The foreclosure rate is still high in Los Angeles, and, with that news, comes the sobering reality that many individuals whose homes face foreclosure are not aware of their rights and obligations, and, therefore, do not always understand that they have options that could involve saving their homes.
In that connection, a brief summary of California law as it relates to foreclosure of residences is in order. A lender has the right to foreclose, or deprive a homeowner of ownership of his home, in a "non-judicial" foreclosure (meaning without having to file a lawsuit in court) if the lender loaned money to the foreclosure and has a Deed of Trust that contains a "power of sale" provision. The "power of sale" provision gives the lender the right to initiate foreclosure proceedings (outside of court) in a process that could result in the homeowner losing his property in a matter of months.
The process starts when the homeowner, or borrower, fails to make payments that he is required to make as part of his mortgage. The failure to make a mortgage payment gives the lender the right to record a "Notice of Default" that begins the foreclosure process, correct? Not so fast. A new law in California requires the lender, with respect to some loans, first to attempt to contact the borrower and work with him with respect to various options the homeowner has to prevent the foreclosure. This new law has not yet been tested, but, if the lender does not demonstrate good faith in working with the borrower at this phase, this could lead to some interesting litigation that could result in the foreclosure being delayed or halted.
After the Notice of Default is recorded, important deadlines arise. The borrower, after the recording of the Notice of Default, then has 90 days before the lender will be able to schedule the sale of his property at an auction or foreclosure sale. If 90 days passes and the default has not been cured, the lender can set a foreclosure sale by giving 20 days notice to the borrower.
The borrower may then stop the foreclosure by paying off the amount he is behind in payments AS LONG as he makes those payments within 5 days prior to the date set for the foreclosure. In other words, if the homeowner has not paid his mortgage payment for six months, and, as a result, owes $6,000, ($1,000 per month for six months) he may stop the foreclosure by paying the $6,000 (plus some fees) as long as the payment is made 5 days prior to the foreclosure sale.
However, if the borrower does not make the payment prior to that 5 day period, the lender can refuse to accept the $6,000 and instead proceed with the foreclosure unless the borrower pays off the entire amount of the remaining balance of the mortgage. Therefore, if the borrower has a $300,000 mortgage with $280,000 as a remaining balance, but does not pay the $6,000 back payments (arrearages) prior to the 5 day period, then the lender may proceed with the foreclosure even if the borrower sends in $6,000 to the lender prior to the foreclosure sale but less than 5 days prior to that sale.
A foreclosure is a fatal blow. If the sale proceeds, the home will change ownership to either the lender or a third party, and the lender or third party will then be able to evict the borrower from his home. The time to investigate keeping ownership of the home is long prior to a Notice of Default being recorded, and certainly significantly ahead of the actual foreclosure sale. There are a number of options a borrower has to try to keep his home, but the earlier those options are investigated the better it is for the homeowner. Delay can be fatal.