An Outline of the Foreclosure Process and Defenses in California
Steps in a Typical California Foreclosure
Although each case of foreclosure is different, the steps in a typical foreclosure proceeding and the minimum time periods as required by California law are described below.
- Notice of default. Ninety days after you stop paying your mortgage, your lender may record a notice of default
- Notice of trustee's sale. Ninety days after the recording of a notice of default, your lender may record a notice of trustee's sale.
- Trustee's sale. Twenty-one days after the recording of a notice of trustee's sale, your lender may sell your home at a foreclosure auction. Once your home is sold to a purchaser at the trustee's sale, it will be close to impossible to get your property back. If there is no buyer, your lender will take ownership of your home. Your bank-owned home then becomes what is known as an "REO" (real estate-owned) property.
- Cash for keys. If your lender has taken ownership of your home, the bank's asset manager will typically hire a real estate agent to knock on your door and offer you what is called "cash for keys." In exchange for your promise to move out within three to four weeks, the bank agrees to give you cash (commonly $3,000 to $5,000). Once you move out, the real estate agent will clean and repair your house and then list it for sale to the public.
- Unlawful detainer. If you don't accept the cash for keys offer, the real estate agent will post a three-day notice to quit on your door. If you don't move out within three days, the bank will hire a law firm to serve you with an unlawful detainer complaint, which starts an eviction action. You have five days to respond to the complaint; if you don't respond, the bank's lawyer will get a default judgment against you from the court. If you do answer the complaint, you can expect to attend a 30-minute trial in about three to six weeks, depending on the court's schedule. You will almost certainly lose at trial and the judge will issue a writ of possession order. In a week or so, a notice to vacate will be mailed to you. You will then have about two more weeks to move out before the sheriff evicts you and changes your locks.
Possible Defenses Against Foreclosure
If your lender does not voluntarily agree to stop the sale of your home, you have only two options to stop the foreclosure sale.
A bankruptcy filing creates an automatic stay, or delay, of the foreclosure proceedings. The problem with filing for bankruptcy is that many people won’t be able to afford the bankruptcy payments and, therefore, will have their bankruptcy cases dismissed after about two months. For example, in a Chapter 13 bankruptcy intended to allow you to keep your home, you will have to show that you are able to pay your lender the same monthly mortgage payment you were making at the time you defaulted, plus all the arrearages, or unpaid mortgage payments, over a three- or five-year period, depending on your income. Within days of the bankruptcy being dismissed, the bank is usually able to sell your home at a trustee’s sale without any further notice to you!
Suing and getting an injunction against your lender is the only other way to force the bank to stop the foreclosure of your home. To stop the sale of your home at a trustee's sale, you must first file a lawsuit against your lender. There are only a limited number of legal grounds that you can use to sue your lender in order to stop a foreclosure sale, including the following:
- Statutory violations. Sometimes banks make mistakes during the foreclosure process. For example, banks may forget to record an assignment of mortgage or substitution of trustee when it sells a mortgage loan, or fail to re-record a notice of trustee’s sale when the sale is postponed more than 12 months after the recording of a previous notice of trustee’s sale. These violations will allow you to temporarily stop the sale and may even force the bank to start the entire four-month foreclosure clock again. You can determine whether any of these violations have occurred in your foreclosure by analyzing all the publicly recorded documents related to your home at the county recorder’s office.
- Breach of contract. If you entered into an agreement with your lender for a trial modification with the understanding that you would be approved for a permanent modification after the trial period if you make all required trial modification payments, and you fulfilled all of your obligations under that agreement but the bank nevertheless denies you for a permanent modification or drags you along for longer than the agreed-upon trial period, you may have the right to sue the bank for breaching its agreement with you.
- Fraud. Fraud occurs less often than other violations but still occurs in many cases of foreclosure. If your lender told you that you were taking out a traditional 30-year mortgage but you ended up taking out a toxic, or predatory, loan, you may be able to sue the bank and stop the foreclosure sale. What is a toxic loan? One example is an option adjustable rate mortgage (ARM) loan, also known as a negative amortization loan, which is a type of mortgage where the minimum monthly mortgage payment doesn’t cover accrued interest, resulting in the amoutn of the principal increasing each month.