Most people finance the purchase of their home by borrowing money from a bank or mortgage company. Sometimes a family member or friend is the lender. In fact, it is not uncommon for family members to loan money to one another. If a loan is a large amount, the lender may want to secure the loan on real property. In order to protect the lender’s loan, a lien can be recorded against the real property which secures the repayment of the debt. This voluntary lien is called a Deed of Trust and is signed by the borrower along with a Promissory Note. But what happens when things go wrong and the borrower stops making payments on their loan? With a recorded Deed of Trust, if the borrower defaults on the loan, the lender can foreclose on the real property securing the loan. The foreclosure process allows a lender to even force the sale of the home to pay the outstanding debt. Read on to learn more about how to foreclose on a Deed of Trust in California.

Overview of California Foreclosure Process

When contemplating how to foreclose on a deed of trust, a lender who is considering foreclosure in California can choose between two different legal processes – judicial or nonjudicial foreclosure. The biggest difference between a judicial and nonjudicial foreclosure is the ability for the lender to pursue a deficiency judgment against the borrower. This would only be important if the value of the property was substantially less than the amount owed on the loan. Typically, a deficiency judgment is only available through a judicial foreclosure. A lender should seek legal advice should they have questions about how to foreclose on a deed of trust and the best foreclosure process to use.
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Nonjudicial Foreclosure: A nonjudicial foreclosure is used when there is a power of sale clause in the deed of trust. This clause authorizes the lender to order the trustee to sell the home to pay off the loan balance. This is the typical process used by lenders when there is a default on a loan secured by a deed of trust in California.

Judicial Foreclosure: A judicial foreclosure involves the process of filing a lawsuit to get a court order to sell the home. It is used when there is no power of sale clause in the deed of trust. Once the court orders the sale of the home, it is auctioned off to the highest bidder. The lender can also get a deficiency judgment against the lender. Under the right of redemption, the homeowner can buy the home back from the successful bidder at the auction up to one year after the sale.  Since a California deed of trust almost always has a “power of sale” clause, it would be unusual for a lender to file a judicial foreclosure.

How to Foreclose on a Deed of Trust

There are several steps required to foreclose on a deed of trust. First, it is always recommended to attempt contacting the borrower to reach a resolution to avoid foreclosure. If a resolution is not reached, the following steps outline the process of how to foreclose on a deed of trust and start formal foreclosure proceedings.

Step 1 – Notice of Default. Record a Notice of Default with the county recorder. The notice of default identifies the default amount (the amount that the borrower has failed to pay) and the date on which it must be paid. The Notice of Default must be sent to the borrower by certified mail. The borrower will have 90 days from the date the notice is recorded to cure the default.

Step 2 – Notice of Sale. If the borrower does not pay the balance stated in the Notice of Default within the deadline, the lender can go ahead with recording a Notice of Sale. The Notice of Sale sets a specific “sale date” and allows the trustee to sell the home at auction. The notice must be published once a week for three weeks in a local newspaper. In addition, the Notice of Sale must be mailed to the borrower at least 20 days before the sale date. It must also be recorded with the county at least 14 days before the sale. It should be noted, however, that the borrower has 5 days before the foreclosure sale to cure the default (the reinstatement of the loan).

Step 3 – Auction. On the date of sale, an auction will be conducted. The successful bidder (usually the lender) will be required to pay the full amount of the bid. The bid is an amount equal to or greater than the amount of the loan that is in default. 

Step 4 – Obtain Possession of Property. Once the home is sold, the borrower can be served with a 3-day written notice to quit (move out). If the borrower does not move out during this time, the new owner will have to file eviction proceedings to remove the occupants in the property.

Contact A People’s Choice for help preparing a note and deed of trust or help foreclosing on a deed of trust. Please call 800-747-2780 for more information.

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