Complex Foreclosure Laws of California Are Causing Confusions in the Minds of Home Owners

The complexity about California foreclosure laws arises, due to the fact that there are two types of mortgage loans namely – recourse loan and non-recourse loan. The explanation for these types of loans under the California law can go into volumes. So the simple meaning is – under a recourse loan, a borrower may have personal liability after the foreclosure sale; and a borrower will not normally have any personal liability, following a judicial foreclosure Sheriff Sale on a non-recourse loan.

California State foreclosure laws permit both judicial foreclosures and non-judicial foreclosures. This is not the case in many other States, where either of the one is permitted. For example in Florida only judicial foreclosure is permitted.

What is the difference between the two? Let us see:

A judicial foreclosure is one, where the mortgage lender has to file a law suit in the County Court. Documentary proofs of default have to be filed before the Court to take up the case for preliminary acceptance of a trial. A notice called Lis Pendens – in simple language – notification of a pending law suit – is sent to the mortgagee borrower.

The Court decides and passes an order for the foreclosure sale of the property through public auction. A Sheriff Sale is conducted at the Court steps and the property is assigned to the highest bidder. The typical time of a judicial foreclosure lasts about 120 days. The borrower will have a maximum of one year, under certain circumstances, to redeem the property. So far so good.

In the non-judicial foreclosure process, it is initiated out of Court. In the mortgage agreement a “Power of Sale” clause is inserted – empowering the lender to sell the property, in case of default in repayment through a “Trustee Sale” foreclosure. Precisely the difference is the lender needs no Court order to sell the property.

A notice of sale through public auction by a third party Trustee, generally the representative of the lender, who is authorised to execute the “Power of Sale”, is sent 20 days prior to the sale and the borrower is given just 5 days’ time to settle the default and stop the foreclosure. Importantly, lenders cannot petition for a deficiency judgement and the borrower has no right of redemption here.

For example in the 9-county San Francisco Bay Area, both these foreclosure processes are applicable, as it is inside California State. In practice, lenders take advantage of the speed and easiness of non-judicial foreclosure process here mostly.

The most disadvantageous position comes in the form of “deficiency judgement” where the lender is permitted by the Court to pursue the borrower, even after a foreclosure sale, for the balance outstanding – that is the difference between the sale proceeds realized by a foreclosure sale and the actual mortgage balance.

The persuasion for the balance can take place, only with a Court Order and yet some lenders use this section as leverage, when borrowers-home owners approach the lenders with a Short Sale request.

Actually, according to the provisions of Home Affordable Foreclosures Alternative Program introduced by the federal government, the borrower is freed completely from the mortgage debt and there cannot be any persuasion after a Short Sale.

So what is the best advice for troubled home owners in California, particularly in SF Bay Area? They can leave the legal aspects of a foreclosure or short sale in the hands of a trusted Realtor in the area, which will save them from all these confusions and apprehensions regarding their mortgage loan – recourse or without recourse – and protect their interests completely.

Florida Foreclosure Law – Get the Lowdown!

When you live in Florida, you should definitely get acquainted with the Florida Foreclosure Law. Let’s face it, no one is immune from the risks of foreclosure. According to a survey, more than 90% of pending foreclosure cases in Florida is unintentional. Unless you’ve already paid for your house in full, you can be facing foreclosure charges pretty soon too. Here are tips on how to face foreclosure charges in Florida.

Settle it before the notice gets out

According to the Florida Foreclosure Law, a foreclosure only happens once a notice has actually been released. This can be in the form of a personal letter sent to your home, published in newspapers, or both. A foreclosure notice doesn’t mean a “final judgment” though. The notice just indicates the gravity of the debt, and the schedule of the foreclosure hearing. Foreclosure hearings are usually set 20 days or sooner after the letter has been sent to the debtor. If the notice was promulgated via national publications, the hearing is usually set 30 days or sooner after the release.

What happens if I don’t appear in court?

The foreclosure hearing in court, as stated in the Florida Foreclosure Law, is meant to give the debtor an opportunity to explain the cause of his/her payment delays. Based on past foreclosure cases, these delays or non-payments are caused by sudden family losses, accidents, loss of employment, and more. When the causes are valid, the court and the lender are usually willing to come up with settlements.

The debtor can sell the property and pay the lender his/her debts in whole. If the property sells for a lower price, the two parties will need to undergo a deficiency hearing to ascertain the terms of payment for the remaining balance. According to the Florida Foreclosure Law, the debtor can also transfer the deed of the property back to the lender if s/he has no means to pay for the debt by the end of the 180- to 300-day foreclosure period.

Should the debtor refuse to appear in court after the Notice of Foreclosure has been given out, s/he withdraws his/her right to be heard. No matter how grave the cause may be, his/her home will be put up for bidding once the “final judgment” of the court has been released. The tenants of the foreclosed home will then be evicted from the property under the court of law.

Can they charge for attorney’s fees?

The lender also has the right to charge the debtor for his/her attorney’s fees as long as these fees are not higher than 3% of the mortgage’s actual worth. If the attorney’s fees are unreasonable, a separate trial will be held again, for this settlement purpose. Just like the foreclosure hearings, this will be settled without a jury.
What are the consequences of foreclosure?

Aside from the social embarrassment of being removed from your home, a foreclosure also damages your credit history. If you want to save face, and save your credit score, you shouldn’t try to dodge your lender’s missed payment notices. Lenders only file foreclosure statements when they feel the need to be protected by the court.

As soon as you miss out on a month’s payment, you should contact your lender right away. Refinancing and loan modifications before foreclosure charges are by far less painful compared to actual foreclosure proceedings.