a tenant on a month-to-month

lease or other periodic tenancy before evicting the tenant.

 Permit a tenant under a fixed term lease (for example, 12 months)

entered into before the foreclosure to remain until the end of the

term.

(Cal. Civ. Proc. Code § 1161b(a-b).)

Several cities in California have specific “eviction control” ordinances

(known as “good cause” or “just cause” evictions) that contain

additional protections for tenants after foreclosure:

 Berkeley.

 Beverly Hills.

 East Palo Alto.

 Emeryville.

 Glendale.

 Hayward.

 Los Angeles.

 Maywood.

 Mountain View.

 Oakland.

 Palm Springs.

 Richmond.

 San Diego.

 San Francisco.

 San Jose.

 Santa Monica.

 Thousand Oaks.

 Union City.

 West Hollywood.

Disbursement of Sale Proceeds

Within 30 day following the sale, the trustee must send a written

notice of surplus proceeds to all parties with an interest in the

property. The interested parties have 30 days after the trustee sends

the notice to submit a claim to the surplus proceeds. After reviewing

the claims the trustee may:

 Distribute the sale proceeds in the order determined by

Californialaw.

 Deposit the sale proceeds with the clerk of the superior court for

determination of distribution.

(Cal. Civ. Code § 2924j.)

California law prescribes the following order of priority:

 To the costs of the sale.

 To the payment of the obligations secured by the deed of trust.

 To the payment of any junior liens or encumbrances secured by the

foreclosed property.

 The balance, if any, to the trustor or the trustor’s successor in

interest. In the event the property is sold or transferred to another,

to the vested owner of record at the time of the trustee’s sale.

(Cal. Civ. Code § 2924k.)

Transfer of Title After Foreclosure Sale

The trustee must deliver a trustee’s deed to the last and highest

bidder following the sale and payment of the winning bid. The sale is

perfected if the trustee’s deed is recorded within 15 calendar days of

the sale date. (Cal. Civ. Code § 2924h(c).)

JUDICIAL FORECLOSURE

Although rarely pursued for deeds of trust, California law authorizes

judicial foreclosures. Judicial foreclosure is the appropriate method

when the lender holds:

 A mortgage rather than a deed of trust.

 A non-standard deed of trust, such as a deed of trust lacking a

power of sale clause.

A mortgagee (lender) may either:

 Foreclose the security interest in the real property.

 Sue directly on the debt (suit for breach of contract for failure

topay).

A lender may not simultaneously file separate actions on the note

and to foreclose the mortgage. (Cal. Civ. Proc. Code § 726(a).)

FILE A FORECLOSURE COMPLAINT

To initiate a judicial foreclosure, the foreclosing party must file a

complaint with the superior court for the county where the real

property is located. The complaint must name all persons with a

recorded interest in the property at the time of filing and the rights

of which may be impacted by the foreclosure (Cal. Civ. Proc. Code

§726(c)). These may include:

 The mortgagor (borrower).

 The borrower’s successor and assigns, if any.

 The owner of the property, if different from the borrower (for

example, a guarantor that pledged the property as collateral for

aloan).

 Junior lien holders, such as:

z

subordinate lenders;

z

judgment lien holders; and

z

mechanic’s lien holders.

 Guarantors.

Counsel for the lender should consider obtaining a litigation

guarantee from a reputable title company to provide the lender with

all information regarding the necessary and indispensable parties to

the judicial foreclosure.

The foreclosing party must serve a copy of the complaint on the other

named parties to the action (see State Q&A, Commencing an Action:

California: Question 12) (2-571-6845).

Residential Foreclosures (CA)

After filing the foreclosure complaint, the lender should immediately

record a notice of pendency of action (also called a notice of lis

pendens) with the recorders office in the county where the real

property is located (see Standard Document, Notice of Lis Pendens

(CA) (W-000-0420)). Recording the notice of lis pendens gives

constructive notice to third parties that there is a:

 Legal action.

 Affecting the title or rights to certain real property.

(Cal. Civ. Proc. Code § 405.24 and Kirkeby v. Superior Court of Orange

Cty. (2004) 33 Cal. 4th 642, 647.)

Minimum Facts for the Foreclosure Complaint

The foreclosure complaint must include the following information, at

a minimum:

 Identify the parties.

 Describe each party’s interest in the real property.

 Describe the mortgage or deed of trust and the secured obligation

(promissory note).

 Describe the property.

 Establish the lender’s ownership of the note and deed to secure

debt or mortgage.

 Describe the default.

 Identify the interests of all other parties in the property.

 Include any facts establishing the lender’s compliance with

statutory or contractual pre-foreclosure requirements, if any.

 Request foreclosure of the mortgage or deed of trust.

 Request attorneys’ fees and other expenses if provided for under

the mortgage or deed of trust.

 Include facts supporting any requests for special relief. For

example:

z

to reform or amend the loan documents;

z

to subrogate another lien or to determine priority; or

z

to obtain a deficiency judgment against the residential borrower.

Attach Exhibits to the Foreclosure Complaint

The lender should attach legible copies of the following instruments

as exhibits to the foreclosure complaint:

 The vesting deed.

 The signed promissory note.

 The recorded deed of trust or mortgage.

 Any recorded assignments of mortgage or deed of trust (or

substitution of trustee), if applicable.

 Any other recorded liens or interests in the real property.

 A request for attorneys’ fees and other expenses.

JUDGMENT

The lender often prevails without a trial:

 If the defendant borrower does not respond to the foreclosure

complaint within 30 days of service, the lender should seek

judgment using an entry of default (Cal. Rules of Court, rule 3.110(d),

(g)-(h), Cal. Civ. Proc. Code § 585(a)-(c), (e) and see Practice Note,

Default Judgment: Drafting the Application (CA) (W-012-5347)).

 If defendant debtor does file a response to the complaint, the

lender may be able to prevail by moving for summary judgment.

If no material facts are contested, the court issues summary

judgment in favor of lender. (Cal. Civ. Proc. Code §437c

and see Practice Note, Summary Judgment: Overview (CA)

(W-007-7620)).

Judgment in favor of lender:

 Includes an order for the entire amount due to plaintiff lender,

including costs and disbursements.

 Directs the sale of the real property to satisfy the amounts due.

 Directs the sheriff to sell the property at public auction.

 Determines the priority among liens, if applicable.

 Determines the amount of attorneys’ fees owed.

 Indicates whether a deficiency judgment is permitted.

EXECUTING ON THE FORECLOSURE SALE

The foreclosing lender enforces a judgment in foreclosure by a writ

of sale (writ). The writ directs the sheriff to levy on and sell the real

property.

After receiving the writ, the sheriff must prepare a notice of sale.

Thesheriff must:

 Publish the notice of sale for three consecutive weeks in a

newspaper of general circulation in the county where the real

property is located.

 Serve the notice of sale at least 20 days before the sale date on:

z

the trustor or the trustor’s successor in interest;

z

all persons with a lien on the property;

z

all parties that filed a request for notice with the clerk of the

court.

The sheriff’s notice of sale must contain:

 The details of the foreclosure judgment, including:

z

the parties;

z

the amount awarded the plaintiff; and

z

the court in which the judgment was granted.

 The property to be sold, including:

z

the legal description; and

z

the street address or other identifiable location of the property.

 The details of the sale, including:

z

the date, time, and place of sale; and

z

if the real property has no street address, a statement that

directions to its location may be obtained from the levying

officer on request.

 A statement that the sale is made subject to the borrower’s right

ofredemption.

 The following statement:

z

”Prospective bidders should refer to Sections 701.510 to

701.680, inclusive, of the Code of Civil Procedure for provisions

governing the terms, conditions, and effect of the sale and the

liability of defaulting bidders.”

(Cal. Civ. Proc. Code §§ 701.540 and 701.547.)

Residential Foreclosures (CA)

DISBURSEMENT OF SALE PROCEEDS

After the judicial foreclosure sale concludes, the sheriff must

disburse the proceeds as follows:

 To reimburse the costs incurred in conducting the sale.

 To the foreclosing lender until its award in the court judgment is

satisfied.

 To the junior lienholders in order of priority.

 Any remainder to the debtor.

RIGHT OF REDEMPTION

A right of redemption allows a borrower (or the borrower’s successor

in interest) to retain the property after a foreclosure sale.

Judicial foreclosure offers debtors the following timelines to redeem:

 Three months from the sale date, if the sale proceeds satisfy the

debt, with interest and costs.

 One year from the sale date, if the sale proceeds do not satisfy the

debt, including interest and costs.

(Cal. Civ. Proc. Code § 729.030.)

To redeem, the judgment debtor must pay:

 The purchase price.

 The amount of any assessments or taxes and reasonable amounts

for fire insurance, maintenance, upkeep, and repairs paid by the

purchaser.

 Any amount paid by the purchaser towards a superior interest to

protect the purchaser’s interest.

 Interest on the total amount paid, including post-sale items, at the

rate of interest on money judgments.

(Cal. Civ. Proc. Code § 729.060(b).)

The redemption amount may be offset against any rents or

profits paid to the purchaser after the sale (Cal. Civ. Proc. Code

§729.060(c)).

Counsel should be aware that the IRS maintains a 120-day

redemption period on properties subject to a federal tax lien (see

Give Notice to the IRS).

SHERIFF’S CERTIFICATE OF SALE

After payment of the purchase price, the sheriff must execute a

certificate of sale in favor of the purchaser. The sheriff:

 Delivers the certificate of sale to the purchaser.

 Records a duplicate certificate of sale with the county recorder.

(Cal. Civ. Proc. Code § 729.040.)

DEFICIENCY JUDGMENTS

Deficiency judgments are not available for non-judicial foreclosures,

but are available for judicial foreclosures on a limited basis.

DEFICIENCY JUDGMENT AFTER JUDICIAL SALE

Deficiency judgments are generally available to lenders following a

judicial foreclosure. However, no deficiency judgment is available if

the foreclosed mortgage was a purchase money mortgage.

The deficiency is limited to the difference between the balance owing

on the loan and the fair market value of the property. (Cal. Civ. Proc.

Code § 726(b).)

Residential Foreclosures (CA)

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Residential Foreclosures (CA)

FORECLOSURE COMPARISON

Non-Judicial Foreclosure Judicial Foreclosure

Costs Typically less expensive Typically more expensive.

Timeline 115 days minimum (Cal. Civ. Code § 2924(a)(3), (4)). Approximately six months for default judgment. Up to two

years or more if the defendant contests the foreclosure

complaint or if delays in service of process are encountered.

Any notice requirements

before commencing

foreclosure

The lender must contact the borrower to explore

foreclosure prevention alternatives at least 30 days before

recording a notice of default (Cal. Civ. Code § 2923.5). The

lender must comply with any notice requirements in the

loan documents.

There is no statutory requirement for a pre-foreclosure

demand letter. The lender must comply with any notice

requirements contained within the loan documents.

Publication requirements The trustee must publish the notice of sale once each week

for three consecutive weeks in a newspaper of general

circulation in the county where the real property is located.

The first date of publication must occur at least twenty

days before the sale date. (Cal. Civ. Code § 2924f(b)(1), (2).)

Counsel for the trustee must publish the summons

and complaint only if alternative service is needed to

provide notice of the lawsuit to a defendant (see State

Q&A, Commencing an Action: California: Question 12

(2-571-6845)).

The sheriff must publish the notice of sale following

judgment according to the same requirements for a

non-judicial sale.

Declaratory Judgment for

Loan or Title Defects

N/A The lender may include a count for a declaratory judgment

to clear a title defect in a foreclosure complaint

Deficiency Judgment No. California is an anti-deficiency state (Cal. Civ. Proc.

Code § 580b).

A junior lienholder may sue the borrower on a the debt,

unless the junior lien is a purchase money mortgage.

A lender may include a count for a deficiency judgment

in the foreclosure complaint for non-purchase money

mortgages (Cal. Civ. Proc. Code § 726(b)).

Redemption Period N/A

 Three months after the sale date if the proceeds satisfy

the debt.

 One year after the sale date if the proceeds do not satisfy

the debt.

(Cal. Civ. Proc. Code § 729.030.)

Requirement to Confirm

Foreclosure Sale

N/A N/A

One Action Rule A beneficiary (lender) under a deed of trust may only

pursue one form of recovery of any debt secured by a

mortgage or deed of trust (Cal. Civ. Proc. Code § 726(a)).

A beneficiary (lender) under a deed of trust may only

pursue one form of recovery of any debt secured by a

mortgage or deed of trust (Cal. Civ. Proc. Code § 726(a)).