Present Status of California Foreclosure ...

So with all the media hype on foreclosures, you might be wondering what is the non-judicial foreclosure process in the State of California? Well that depends on several factors. Prior to February 20, 2009 (enactment of the new California Foreclosure Prevention Act) the California Civil Code §2924 outlines the details of the foreclosure process. In summary, upon a default of the promissory note (mortgage) secured by a deed of trust, the trustee, mortgagee, beneficiary, or any of their authorized agents can file and record with the county where the property is located a “Notice of Default” (“NOD”). The mortgagor (borrower) has ninety days (three months) to cure the default. After three months, the mortgagee, trustee or other authorized person can file a “Notice of Sale” that states the time, place, and manner that such sale will be conducted. The trustee sale can’t occur for an additional 21 days from the date of the “Notice of Sale.”

The California Foreclosure Prevention Act was enacted because of the “unprecedented threat to the State and local economies due to skyrocketing residential property foreclosure rates in California. These high foreclosure rates have adversely affected property values in the State.” The Act states that a mortgagee, trustee or other person authorized to take a sale shall not give a Notice of Sale until at least 90 days after the lapse of three months as stated in §2924 of the Civil Code, if all the following conditions exist:

1. “Loan was recorded during the period of January 1, 2003 to January 1, 2008 and is secured by residential real property;

2. The loan is a first mortgage or deed of trust on the property;

3. The borrower occupies the property as their principal residence at the time the loan became delinquent; and

4. The Notice of Default has been recorded on the property.”

This Act does not apply on loans serviced by a mortgage loan servicer who has implemented a comprehensive loan modification program that meets certain modification requirements (as detailed in the Act). The goal of the Act is to provide loan servicers adequate time to evaluate a loan modification on loans in default in order to reduce the foreclosure burden throughout the State.

If you satisfy all the requirements of the Act and the Mortgage Service Company doesn’t have a comprehensive loan modification program in place or has not applied to the Commissioner for an order exempting loans from the Act; then you have an additional 90 days before the property will be sold at a foreclosure auction. However, most if not all, major service companies have comprehensive loan modification programs in place. In addition, the major loan servicers have applied to the Commissioner for exemption.

If, by chance, the loan service company delays the foreclosure (any time prior to the trustee sale), then it is doing so voluntarily. Since the fall of 2008, most major loan service companies have voluntarily enacted a foreclosure “moratorium” thus freezing the foreclosure process prior to auction sale. The rumor within the industry is that this “moratorium” will be in place until September, 2009. At which time a pent up volume of foreclosures will proceed through the process (up wards of approximately 135,000 loans are in default in California as of June, 2009).

Conversely, the Act does not apply to non-owner occupant properties (investment properties), or on junior lienholders (2^nd, 3^rd, etc., trust deeds) or on loans created prior to January 1, 2003 (or after January 1, 2008) which leaves out a majority of the mortgages in place. In reality the Act is creating relief for the alleged “sub-prime mortgages” that allegedly started this wave of foreclosure activity. Unfortunately, the mortgage meltdown (starting in 2007-08) has now expanded to the prime mortgage market segment as well.

If you are behind in your mortgage you should consult with a professional to review your options. There are several options that you might have depending upon your specific situation. If in the meantime, you should need any assistance please contact me at jim@peys.net.