Foreclosure in California

When does foreclosure begin?

Foreclosure begins in California, most commonly, with the recordation of a Notice of Default in
the county where your home that is going into foreclosure is located. The foreclosure process
does not automatically begin when you miss your first mortgage payment. Before the
foreclosure process begins, the lender or loan servicer (the company collecting your money for
whoever owns your debt) will probably send you three or four letters (over the course of 2-3
months) demanding payment. Those letters are not foreclosure notices. These are collections
letters, and they can be very aggressive and confusing. Some might include language that makes
you think you are already in foreclosure. The servicer or lender does not have to send you so
many letters before foreclosing, but that is their common practice.

To figure out whether the foreclosure process has actually begun, you should check the public
records at the county recorder’s office. In many California counties, you can look up the notice
online. In other counties, you have to go down to the recorder’s office to look at records. The
official name of the document that starts the most common foreclosure method in California is
Notice of Default.

What California Law Requires for Foreclosures

Foreclosure laws in every state are a little different. In some states, the entity that forecloses on
you must take you to court to accomplish that. That is not the case in California. In California,
the entity that forecloses on you has a choice. It can take you to court and sue you to foreclose.
Or it may use the non-judicial method of foreclosure which only requires recording two written
notices with the county recorder’s office where your property is located, serving those notices on
you, and following certain other requirements. Servicers or lenders usually use the non-judicial
foreclosure method, which has certain legally required steps.

Step One: (For loans made between 1/1/03 and 12/31/07). The loan servicer or lender must
attempt to contact you and/or whoever else is on the mortgage loan, by phone or in person, to
assess your financial situation and explore your options to avoid foreclosure. The effort to
contact you must be at least 30 days before recording the Notice of Default. This rule is as a
result of a new law passed last year—Senate Bill 1137 (SB1137). During that first contact, the
servicer or lender must advise you that you have the right to request another meeting about how
to avoid foreclosure, instead of just having that first phone conversation. If you ask for that pre-
Notice of Default meeting, the servicer has to schedule it to take place within 14 days of the
phone call. So—do not avoid the phone call or in-person contact when you start missing your
mortgage payments if you want the servicer or lender to tell you about your right to have the
Prepared by Maeve Elise Brown, Esq., Housing and Economic Rights Advocates (HERA),
September 2009

1
foreclosure avoidance meeting and schedule the meeting with you. Write down notes of
whatever the servicer or lender says to you, and make note of the date and time.

Your official pre-Notice of Default “meeting” can be over the phone again, but California state
law says you get to designate a HUD-certified housing counseling agency, attorney, or other
advisor to talk on your behalf with the servicer or lender about ways to avoid foreclosure. So,
for example, you could arrange with your ACORN Housing counselor to participate in that
official meeting with you or instead of you. You get a chance to accept or reject any loan
modification or other foreclosure avoidance plan that your representative and the lender/servicer
come up with during the official pre-Notice of Default meeting.

The servicer must make a good faith effort to reach you to set up the pre-foreclosure meeting.
To show good faith, or due diligence, the servicer or lender or its agent:

1. Must send you, the borrower, a first-class letter that includes HUD’s toll-free telephone
number for finding a HUD-certified housing counseling agency.
2. Must try to contact you by phone at least three times at different hours and on different
days by calling whatever is listed in their file as your primary number.
3. Cannot use an automated dialing system unless it connects you to a live person if you, the
borrower, answer the phone.
4. Must call you at any secondary phone numbers in the file.
5. Must send you a certified letter, return receipt requested, if you have not responded
within two weeks of these efforts to contact you.
6. Must have a toll-free telephone number that will provide access to a live person during
business hours.
7. Must have a prominent link on the homepage of its Internet Web site, if any, to:
a. Options that may be available to borrowers unable to afford their mortgage who
wish to avoid foreclosure with instructions on steps to explore those options.
b. A list of financial documents borrowers should be prepared to present to the
servicer, lender or its agent when discussing options for avoiding foreclosure.
c. A toll-free telephone number for borrowers who wish to discuss options for
avoiding foreclosure with their servicer, lender, or authorized agent.
d. The toll-free telephone number made available by HUD to find a HUD-certified
housing counseling agency.

Step Two: If you, your representative and the servicer or lender do not come up with a loan
modification or other foreclosure avoidance plan at that meeting, or if the servicer is not able to
reach you to set up the pre-Notice of Default meeting, then the servicer is allowed to take the
next step in the non-judicial foreclosure process. That next step is to record and send to the
borrower (registered or certified mail) a Notice of Default. The Notice of Default must:

Prepared by Maeve Elise Brown, Esq., Housing and Economic Rights Advocates (HERA),
September 2009

2
 - include a declaration from the servicer, lender or its agent explaining how it complied
with the due diligence rules listed above for contacting the borrower.
- state the name of the borrower
- state that the promissory note secured against the property has been breached, and how
- state that the entity that owns the mortgage debt is electing to sell
- state that the borrower can cure the breach by making required payment

The Notice of a Default is a Three-Month notice. Your home cannot be sold by the servicer or
lender during those three months, and you cannot be locked out legally. State law provides that
you are entitled to get a written itemization of the amount of money that the servicer or lender is
requesting from you in the Notice of Default.

California’s Foreclosure Prevention Act (CFPA) Moratorium

In some cases, the new, California Foreclosure Prevention Act (CFPA) adds 90 days to the
foreclosure process after the mandatory Three-Month, Notice of Default. It is intended to give
homeowners more time to pursue the possibility of obtaining a loan modification. The
moratorium law applies to properties where all of the following are true:

- the mortgage loan was recorded from 1/1/03, to 1/1/08 and is a first lien
- the property is owner-occupied at the time the owner falls behind on mortgage payments
- a notice of default has been recorded against the property
- the servicers involved have not obtained an exemption from the law
- the loans at issue were not purchased or serviced by local public housing agencies or
finance agencies, including CalHFA or the VA

If your loan and servicer are covered by the CFPA, they must wait an additional 90 days after the
three months of the Notice of Default before recording a Notice of Sale on your property. For a
list of servicers and lenders who are not covered by the CFPA, go to the California Department
of Corporations website at http://www.corp.ca.gov/ or
http://www.corp.ca.gov/FSD/CFP/pdf/ExemptList.pdf.

Step Three: The second, final notice in the non-judicial foreclosure process is the Notice of Sale.
This notice must also be recorded in the county where your property is located and must be sent
to the borrower by registered or certified mail at least 20 days before the date scheduled for sale
of the home. The Notice of Sale must

- include a declaration stating whether the servicer has obtained a final or temporary
exemption from the CFPA.
- be posted on the property itself and posted publicly in the city or judicial district where
the property to be sold is located
Prepared by Maeve Elise Brown, Esq., Housing and Economic Rights Advocates (HERA),
September 2009

3
 - be published once a week for three consecutive weeks in a newspaper of general
circulation in the area.
- must describe the property to be sold, and the date, time and location of where the sale
will take place, and the amount of any unpaid balance on the mortgage, plus reasonable
costs due.

What happens after my home is sold at the foreclosure sale?

Whoever owns your home cannot just change the locks to the home. The new owner must serve
you with a 3-day written notice to quit, then an eviction summons and complaint, which you
must respond to in writing. Your formal written response must be filed in court and served on
the people or entity that is suing you, and there are a few different types of responses that you
must prepare. You should obtain legal assistance from your local legal aid or a self-help center
at the courthouse to make sure you choose the best type of response and follow proper legal
procedure in responding to the complaint. Even if you have few defenses to the eviction, it is
important to respond.

You will have a trial date within about 30 days of your filing of the response. (That timeline
could be longer, depending on the type of response you file.) You may ask the court for
additional time to stay on the property if you are having a hardship. It is up to the court to decide
whether to grant that additional time to stay or not.

Before you are even served with an eviction complaint, you are likely to be approached by a
realtor or other representative of the new owner, offering “cash for keys”. It is cheaper and
easier for the new owner to make an agreement to pay you to move out within a certain period of
time than to take you to court and evict you. You should negotiate for as much money as you
reasonably need to pay for moving expenses, security deposit expenses for renting a new home,
and any other reasonable costs that are related to moving out.

Before you negotiate with someone, verify that the realtor or other agent really works for the
new owner. Contact the new owner directly or contact the trustee listed on the Notice of Sale of
the property and ask him/her to verify to whom the property was sold.

Make sure that any cash for keys agreement you make is reduced to writing and signed by the
new owner or the owner’s representative. A local legal aid office may be willing to help you
with these negotiations.

Prepared by Maeve Elise Brown, Esq., Housing and Economic Rights Advocates (HERA),
September 2009