A Homeowners Guide to Foreclosure in California; Rev 2020

A HOMEOWNER’S GUIDE TO

FORECLOSURE IN CALIFORNIA

Published by the California Department of Real Estate 2020

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 1 6/18/2021 6:06:42 PM

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 2 6/18/2021 6:06:42 PM

Prepared originally by: The California State University, Sacramento

Real Estate & Land Use Institute (2010)

Revised and updated by: Department of Real Estate and

S. Guy Puccio (2020)

November

2020

A HOMEOWNER’S GUIDE TO

FORECLOSURE IN CALIFORNIA

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 3 6/18/2021 6:06:42 PM

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 4 6/18/2021 6:06:42 PM

Table of Contents

A Homeowner’s Guide to Foreclosure in California

Introduction .............................................................................................. 1

Definitions of Some Terms Commonly Used .............................................. 3

Facing Foreclosure .................................................................................... 8

The Foreclosure Procedure ....................................................................... 9

Event 1: Missing a Single Payment ........................................................................... 9

Event 2: Notice of Default (NOD) .............................................................................. 10

Event 3: End of the Initial Three-Month Reinstatement or Cure Period .................. 13

Event 4: Delay of Notice of Sale ................................................................................ 14

Event 5: Notice of Sale (NOS) .................................................................................... 14

Event 6: Foreclosure Sale .......................................................................................... 16

Foreclosure Costs Everybody................................................................... 18

What do Homeowners Lose through Foreclosure? ............................................... 18

What do Kent and Ellie Stand to Lose? .................................................................. 18

Foreclosures Carry Significant Financial Impact for Homeowners ............ 19

What do Lenders Stand to Lose through Foreclosure? ......................................... 20

Possible Alternatives or Options to Foreclosure ....................................................... 22

Modify or Restructure the Terms and Payment Schedule of Your

Existing Mortgage Loan ........................................................................................... 22

Refinance: Pay Off Your Loan with a New Loan on Better Terms ............................. 27

Pursue a Short Sale ................................................................................................... 28

Sell Your Home to Access the Available Equity ...................................................... 29

Rent Your Home ....................................................................................................... 34

Share the Cost with a Boarder .................................................................................. 35

Offer a “Deed-in-Lieu” to your Lender rather than Proceed with a

Foreclosure Sale ........................................................................................................ 35

Understanding the Homeowner Bill of Rights.......................................... 36

III

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 5 6/18/2021 6:06:42 PM

When all Else Fails: Moving Forward with Foreclosure ............................ 41

The Foreclosure Procedure Guidelines ..................................................................... 41

The Foreclosure Procedure – Revisited .................................................................... 44

General Information ................................................................................................. 47

The Actual Foreclosure Sale ...................................................................................... 50

Homeowners: What Not To Do ................................................................ 50

Walk Away from (Abandon) the Home ..................................................................... 50

Trash the Home ........................................................................................................ 52

Bankruptcy ................................................................................................................ 53

Post-Foreclosure Option for the Former Homeowner ............................. 54

Conclusion .............................................................................................. 56

Resources ............................................................................................... 57

Additional DRE Publications .................................................................... 59

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 6 6/18/2021 6:06:42 PM

Introduction

This booklet is a guide of the events and steps which occur in the

foreclosure process and contains useful information about the

foreclosure process for homeowners in financial distress who struggle to

pay their monthly mortgage loan payments (principal and interest,

property taxes, homeowner’s insurance premiums, and, if applicable,

mortgage insurance premiums). Regardless of whether these items are

lumped together into one monthly payment or paid separately, the result

is the same. Homeowners are obligated to make these payments, and

many face challenges in doing so.

Many homeowners find themselves continuing to face tough financial

times due to stagnant incomes and weakness in the job market, the

rising costs of living, increasing interest rates occurring in adjustable or

variable rate mortgages, and rising medical expenses.

For example:

•

Your monthly mortgage payments may have increased because of an

upward adjustment in the interest rate. Adjustable or Variable Rate

Mortgages can and do adjust automatically, as described in your

original loan documents and disclosures.

•

You may be unable to meet your monthly mortgage loan payments

because of unforeseen circumstances such as losing your job,

reduction of income, becoming ill, or needing time to care for an ill

or injured loved one.

•

You may be going through dissolution of union or marriage and

your partner wants to “walk away” from your home and your

monthly mortgage loan payments.

•

Your monthly mortgage loan payments and income may be unchanged,

but the value of your home may decrease to the point where your

mortgage loan balance is greater than the value of your home, or your

equity is insufficient to allow for refinancing of your home.

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 7 6/18/2021 6:06:42 PM

Regardless of your particular situation, if you are unable or unwilling to

meet your monthly mortgage loan payments, you face the probability of

foreclosure and eventual eviction.

When you purchased or refinanced your home, you borrowed money

from a lender. With rare exception, the lender is entitled to repayment

according to the financial terms described in your mortgage loan

documents. If you miss your mortgage loan payments, your lender can

cause your home to be sold to pay off your mortgage loan. This

procedure is called foreclosure. While going through foreclosure is an

overwhelming experience, the last thing you should do is nothing.

It can be an overwhelming experience for homeowners who do not know

how to handle the lender’s action to foreclose on their home. The

emotional and traumatic issue of facing the loss of their home may leave

some homeowners feeling as if they have no options. Many simply give

up and do nothing and allow the process to run its course. However, doing

nothing is the worst thing a distressed homeowner can do. Proactive

steps can improve the situation in many circumstances.

This booklet was prepared to help you understand the foreclosure

process and the potential alternatives or options to foreclosure so you

can actively participate in finding the best possible solution for your

mortgage loan situation. The best option is to take action by accepting

responsibility, taking control over the factors you can affect, and acting

decisively.

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 8 6/18/2021 6:06:42 PM

Definitions of Some Terms Commonly Used

Adjustable Rate Mortgage (ARM): A loan that provides for changes in

interest rates at defined intervals based on increases or decreases in a

specified published index. ARMs are the most commonly used loan

product when the interest rate is not fixed (Fixed Rate Mortgage) during

the term of the loan.

Assignee: A person (lender) who purchased the interests of the lender

identified in the promissory note and deed of trust (the mortgage loan

documents) and who becomes the holder of the promissory note.

Recording the assignment from the lender to the assignee is typically

required. The recorder of the county where the property described in the

deed of trust is located will record the assignment.

Cash for Keys: Money received from the

lender or its servicing agent to assist the

former homeowner or tenant in moving from

the home following the request of the lender

in exchange for the agreement of the former

homeowner or tenant to vacate after the

foreclosure sale.

Civil suit for waste: An action brought in court by a lender against the

homeowner for loss or damage to the home, whether caused or suffered

by the homeowner (in which case the damage is referred to as “waste”)

or damages that may arise from the alleged fraud of the homeowner.

Credit Bid: The ability of the lender to direct the trustee to bid at the

foreclosure sale up to the total debt (the full balance due and payable)

owed to the lender without advancing further money.

Debt Counseling Service: A properly certified or licensed independent

consultant who assists homeowners to assess their financial situation

without bias or emotional attachment.

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 9 6/18/2021 6:06:42 PM

Deed: A document (instrument) by which ownership of and title to a

home is transferred from one person to another.

Deed-in-lieu of foreclosure: A document (instrument) executed by the

homeowner conveying title to a lender in lieu of the lender proceeding

with foreclosure on the home (the security property).

Deed of Trust: A deed conveying title to real property to a trustee as

security until the grantor/trustor (borrower) repays the loan. This

document identifies the homeowner as the trustor, the lender as the

beneficiary, and a third person as the trustee authorized by the

homeowner and the lender to perform defined activities/powers.

Equity: The estimated amount by which the then fair market value of your

home (property) exceeds the total amount owing on account of mortgage

loans and other liens recorded against the title of the home.

Equity Purchaser: An investor purchasing owner-occupied residential

property to rent or re-sell when a home (property) is subject to an active

Notice of Default (NOD).

Eviction: A court supervised procedure to remove persons and any others

who are in possession of a home.

FHA: Federal Housing Administration.

FNMA: Federal National Mortgage Association (also known as Fannie

Mae).

FHLMC: Federal Home Loan Mortgage Corporation (also known as

Freddie Mac).

Fixed Rate Mortgage (FRM): A mortgage loan with interest fixed at a

prescribed rate (e.g., 6%) for the duration of the loan.

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 10 6/18/2021 6:06:42 PM

Foreclosure Consultant: A person who, for compensation, offers to

perform services to assist a homeowner of owner-occupied

residential properties subject to an active NOD to (among others) stop

or postpone the foreclosure sale, obtain a delay or forbearance from

the lender, assist the homeowner when reinstating or curing

delinquencies, help the homeowner to avoid damage to their credit

rating, or assist the homeowner in obtaining any remaining surplus

funds or net proceeds from a foreclosure sale in excess of the amounts

owed in accordance with the terms of the mortgage loan. It is illegal to

operate as a mortgage foreclosure consultant in California unless the

foreclosure consultant has obtained a Certificate of Registration as a

Mortgage Foreclosure Consultant from the Department of Justice.

Judicial Foreclosure: A foreclosure sale conducted under the supervision

of a court.

Lender: The person that extends credit (loans money) to the borrower

identified as the lender in the promissory note and as the beneficiary in

the deed of trust (the mortgage loan). For the purposes of this booklet,

the term lender includes the assignee of the lender. Lender is also

sometimes referred to as mortgagee and borrower as mortgagor.

Loan Modification: Restructuring or amending the terms of a mortgage

loan by an agreement among the lender, its servicing agent, and the

homeowner.

Money Judgment: A court declaring the amount of money owed to the

creditor and obligating the debtor to repay that amount (a judgment

award of the court).

Non-Judicial Foreclosure: A non-judicial foreclosure is a privately

conducted but publicly held sale of the property described in the deed of

trust (mortgage loan) by the named trustee (or by a substituted trustee).

A judicial foreclosure occurs under court supervision (a state action). A

non-judicial foreclosure is a procedure followed by the trustee, as

described in California law, which provides the lender with a

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 11 6/18/2021 6:06:42 PM

remedy for collecting the amounts owed by a defaulting homeowner in

accordance with the terms of the mortgage loan (including the costs of

foreclosure). A non-judicial foreclosure arises from a procedural law, the

terms of which the homeowner and lender have contractually agreed to

follow and is not a state action. The term “foreclosure” as used in this

booklet means either a judicial or non-judicial foreclosure, depending on

the context.

Notice of Default (NOD): A document known as the NOD prepared by the

trustee at the direction of the lender or its servicing agent that, upon

recording with the office of the county recorder in which the property is

located, begins the initial three-month reinstatement or cure period

during which no Notice of Sale may be recorded.

Notice of Sale (NOS): Following the expiration of the initial three-month

reinstatement or cure period, the trustee - at the direction of the lender

or its servicing agent - prepares the NOS, which is posted on the security

property and recorded with the county recorder where the property is

located. The NOS, when posted and recorded, begins a minimum 20-day

period before the date of the sale can be scheduled at a specific time in

an identified public place within the county or the judicial district in which

the sale is to take place.

Promissory Note: A written agreement obligating the homeowner to

repay the amounts loaned by the lender/investor (the holder of the

promissory note). It is also the evidence of the amount of loan (debt)

owed by the homeowner to the lender/investor.

Purchase Money Loan: A mortgage on a dwelling for not more than

four families given to a lender to secure repayment of a loan that was

used to pay all or part of the purchase price of the home, occupied

entirely or in part by the purchaser. A non-purchase money loan is a

mortgage loan obtained to refinance or to add additional loans to the

home and not for the purchase of the home.

Real Estate Owned (REO): A property owned by a lender acquired through

a foreclosure sale.

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 12 6/18/2021 6:06:42 PM

Redemption Period: The period of time beginning five days before and

continuing to the date of the scheduled foreclosure sale, or the

postponed date of the sale, during which time the homeowner is

entitled to stop the foreclosure by paying in full the balance owing to

the lender in accordance with the terms of the mortgage loan.

Reinstatement or Cure Period: The time provided to the homeowner to

pay the delinquent sums owing to the lender as well as any curable non-

monetary defaults to stop the foreclosure sale (to cure the defaults and

reinstate the mortgage loan). The reinstatement or cure period begins

with the recording of the NOD and continues for a minimum of three

months prior to and includes the time following the recording of the NOS

up to five days before the date of the scheduled foreclosure sale or the

properly postponed date of the sale. Upon reinstatement or cure, the

lender is to record a notice rescinding the NOD.

Servicing Agent: The lender or its authorized and licensed agent (unless

exempt from licensure) retaining loan servicing (the right and obligation

to continue to collect the mortgage loan payments). The lender, either

the original or assignee of the lender (the holder of the promissory note),

following the sale of the mortgage loan. For the purposes of this booklet,

the phrase lender or its servicing agent includes the assignee of the

lender and the authorized representative or agent servicing the loan.

Short Sale: A sale of a home where the purchase price is less than the

total amount of the balances due and owing on mortgage loans and

other liens recorded against the title of the home (the security property).

Trustee: A person initially named or substituted in the place of the person

identified in the deed of trust. The trustee is the person authorized by

the lender and the homeowner to proceed with the privately-held but

publicly-conducted non-judicial foreclosure sale (in the event of the

failure to timely make the mortgage loan payments or to otherwise

comply with the terms of the mortgage loan).

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 13 6/18/2021 6:06:42 PM

Underbid: When the amount demanded at the foreclosure sale by the

trustee pursuant to the instruction of the lender or its servicing agent is

less than the total debt (the full balance due and payable) owed by the

homeowner to the lender or an assignee of the lender.

Upside Down: When the value of the home is less than the full balances

due and payable to the lenders pursuant to the mortgage loans or liens

recorded against the home (the security property).

Waste: An intentional or unintentional act of a borrower of a mortgage

loan that results in physical damage or injury to the property described

in the deed of trust. A homeowner may be liable for any waste of the

property created or suffered during the period of ownership.

NOTES: In this booklet, the terms “borrower” and “homeowner” are

interchangeable and the terms “property,”“security property,” or “home”

are also interchangeable. In addition, the phrases “promissory note” and

“deed of trust” also mean the “mortgage loan.”

Facing Foreclosure

Should you face the possibility of foreclosure, you are not alone.

Foreclosure is not a personal attack on you or your home. Thousands of

financially distressed homeowners face similar circumstances. Processing

a high number of homeowner defaults (including foreclosures) has been

overwhelming to lenders and their servicing agents. When homeowners

are unable or unwilling to repay their mortgage loans, lenders take action

to limit their losses and to recover the balance owed.

Typically, the most effective way to avoid losses is to keep the

homeowner in the home. As a result, lenders and their servicing agents

may be willing to help struggling homeowners avoid foreclosure by

addressing their mortgage loan delinquencies. The federal government

and the State of California each have rules and regulations which can be

helpful to homeowners in addressing mortgage loan issues including

modification of the loan terms or cooperating in achieving a short sale.

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 14 6/18/2021 6:06:42 PM

It is important to have a general understanding of the foreclosure

procedure so that you are informed and are able to identify your rights

and options. With this information, you can take a proactive role in

finding the best possible solution for your mortgage loan situation.

The Foreclosure Procedure

Event 1: Missing a Single Payment

The foreclosure procedure may begin once you are 120 days delinquent

on mortgage payments (a delinquency) of a consumer loan. This time

can be used to explore loss mitigation options. It is recommended the

homeowners work with an experienced attorney for advice and a real

estate licensee for negotiations during this time to ensure the option

they agree to benefit their current situation.

When borrowers miss even one monthly mortgage payment, they

should start talking to their lender or its servicing agent – before a large

amount is outstanding and owing on the mortgage loan. When the

lender becomes aware of the homeowner’s financial situation, it may try

to offer a solution or assist the homeowner in some way. Lenders and

their servicing agents are often more understanding with a homeowner

who is upfront and deals with the issue than one who has defaulted and

fails to communicate with the lender or servicing agent. This is because

it is often more beneficial for the lender to assist homeowners or help

them to sell the security property than have a repossessed property the

lender has to sell itself.

In some instances, homeowners (who failed to make monthly mortgage

loan payments or who anticipate the inability to make such payments)

have a very hard time contacting their lender or its servicing agent. The

California Homeowner Bill of Rights (HBOR) is a set of laws that provide

protections to homeowners who are facing foreclosure. It became law on

January 1, 2013, with many sections renewed and modified as of January

1, 2019 and August 31, 2020.

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 15 6/18/2021 6:06:42 PM

The HBOR applies to homeowners who occupy a one to four dwelling

unit home or a landlord who owns no more than three residential real

properties, or one or more landlords who together own no more than

three residential real properties and their tenant is unable to pay rent

due to a reduction in income resulting from the novel coronavirus. If

the HBOR applies, the lender is required to exercise due diligence to

contact the homeowner(s) before commencing foreclosure. The

advance contact is to provide the homeowner with information

regarding the alternatives or options that may be available to avoid

foreclosure, including referring the homeowner to independent

counseling services (who are often HUD approved).

Event 2: Notice of Default (NOD)

If you and your lender or its servicing agent cannot agree on alternative

mortgage loan terms to avoid foreclosure (a modification or restructuring),

your lender or your servicing agent can direct the trustee to record a NOD

against your home provided you have been contacted a minimum of 30 days

in advance of the recording in the manner referred to in Event 1.If a complete

loss mitigation application is submitted before the lender or its servicing

agent has made the first filing to initiate foreclosure, the foreclosure

process is automatically stayed unless: (1) the lender or its servicing agent

informs the borrower that she is not eligible for any loss mitigation

option; (2) appeals to the former have been exhausted; (3) the borrower

has rejected every loss mitigation offer provided by the lender or its

servicing agent; or (4) the borrower is unable to comply with the terms

of the agreed-upon loss mitigation option (collectively, the “Loss

Mitigation Stay Process”).

The NOD may be recorded if you have not

submitted a complete application for a first loan modification offered

by or through the lender or its servicing agent, or if you have submitted

a complete loan application and a final written decision denying your

eligibility for a modification has been issued. The recording of the

NOD officially begins the foreclosure procedure. You will receive a copy

of the NOD by certified postage prepaid mail.

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 16 6/18/2021 6:06:42 PM

Whether a lender can issue a NOD is dependent upon a “power of sale”

clause included within the terms of your mortgage loan. California

mortgages and deeds of trust generally include power of sale clauses

which contractually authorize lenders or their servicing agents to cause

the foreclosure of defaulted loans and to sell the security properties to

recover the balances owing on the mortgage loans and otherwise seek to

limit their losses (if any).

“Power of sale” clauses granting authority to the named or substituted

trustee to foreclose the security property upon the instruction of the

lender are governed by California’s procedural law arising from the

contract between lenders and homeowners (the mortgage or deed of

trust). Lenders generally do not require court supervision and approval

for non-judicial foreclosure sales and, therefore, are able to proceed

quickly with state-mandated timelines (included within the procedural

law) to complete the foreclosure process.

In the event a mortgage or a deed of trust does not include a “power of

sale” clause, a lender will sue the defaulting homeowner to obtain a

court-ordered judicial foreclosure. In the past, California lenders rarely

pursued judicial foreclosures except in connection with non-purchase

money loans funded by financial depository institutions or lenders

licensed under a lending law (institutional lenders), or by private

investors/lenders (whose loan documents typically are not as detailed

and comprehensive as those prepared by institutional lenders).

The suit to judicially foreclose may include a claim for a “deficiency

judgment” under which the homeowner may be subject to a claim for

the shortage of money (if any) between the security property’s fair

market value and the balance of the loan. Deficiency judgments are not

permitted when the mortgage loan on your home meets the definition

of a purchase money loan (e.g., a loan made by the lender at the time

you purchased and agreed to occupy your home) and also are not

permitted when a non-judicial foreclosure occurs of your mortgage

loan.

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 17 6/18/2021 6:06:42 PM

Deficiency judgments are not permitted (except for the amount of new

principal advanced) even when the loan was made for the purpose of

refinancing the purchase money loan taken out at the time you acquired

your home. Judicial foreclosures take longer and cost more money than

non-judicial foreclosures. Since the availability of deficiency judgments

have been restructured under current law, the decision by the lender or

its servicing agent to pursue a non-judicial or judicial foreclosure will, in

the future, be carefully considered.

California is a “one-action” rule state wherein the lender must carefully

choose which single action it will take against the defaulting homeowner.

Should the lender conclude a non-judicial foreclosure out of court under

the authority of the “power of sale” clause, the lender has elected the

non-judicial foreclosure procedure as its remedy to foreclose the

homeowner’s interest in the security property.

Should the non-judicial foreclosure sale result in an amount to be paid

to the lender less than the money owed on the loan, the lender is

prohibited from suing the homeowner for a deficiency judgment on

the mortgage, but may still be able to file an action in court for fraud or

to make a claim against a guarantor. While the non-judicial foreclosure

sale does not constitute a form of action limiting other available judicial

remedies under the “one form of action” rule, bidding on the property at

the time of the non-judicial foreclosure sale waives most claims against

the homeowner (excepting fraud which may be subject to dollar limits

or claims for waste), or claims against third parties.

To protect itself from such a shortfall, a lender will often credit bid the

outstanding balance it is owed with the hope a third party will outbid the

lender and, as a result, the lender can “walk away” with full payment in

cash of the debt represented by the mortgage loan. When the lender is

the successful bidder (in the absence of a third-party bidder), the security

property becomes known as a lender-held REO (Real Estate Owned),

which it then hopes to sell on the open real estate market.

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 18 6/18/2021 6:06:42 PM

This booklet does not address the entire range of complexity relating to

judicial foreclosures because they are infrequent. When facing a judicial

foreclosure, you should consult with an attorney familiar with

foreclosures of mortgage loans.

After your lender or its servicing agent directs the trustee to record the

NOD, an initial minimum three-month period is required to provide you

with the opportunity to cure the default and reinstate your mortgage loan

by bringing current your delinquent payments. Should your lender be a

financial depository institution or a lender licensed under a lending law, you

are to be offered the option of continuing to negotiate with your lender or its

servicing agent a modification or restructuring of your mortgage loan. It

may be possible to arrange with your lender or its servicing agent for a

delay in making the delinquent payments (forbearance).

Should you neither cure the default and reinstate your mortgage loan

nor commence negotiations with the lender or its servicing agent, you

will know the time is running within 10 business days of the recording of

the NOD. The trustee must timely mail to you a copy of the NOD within

the required 10 days, and you will be informed of the date when the

filing or recording of the NOD occurred. You will also be sent a follow up

copy of the NOD again within 30 days. The IRS will also receive the NOS

at least 25 days before any sale can be set by the trustee.

Event 3: End of the Initial Three-Month Reinstatement or Cure Period

When the initial three-month reinstatement

or cure period ends, your lender or its

servicing agent can move forward and direct

the trustee to schedule the foreclosure sale of

your home. By now, it is important to consider

the possibility of relocating in anticipation of

your lender or its servicing agent requiring you

to move from your home after the

foreclosure sale and the eviction process is completed. Some lenders

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 19 6/18/2021 6:06:42 PM

may offer you the opportunity to remain in your home following the

foreclosure sale on a mutually acceptable basis. For example, the lender

or its servicing agent may ask you to stay in the home for the payment

of market rent.

Event 4: Delay of Notice of Sale

Prior to the lender or servicing agent preparing and recording a notice of

sale (NOS), the three month reinstatement or cure period following the

recording of the NOD must have been completed. Under state law, the

lender or servicing agent is required to accomplish certain predicates

pursuant to the HBOR.

Federal law requires additional predicate steps to be accomplished

including completing a loss mitigation process. Should the homeowner

prepare and deliver a loss mitigation application after the NOD has been

recorded, the recording of a NOS and the scheduling of a foreclosure

sale may be delayed. For example, the loss mitigation example must be

completed 37 servicing days or more before the foreclosure sale.

Event 5: Notice of Sale (NOS)

Upon completion of Events 1-4 above, your

lender or its servicing agent can direct the

trustee to prepare a NOS to notice and schedule

a foreclosure sale. The trustee will record the

NOS at least 21 days prior to the scheduled sale,

post your home with a copy of the NOS, and

publish the NOS in an authorized newspaper of

general circulation in the jurisdiction where the

foreclosure sale is to occur. The NOS usually is

published about 20 days prior to the scheduled date for the sale of your

home and runs for three consecutive weeks. The NOS is also sent to you

as the homeowner and all other entitled persons.

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 20 6/18/2021 6:06:42 PM

It is possible the NOD was recorded against your home prior to the

effective date of the California law establishing the requirement to delay

the recording of the NOD until 30 days after contact is made with you or

after satisfying due diligence requirements to make contact with you

(demonstrate a good faith effort).

These required contacts or good faith efforts to make contact put many

homeowners in direct communication with their lender or its servicing

agent early in or during the foreclosure procedure. Time and energy that

was once wasted tracking down your lender or its servicing agent (or the

appropriate member of their staffs) can now be invested in negotiating

monthly mortgage loan payments that you can afford and that are

acceptable to your lender (modifying or restructuring your mortgage

loan). You should continue to negotiate with your mortgage lender or

its servicing agent up until the scheduled date of the foreclosure sale or

the date of the postponed sale. You should not prematurely move out of

your home, particularly when you are continuing to negotiate with your

lender or its servicing agent.

You have a right of reinstatement or to cure which is valid until five days

prior to the scheduled sale or the date of the postponed sale. On the fifth

day prior to the sale, your right to reinstate the debt and cure the default

expires. Thereafter, you are entitled to redeem the debt by paying in full

the balance due and owing to the lender as described in the NOS.

Should you not redeem prior to the date and time of the noticed or

postponed foreclosure sale, your home can be sold to the highest bidder.

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 21 6/18/2021 6:06:42 PM

Event 6: Foreclosure Sale

hen your home sells at the foreclosure sale, the lender or its servicing

agent may elect to accept the sale proceeds as payment in full whether

the amount received from the third-party bidder represents the full

balance due and owing to the lender. Should there be no third-party

bidder and the lender elects to open the bid at an amount equal to the

full balance due and owing, this is known as a “full credit” bid which will

discharge in full your debt to the lender. Should your lender or its

servicing agent elect to “underbid” (direct the trustee to open the bidding

in an amount that represents a specified partial payment of the debt

owing under your defaulted mortgage loan), the successful bidder may

be able to purchase your home for less than the full balance due and

owing to your lender at the time of the foreclosure sale.

Lenders or their servicing agents may elect to “underbid” if they believe

waste,

physical damage or injury to the property described in the deed

of trust, occurred due to the borrower’s bad faith

. In these situations,

a “civil suit for waste” may be filed against you.

It is worth noting again that when a lender forecloses based on a default

on the mortgage loan used to buy your home (a purchase money loan),

the lender may not obtain a deficiency judgment against you if proceeds

from the non-judicial foreclosure sale are insufficient to cover the full

balance due and owing to the lender. In some circumstances, a lender

may obtain a deficiency judgment against you on non-purchase money

loans secured by your home, such as an equity line of credit, or a

mortgage loan obtained to refinance your purchase money loan to the

extent additional loan funds are advanced to you.

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 22 6/18/2021 6:06:43 PM

For more information on your rights and the lender’s ability to collect

money from you (whether in the form of a deficiency judgment or a civil

suit for waste) when your home sells at a foreclosure sale for less than

what is owed to the lender, contact an attorney familiar with California

and applicable federal foreclosure law.

The homeowner also has a right of redemption (to redeem the full

balance due and owing to the lender) prior to the date and time of the

noticed or postponed non-judicial foreclosure sale. In a judicial

foreclosure sale, the right of redemption can only be exercised by a

defaulting homeowner after the home is sold through a court ordered

and supervised sale. No redemption rights are available to the

homeowner after the security property is foreclosed at a non-judicial

foreclosure sale.

In a judicial foreclosure sale, the right of redemption essentially means to

repurchase your home from the buyer by paying in full the price paid (not

the defaulted loan amount). To redeem your home, you must pay the new

owner the amount paid for your home at the judicial foreclosure sale plus

interest until payment in full is tendered.

When no deficiency exists to pay off the loan at the judicial foreclosure

sale, your redemption right will extend for a period of three months. If,

however, a deficiency judgment was awarded by the court and recorded

as a lien naming you as the judgment debtor, your redemption right as

the former homeowner will extend up to a one year period following the

judicial foreclosure sale.

Assuming the lender foreclosed in a judicial action in court, then

within this one year period you will be given the opportunity to pay

the deficiency judgment awarded to the lender and to redeem your

home from the new owner by paying the purchase price plus interest

as previously described. During the redemption period (whether

extended for three months or one year), the new owner who purchased

your home at the judicial foreclosure sale does not enjoy full ownership

rights and may have the purchase at the judicial foreclosure sale set

aside in favor of your redemption rights as the former homeowner.

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 23 6/18/2021 6:06:43 PM

Foreclosure Costs Everybody

Now that you have a better understanding of foreclosure procedures,

it is time to consider what foreclosure costs you and your lender or its

servicing agent may incur. Most of the time, homeowners make their

monthly mortgage loan payments as scheduled. For various reasons, it

may become impossible to timely make your mortgage loan payments.

As a result, the homeowner, the lender, and the community where your

home is located each lose out in a variety of ways.

What do Homeowners Lose through Foreclosure?

Example: Kent and Ellie Myers were barely

able to make the monthly payments of their

ARM, particularly with the unexpected

increase in the payment amount after

adjustment of the interest rate. The Myers

knew their mortgage loan was an ARM, but

expected that interest rates would remain

low. Kent then suffered an injury at work, lowering the family’s income.

Following the injury, the Myers could not fully cover their general family

and Kent’s medical expenses, as well as their mortgage loan payments.

After missing a mortgage loan payment, they received a telephone call

from their lender or its servicing agent. Kent and Ellie could not negotiate

a modification or restructuring of their mortgage loan. The trustee

recorded a NOD against the title to their home a month following contact

with Kent and Ellie by their lender or its servicing agent.

What do Kent and Ellie Stand to Lose?

The most visible impact of foreclosure is the loss of Kent’s and Ellie’s home

and any equity in the home. Following the foreclosure sale, the Myers will

likely be required to move out of their home (an eviction) and find a new

place to live.

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 24 6/18/2021 6:06:43 PM

The significant impacts for homeowners include the loss of Down Payment,

Mortgage Loan Payments, and of the Equity in the home.

Through foreclosure, homeowners lose the down payment made at the

time of purchase and the mortgage loan payments they made during

the ownership of their home. Homeowners also lose the amount of

any appreciation in market value that may have occurred since they

purchased their home.

Prior mortgage loan payments, property taxes, insurance premiums, and

monies spent on home maintenance are not entirely lost. Some of these

payments were deductible on income tax returns, and the payments

represent consideration for the occupancy of the home (even though the

collective payments are often in excess of the market rent for your home

for the same period).

When homeowners lose their home, future growth and equity will also

be lost as home values typically increase over time.

The Myers’ Credit Rating

The Myers’ credit reports will reflect the foreclosure sale. Foreclosures

will lower credit scores, damaging the Myers’ credit rating. Many lenders

will not extend credit to homeowners within five, or as long as seven

years following a foreclosure sale. For example, FHA will generally not

insure a new mortgage loan for three years following a foreclosure sale

reported as part of the homeowner’s credit record. A “foreclosed on”

homeowner may not be able to obtain another mortgage loan for several

years.

Foreclosures Carry Significant Financial Impact for

Homeowners

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 25 6/18/2021 6:06:43 PM

The Myers’ Community

Moving to a new home often means moving away from friends and

neighbors and from familiar places (e.g., schools, public libraries, parks,

grocery stores, coffee shops, banks). Commuting distances may increase

after the move. In addition, a number of foreclosed and vacant homes

in a neighborhood of a community typically diminishes the appearance

of the neighborhood, may cause property values to decline and reduces

local property tax revenues.

The Myers’ Peace of Mind

The drastic changes following a foreclosure sale can result in a physical,

emotional, and psychological toll on homeowners and their families.

Clearly, homeowners have a huge incentive to avoid foreclosure.

What do Lenders Stand to Lose through Foreclosure?

Time Delay and the Costs Incurred by the Lender

The foreclosure procedure takes several months to complete. During that

time, the lender is affected in various ways:

•

The lender may not receive interest income on its investment (the

mortgage loan).

•

The lender may not receive payments of the principal due that

could have been reinvested elsewhere.

•

Because the lender must comply with applicable city and county

ordinances that impose appearance and condition standards on

vacant properties (e.g., keeping the yard free of trash and weeds,

securing and maintaining the home), the lender could be subject to

fines for failure to comply.

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 26 6/18/2021 6:06:43 PM

•

Regardless of local ordinances, a lender typically incurs a variety of

expenses (e.g., insurance, essential repairs, maintenance, property

taxes, and management fees).

•

The lender may face atypical financial and management problems

often associated with owning vacant homes (e.g., trespassing, theft,

vandalism).

•

Because the lender may be subject to the corporate business

problem of owning too many REOs, including substantial increases in

their capital reserve requirements (as imposed by government

regulators), the lender’s ability to make new mortgage loans may be

limited.

•

If the REO is placed in the rental market to provide some income,

renting of the property will not alter the increased capital reserve

requirements, and additional capital is typically necessary to make

the home suitable for rental occupancy (e.g., cleaned, repaired,

managed).

•

If the REO is placed on the market for sale, real estate brokers will

generally be hired and paid compensation (adding to the amount

of the selling costs increasing the lender’s loss).

•

The lender may lose money when a foreclosed home is sold at

exceptionally low prices (often much less than the amounts

represented by the homeowner’s unpaid mortgage loan, the costs

of foreclosure, and the costs of selling the property).

The final sales price will determine the ultimate total loss absorbed by

the lender because of the foreclosure and the subsequent sale of the

REO. Lenders clearly do not want to lose money or be in the business of

owning and managing vacant homes and typically have just as much of

an incentive as homeowners to avoid foreclosure.

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 27 6/18/2021 6:06:43 PM

Possible Alternatives or Options to Foreclosure

Since homeowners and lenders or their servicing agents have substantial

incentives to avoid foreclosure, it is important they work together to

develop alternative solutions.

Homeowners may pursue a number of possible alternatives to

foreclosure and should take the initiative to do so. Because not all

alternatives or options are appropriate for every homeowner, you need

to decide which solution might be best for your particular circumstances.

There are several possible alternatives or options.

Modify or restructure the terms and payment schedule of your

existing mortgage loan.

Refinance and pay off your loan through a new loan with better

terms.

Sell your home and access the available equity.

Pursue a short sale.

Rent out your home.

Share the cost with a boarder.

Offer a deed-in-lieu to your lender or its servicing agent.

Visit www.hud.gov or call 1-800-569-4287 for information about free,

HUD-approved housing counseling services.

Modify or Restructure the Terms and Payment Schedule of Your

Existing Mortgage Loan

For most homeowners, modifying or restructuring their current mortgage

loan is a better alternative to foreclosure. At the homeowner’s request,

the lender or its servicing agent may agree to modify the original

mortgage loan and adjust its terms in many ways.

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 28 6/18/2021 6:06:43 PM

To effectively modify or restructure your monthly mortgage loan payments

that are within your budget, negotiations with your lender or its servicing

agent will be necessary. Your negotiating strength is that the lender will

typically lose less money by working with you to modify or restructure your

mortgage loan than will be lost by foreclosing on your home.

Steps to modify or restructure your current home loan include:

Contact Your Lender or its Servicing Agent.

Homeowners have had a difficult time contacting their lender or its

servicing agent. Mortgage loans are often pooled together and sold to

assignees that designate servicing agents to collect mortgage loan

payments (some of which are located out of California). These servicing

agents are often not the lenders or the assignees of the lenders, but may

represent the only means of contacting a person authorized to act for

your lender.

By calling the number of the servicing agent listed on your monthly

mortgage loan statement, you should be able to make contact with the

person assigned by the lender or its servicing agent to negotiate with

you on the lender’s behalf.

Regardless of when you obtained your mortgage loan, your lender or its

servicing agent is required to contact you in person or by telephone (or

show that a good faith effort has been made to do so). This contact is to

occur at least 30 days before your lender or its servicing agent directs

the trustee to record a NOD. However, you do not need to wait. You

should contact your lender or its servicing agent even before you miss a

single monthly mortgage loan payment.

The lender or its servicing agent is obligated to contact you to explore

alternatives or options to avoid foreclosure (or must list the good faith

efforts made to contact you) prior to recording the Notice of Default

(NOD). A statement in the form of a declaration is to be included with the

NOD that either contact was made with you or describing the good faith

efforts to make contact with you.

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 29 6/18/2021 6:06:43 PM

Some homeowners prefer to take the initiative to begin negotiations

with the lender or its servicing agent. The earlier you contact your

lender or its servicing agent, the stronger your negotiating position will

likely be.

Whether you contact the lender or its servicing agent, or they contact

you, the purpose of this initial contact is to set up a telephone discussion

or meeting where both parties can assess your financial condition with

the goal of finding a monthly mortgage loan payment which you can

afford and your lender or its servicing agent can accept.

When you contact your lender or its servicing agent, make sure to have

the following information available:

•

Your name;

•

Address;

•

Telephone number;

•

Email address;

•

Name and address of the servicing agent where you mail your

monthly mortgage loan payment;

•

The mortgage loan number;

•

Your current income;

•

A list of monthly expenses;

•

Reason for the mortgage loan payment delinquency(ies);

•

Whether you are in bankruptcy proceedings, you will need to know

your case number and attorney to inform the lender or its servicing

agent of these facts and with whom their future communication

should occur; and

•

Whether your home is currently owner-occupied.

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 30 6/18/2021 6:06:43 PM

Prepare Your Proposed Solution

To negotiate a modified or restructured mortgage loan arrangement, you

will need to provide your lender or its servicing agent with enough

financial information to verify the monthly mortgage loan payment you

can reasonably afford. Your proposed solution needs to include a financial

statement reflecting all sources of household income and your overall

economic situation. Based on your income, your lender or its servicing

agent will apply general guidelines to determine what you can afford.

Make sure to include documentation (a paycheck stub or bank

statements showing electronic deposits) to verify your income.

Your Lender or its Servicing Agent Will Want to Support Their Decision

to Modify

Most lenders and servicing agents understand if you cannot make your

monthly mortgage loan payments, you likely will not make the modified

payments. This gives your lender or its servicing agent an incentive to

work with you to find a monthly mortgage loan payment which makes

sense for both you and the lender. At the same time, the lender and

its servicing agents want to avoid situations where homeowners take

advantage of them. Finally, in some instances a loan modification is

not possible. For example, a lender is not likely to agree to a loan

modification if your income is not sufficient to support the modified

loan terms. It is unfortunate, but in some cases foreclosure may be the

only option.

Understand What Your Lender or its Servicing Agent Can Reasonably

Offer

Lenders and their servicing agents generally have the knowledge and

skill to create different mortgage loan solutions. Homeowners should

ask questions and get understandable answers regarding the proposed

modified or restructured mortgage loan terms. Counseling services are

also a resource of mortgage loan information available to homeowners.

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 31 6/18/2021 6:06:43 PM

Lenders and their servicing agents can modify mortgage loan payments

in several different ways. For example, your lender or its servicing agent

may be able to:

•

Extend the term (length in years) of your mortgage loan which can

slightly lower the monthly mortgage loan payment;

•

Reduce the interest rate of your mortgage loan or convert the

adjustable rate into a fixed rate;

•

Reduce the principal amount of your mortgage loan;

•

Change your monthly mortgage loan payment, lowering it now

nd increasing it later when your economic status (income) expects

to improve;

•

Adjust your mortgage loan to a lower principal amount at a

reasonable interest rate with lower monthly mortgage loan

payments; or

•

Modify or restructure the mortgage in any combination of the above to

achieve the desired mortgage loan payments and mortgage loan terms.

A prepared homeowner might persuade a lender or its servicing agent

to adjust the mortgage loan payments. The costs of foreclosure in a

depressed market could produce a greater loss to the lender than

modifying or restructuring the mortgage loan.

You should consult your attorney, CPA, or a professional tax advisor to

determine whether a reduction in the principal loan amount owing on

your mortgage loan remains exempt from being reported as taxable

income. See, IRS Publication 525 and IRS Form 982 for more information.

The State of California has modified its tax code to coincide with the

federal tax law; thus, debt forgiveness may or may not result in a taxable

event under California law depending on the date of the foreclosure. You

should contact the California Franchise Tax Board (www.ftb.ca.gov), an

attorney, CPA, or a professional tax advisor for more information.

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 32 6/18/2021 6:06:43 PM

Refinance: Pay Off Your Loan with a New Loan on Better Terms

Depending on market interest rates, operative lending practices, your

credit rating, and the current market value of and equity you have in

your home, you may be able to obtain an entirely new mortgage loan

on your home with which to pay off your existing delinquent mortgage

loan. It is recommended that efforts to refinance occur prior to your

existing lender recording a NOD.

Refinance Quick Tips

To explore the possibilities of refinancing, you can use the services of

a licensed real estate broker acting as a mortgage broker familiar with

current lending practices who is authorized by a FHA approved

mortgagee (to whom the mortgage broker delivers loans for funding).

The FHA approved mortgagee (which will likely also be an approved

seller/servicer by Fannie Mae and Freddie Mac) will be familiar with FHA

insured loans or loans meeting the standards for sale to Fannie Mae and

Freddie Mac. You may also directly contact lenders that are FHA approved

mortgagees or Fannie Mae and Freddie Mac approved sellers/servicers.

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 33 6/18/2021 6:06:43 PM

Pursue a Short Sale

Through a short sale, the homeowner typically

hires a real estate broker to find a buyer to

purchase the home for its current market value,

even if that value is less than the homeowner’s

unpaid mortgage loan balance (the full amount

due and payable to the lender). The homeowner

asks the lender to accept the final sales price

amount as full payment of the mortgage loan

because the price to be paid by the buyer is

consistent with the current market value of the home and, therefore,

more than the lender would likely receive if the home were sold in

foreclosure.

By accepting a short sale, the lender or its servicing agent saves all of the

costs of foreclosure and avoids the risk of receiving a lower offer through

the foreclosure sale or of the property decreasing in market value prior

to the foreclosure sale. Additionally, the California legislature has

eliminated in most cases the lender’s ability to obtain a money judgment

for claims for deficiency following a short sale of an owner- occupied

home.

Short Sale - Quick Tips

•

Because it takes time for a real estate broker to find an appropriate

buyer, you should proceed to negotiate the terms of a short sale with

your lender or its servicing agent before the lender records the NOD.

However, some lenders or their servicing agents will decline

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 34 6/18/2021 6:06:43 PM

to negotiate a short sale until a qualified buyer makes a specific offer.

After recording the NOD, your lender or its servicing agent may

pursue foreclosure regardless of your desire to find a buyer to

complete a short sale.

•

The sale price of your home should take into account the

compensation payable to your broker, as well as selling costs and

expenses including title insurance premiums (if chargeable to the

seller), escrow fees, recording and notary fees, pro-rations of

property taxes, and property insurance premiums. You should look

for a licensed real estate broker with short sale experience. When

reported by the lender or its servicing agent to a national credit

repository, participation in a short sale is noted in your credit files,

but it likely will be less damaging to your credit standing than a

foreclosure.

•

Before agreeing to a short sale, you should get in writing whether the

lender intends to forgive the entire debt represented by your

mortgage loan. Debt forgiveness may lead to a taxable event (see

discussion on “Understand What Your Lender or its Servicing Agent

Can Reasonably Offer”) - or whether the lender intends to retain its

rights to pursue civil action to collect the deficiency, unless prohibited

by applicable California law.

Sell Your Home to Access the Available Equity

This option involves selling your present home. However, unlike the short

sale, this alternative is only feasible for homeowners who still have equity

in their home. Be aware that some home equity purchasers have

subjected homeowners whose residences are in foreclosure (subject to

an active NOD) to fraud, deception, and unfair dealing. (Equity purchasers

are persons who acquire homes in foreclosure as an investment and not

for occupying as a homeowner.) Purchase and sales transactions

between an equity purchaser and a homeowner, whose home is subject

to an active NOD, are subject to specific provisions of California law.

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 35 6/18/2021 6:06:43 PM

Requirements of this law include standards for the contents of the

contract between the equity purchaser and the homeowner. The

contract must contain the entire agreement of the parties and is to

include (among others) the following terms:

• The name, business address, and the telephone number of the Home Equity

Purchaser;

• The address of the home in foreclosure (subject to an active Notice of

Default or Trustee Sale);

• The total consideration purchase price to be paid by the Home Equity

Purchaser in connection with or incident to the sale;

• A complete description of the terms of how the Home Equity Purchaser will

pay for your home, other consideration including, but not limited to, any

services of any nature which the Home Equity Purchaser represents he or

she will perform for you before or after the foreclosure sale;

• The time in which possession is to be transferred to the Home Equity

Purchaser;

• The terms of any rental agreement;

• Proper notice of your right to cancel with an equity purchaser. The right to

cancel expires at midnight of the fifth business day following the day on

which you signed a contract or 8 a.m. on the day scheduled for the sale of

the property pursuant to a power of sale conferred in a deed of trust,

whichever occurs first.The required format for the notice can be found in

Sections 1695.3 and 1695.5 of the California Civil Code.

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 36 6/18/2021 6:06:43 PM

The homeowner is entitled to a right of

cancellation, and the purchase and sale

transaction cannot be concluded and no loan

may be imposed on your home by the equity

purchaser (or at the request of the equity

purchaser) until the cancellation period has

expired. Further, the homeowner is not to receive

any consideration for their equity until the

cancellation period expires. If the homeowner

elects to cancel, the original contract or any other document (instrument)

the homeowner signed must be returned to the homeowner without any

condition being imposed by the equity purchaser.

When the homeowner elects to cancel, the homeowner is to detach,

complete and deliver the document entitled Notice of Cancellation,

which must include the date the equity seller executed the contract. The

homeowner must cause the Notice of Cancellation to be delivered to the

equity purchaser.

Equity purchasers also are prohibited from making untrue or misleading

statements regarding the market value of your home, the amount of net

proceeds you will likely receive (if any) after the sale, any contractual term

(including your rights or obligations incident to or arising out of the

proposed purchase and sale transaction), the nature of any document

(instrument) which the equity purchaser requests or induces you to sign,

or any other issue relating to the sale of the home. It is unlawful for any

person (including an equity purchaser) to initiate, enter into, negotiate,

or complete any purchase or sale transaction involving a home in

foreclosure (subject to an active NOD), if such person, by the terms of

such transaction, takes unconscionable (inappropriate and unacceptable)

advantage of you.

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 37 6/18/2021 6:06:43 PM

As part of the proposed purchase and sales transaction, some equity

purchasers will offer you the opportunity (an option) to repurchase your

home at some future date. The equity purchaser will demand that title to

the property be conveyed (transferred) to the purchaser but that you

may stay in occupancy as a tenant and at a future time exercise an

option to repurchase. Such purchase and sales transactions are presumed

to be a mortgage loan rather than a sale of the home, unless the equity

purchaser can prove otherwise (which will be difficult to do), and should

not be agreed to without the advice of an attorney.

Applicable California law is intended to protect you from unethical and

unscrupulous equity purchasers who are acquiring your home when it

is subject to an active NOD. Even if your home is not subject to an active

NOD, you may need protection when considering a purchase and sales

transaction with a buyer seeking to purchase the equity in your home. As

you can see from this brief discussion, the law is complex and

homeowners would benefit from the advice of an attorney prior to

proceeding with these contemplated transactions.

Selling Your Equity - Quick Tips

•

Whether selling your home to an equity purchaser, or a buyer to

occupy, hiring a licensed real estate broker to solicit for buyers and

to perform other services requiring a license can be helpful.

•

Without professional advice, you may be uninformed about the fair

market value of your home – this could expose you to unethical

business practices.

•

A real estate broker (active in your neighborhood and community)

or an independent fee appraiser can assist you in estimating the

current fair market value of your home.

•

In California, licensed public escrows, title insurance companies, and

underwritten title companies, among others who either are licensed

or expressly exempt from licensing, are authorized to perform

escrow services. These services include paying off your

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 38 6/18/2021 6:06:43 PM

existing lender as part of the purchase and sales transaction. Avoid

private transactions where a request/demand is made by the buyer

for you to sign papers in exchange for a cash payment (particularly

without the use of an independent, third-party escrow agent).

•

Unethical persons often attempt to persuade homeowners to

complete informal transactions which provide “instant cash” or will

offer to buy the homeowner’s equity using what the buyer describes

as a “contract of sale,” or an “installment land contract of sale.” This

transaction could ultimately result in financial and legal grief.

Transactions for cash to purchase your home by a buyer (including an

entity, often a LLC or a corporation) in the business of acquiring

homes in foreclosure also require advance review by your real estate

attorney. Advice from an attorney is recommended before entering

into a “contract of sale” (a contract where title remains in your

name and the deed is delivered at some later date to the

buyer/purchaser).

•

In typical purchase and sales transactions, the buyer will intend to

reside in the property. Your real estate broker needs time to find such

a buyer for your home. Begin the marketing of your home as early as

possible. You should keep your monthly mortgage loan payments

current during this period.

•

As long as this transaction involves a complete payoff to your lender

or its servicing agent of your mortgage loan, it is not a short sale. The

prior permission of the lender or its servicing agent is not necessary.

A prepayment penalty may be part of the terms of your mortgage

loan resulting in an extra fee if you pay off your mortgage loan early.

You can attempt to negotiate with your lender or its servicing agent

to waive this fee. Some prepayment penalties are contrary to

applicable law, and a real estate attorney can assist you in this

situation.

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 39 6/18/2021 6:06:43 PM

Rent Your Home

Sometimes homeowners choose to move to another less expensive

residence (like an apartment or a smaller home) and rent their home to

a third party. The rental income combined with the cost savings on the

new residence may be enough to keep mortgage loan payments current.

When the real estate market improves, these homeowners can return to

or sell their home.

This option can be effective even when there is a negative cash flow (the

rental income from your former home might be less than its monthly

mortgage loan payment), especially if the home is well located, in good

condition, and likely to rise in market value (as the real estate market

generally does improve over time, when taking into consideration long

sample periods).

Renting Out - Quick Tips

•

Renting your home requires some knowledge of

property management. This knowledge includes

using required documentation and

understanding how to obtain credit standing and

personal references on tenant applicants. You

should contact a licensed real estate broker

specializing in managing home rentals.

•

You should interview real estate brokers with property management

experience in your neighborhood and community.

•

You should check the Department of Real Estate’s (DRE) website to

learn of the license status of the real estate brokers you are

considering. Go to www.dre.ca.gov

, and then click on the link to

“Verify a Real Estate License.”

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 40 6/18/2021 6:06:43 PM

•

When searching for another place to live, consider living reasonably

close to the home you rent out. This makes personal management of

your home much easier (e.g., maintaining your yard, collecting rent,

hiring workers or contractors to maintain or repair your home).

Share the Cost with a Boarder

Depending on the floor plan of your home and its amenities, consider

renting a part of your home to earn extra income. This income might be

enough to keep your mortgage loan payment from becoming delinquent.

Even if the extra income is not quite enough, the fact that you have a

boarder will be helpful when showing your lender or its servicing agent

how serious you are about saving your home and might encourage your

lender or its servicing agent to extend concessions to you.

Sharing the Cost - Quick Tips

•

Make sure the zoning, and the conditions, covenants, and restrictions

(“CC&R’s”) in your community allow boarders, or you may be subject

to enforcement actions by your local government or your

homeowner’s association.

•

Renting space in your own home to a stranger should be carefully

considered. You will need documentation and the help of a real

estate attorney who is knowledgeable in residential leases or

occupancy agreements.

Offer a “Deed-in-Lieu” to Your Lender Rather Than Proceed with a

Foreclosure Sale

lso known as a “friendly foreclosure,” a deed-in-lieu takes place when a

homeowner voluntarily gives the foreclosing lender or its servicing agent a

deed to the home. This transaction may include, but does not necessarily

require, moving out of your home. A deed-in- lieu provides the lender

ownership without the delay and expense of a foreclosure sale.

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 41 6/18/2021 6:06:43 PM

Homeowners may benefit from this alternative as a deed-in-lieu

transaction may carry less credit stigma than a foreclosure or a short sale,

and the lender or its servicing agent may respond to a proactive

homeowner with a cash payment to assist in relocating. While some

lenders will not report a deed-in-lieu transaction, this instrument when

recorded will be reported as part of the record unlike a deed to convey

title in a transaction resulting in a short sale. If a short sale is reported by

your lender or its servicing agent to a national credit repository, a

negative impact on your credit rating may result.

Certain lenders or their servicing agents will not accept a deed-in- lieu

if other liens or claims exist against your home. A foreclosure sale

typically creates a “clean” title extinguishing other claims and liens

recorded junior to your mortgage loan while a deed-in-lieu will not.

Lenders or their servicing agents rely on title company records and title

insurance coverage to protect against other liens or claims. Obtaining

title insurance coverage may result in lenders or their servicing agents

accepting a deed-in-lieu. The lender owns your home after recording the

deed-in-lieu and, as with a typical sale, a short sale, or a foreclosure sale,

you must move out, unless you become the tenant of the lender or new

owner.

Understanding the Homeowner Bill of Rights

The “Homeowner’s Bill of Rights” (HBOR)

applies to owner occupants and

some landlords who do not own more than three residential properties who’s tenant

is unable to pay rent due to a reduction in income resulting from the novel

coronavirus. The provisions that protects landords expire on January 1, 2023.

HBOR

does not apply to junior liens and encumbrances (mortgage loans

recorded in junior priority) and does not apply to mortgage loans

specifically exempted therefrom such as home equity lines of credit

(HELOCs). Importantly, several sections of this law refer to “residential

real property consisting of no more than four dwelling units” and,

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 42 6/18/2021 6:06:43 PM

therefore, some of the provisions of HBOR may not be limited to

owner-occupied units/real properties. This booklet cannot describe this

entire law consisting of at least 20 statutes and various sections in the

California Civil Code, but highlights the following features about which

you, as a homeowner, should be aware:

•

HBOR distinguishes between regulated/licensed lenders or their

servicing agents who conduct 175 or fewer residential mortgage

foreclosures per year in California (“Smaller Residential Mortgage

Lenders”) from other lenders (“Larger Residential Mortgage

Lenders”) for the purpose of reports to be filed with their respective

regulators. Available foreclosure options or alternatives may be

limited when Smaller Residential Mortgage Lenders or their servicing

agents are conducting the foreclosure.

•

You must be afforded the right to explore any available alternative or

option to foreclosure with your lender or its servicing agent before

a California non-judicial foreclosure can begin and be completed (if

you are in default on your mortgage loan).

•

The burden of compliance falls on the lender or it servicing agent,

or persons who are responsible for interacting with you including

the current holder of the promissory note and deed of trust.

•

You have no indelible right to a foreclosure prevention option, but

must be afforded the opportunity to explore available alternatives

to non-judicial foreclosure.

•

HBOR applies only to mortgage loans for consumer purposes

(residential mortgage loans recorded in first priority against your

home) whether secured by a single family residential structure or

secured by one-to-four residential units, one of which is occupied

by you (with certain complex exceptions not addressed in this

booklet).

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 43 6/18/2021 6:06:43 PM

•

No person (or entity) is authorized to record a NOD until a minimum

of 30 days after (a) initial contact is made with you to assess your

financial situation and explore alternatives or options for foreclosure

avoidance, or (b) the due diligence requirements for locating you

have been met with no response from you. A declaration of

compliance with either (a) or (b) must be attached to the NOD.

•

“Dual tracking” is prohibited. Lenders or their servicing agents may

not record either the NOD or NOS and may not conduct a non-

judicial foreclosure sale while a“complete” application is pending for

modification of your mortgage loan, during any applicable appeal

period following initial denial of your application, or while you are

in compliance with an approved loan modification agreement.

•

“Robosigning” refers to the practice of signing documents without

personal knowledge of the accuracy of their contents and is

prohibited. Lenders or their servicing agents have hired third-party

document processing companies to sign foreclosure documents

even when the employees of these companies lacked any personal

knowledge of the statements contained therein.

•

You must be provided with a “single point of contact.”

•

No application, processing, or other fees for establishing a

foreclosure prevention alternative or option can be assessed in

connection with your mortgage loan recorded in first priority.

•

While a foreclosure prevention alternative or option is being

considered, or a denial of your application for modification is being

appealed, the lender or its servicing agent cannot collect late fees.

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 44 6/18/2021 6:06:43 PM

•

A non-judicial foreclosure may not be initiated other than by the

lender or its servicing agent. This requirement is not limited to

consumer loans.

•

When accomplishing a foreclosure prevention alternative, you must

receive new disclosures and notices required under applicable

federal and state law and are entitled to copies of the promissory

note and deed of trust, the payment history, and documents

evidencing the modification or restructuring of your mortgage loan

terms.

•

HBOR affords a private right of action. You may be able to seek a

court injunction for a material violation of this law up and until a

non-judicial foreclosure sale is completed. You may ask the court

for the payment of your attorney’s fees. Lenders or their servicing

agents may move to dissolve the injunction based on an adequate

showing the material violation of this law has been corrected and

remedied. Post foreclosure sale rights to recover actual damages

arising out of violations of this law include recovery of attorneys’

fees which can be assessed by the court against the lender and its

servicing agent.

•

When a foreclosure alternative or option has been achieved, no NOD

may be recorded and, if achieved subsequent to such recording, then

the NOD must be rescinded. If a NOS has been recorded, it must be

cancelled.

•

Violations of HBOR are deemed to be a violation of the lender’s or its

servicing agent’s licensing laws. Real estate brokers who violate this

law are also in violation of the Real Estate Law.

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 45 6/18/2021 6:06:43 PM

Servicing agents, also identified as mortgage servicers, are required to

implement the procedures of HBOR and the benefits of foreclosure

prevention alternatives or options to foreclosures to successors in

interest of decedents who were borrowers of the loan in default. This

requirement is triggered upon the servicing agent’s receipt of notice of

the death of borrower from a person claiming to be an eligible successor

in interest and must be (a) the spouse, domestic partner, joint tenant,

parent, grandparent, adult child, adult grandchild or adult sibling of the

decedent, and (b) have occupied the property as their principal residence

for the last six continuous months (at the time of death of the decedent).

The ability of a person to qualify as a successor in interest is dependent

upon the limitations imposed upon lenders when exercising the due- on-

sale clauses under the federal Garn St. Germain Act (the Federal

Depository Institutions Act of 1982).

The exercise of due-on-sale clauses is prohibited when transfers of title

or any interest therein to the security property occurs to certain

successors in interest of the decedent: (i) joint tenant or tenant by the

entirety, (ii) surviving spouse or children, or (iii) relative.

Extending the procedures and benefits of HBOR to qualifying successors

in interest do not apply to state or federally chartered depository

institutions, mortgage bankers, finance lenders, and real estate brokers

that foreclosed on 175 or fewer residential real properties consisting of

one-to-four dwelling units located in California during the immediately

preceding annual reporting period.

Servicing agents collectively servicing loans for one or more of the

exempt lenders which in the aggregate foreclosed on more than 175

qualifying loans during the immediately preceding annual reporting

period, would be subject to complying with HBOR. Accordingly, such

servicing agents are required to apply the benefits and protections of

HBOR regardless of the number of qualifying foreclosures conducted

by any one exempt lender during the immediately preceding annual

reporting period.

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 46 6/18/2021 6:06:43 PM

When all Else Fails: Moving Forward with Foreclosure

Should no acceptable solution be achieved for your mortgage loan

situation, a foreclosure may be inevitable. The non-judicial foreclosure

procedure includes six events (as previously discussed) designed to

balance your needs (enough time to reinstate or cure your mortgage

loan defaults by paying your past-due payments and late fees or, if

necessary, consider your future plans to find a new residence where to

relocate when vacating your home is required).

The non-judicial foreclosure procedure provides a remedy to your

lender to collect by directing your home be sold through California

procedural law which provides sufficient time to ensure the highest

possible price is received through a properly published and noticed,

publically-conducted, but privately-held foreclosure sale.

From the time you miss a single mortgage loan payment, you should

begin negotiating a modification or restructuring (pursuing a foreclosure

prevention alternative or option) of your mortgage loan terms with your

lender or its servicing agent. You should continue negotiating with your

lender even after the lender or its servicing agent directs the trustee to

prepare and record the NOD. You will have a minimum of three months

to accomplish one of the alternatives or options to foreclosure discussed

in this booklet before the recording of a NOS.

The Foreclosure Procedure Guidelines

Excepting loans that are federally insured or indemnified (FHA or VA),

held by Fannie Mae or Freddie Mac, or by a federally regulated credit

union, some common procedures established by the Consumer Financial

Protection Bureau (CFPB) apply to foreclosures of federally related

residential mortgage loans (consumer loans) as follows:

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 47 6/18/2021 6:06:43 PM

•

By 36 days after a homeowner misses a payment or is unable pay

the full amount, the servicing agent must make a good faith effort

to establish contact by telephone or at an in-person meeting.

•

Servicing agents must contact borrowers every time they miss

payments.

•

If the borrower’s situation calls for it, the servicing agent must tell

the borrower about loan modification, or available workout

alternatives or options.

•

Before a borrower becomes 45 days delinquent, the servicing agent

must send a written notice to the borrower or borrower’s agent

encouraging the borrower to contact the servicing agent, providing

the phone number for the personnel assigned to the borrower,

providing the borrower examples of loss mitigation options the

servicing agent offers. The borrower must also receive information

about how to find a housing counselor (typically HUD approved).

•

A servicing agent may not cause either a NOD or the filing of a

judicial foreclosure to occur until the borrower is more than 120

days delinquent.

•

If a servicing agent receives a complete application for loss mitigation

options 45 days or more before a scheduled foreclosure sale, the

servicing agent must acknowledge receipt of the application in

writing and determine if the application is complete.

•

If a servicing agent receives a complete application 90 days or more

before a scheduled foreclosure sale, the servicing agent must give the

borrower at least 14 days to accept or reject an offer of a loss

mitigation option.

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 48 6/18/2021 6:06:44 PM

•

In addition, if a servicing agent receives a complete application 90

days or more before a scheduled foreclosure sale, the borrower may

appeal the denial for any loan modification. The borrower has 14 days

to file an appeal.

•

A complete application received by a servicing agent 37 days or

more before a scheduled foreclosure sale will be evaluated for loss

mitigation options available to the borrower. The servicing agent

must give the borrower written notice of the decision.

•

Once a NOS is recorded, the non-judicial foreclosure sale is

scheduled. A foreclosure trustee holds the privately-conducted and

publicly-held sale.

•

In a judicial foreclosure action, the sale will be scheduled by the court.

A court appointed official will conduct the foreclosure sale.

•

Most borrowers who lose their home to foreclosure have at least 30

days in which to pursue arranging a rental relationship with the buyer

at the foreclosure sale.

Throughout the foreclosure process, you should continue to negotiate

an acceptable mortgage loan solution with your lender or its servicing

agent. Remember, your lender or its servicing agent is required to contact

you or to make a good faith effort to contact you before proceeding

with recording the NOD or no later than prior to recording the NOS.

Your lender or its servicing agent should refer you to an independent

HUD-authorized homeowner counseling service.

At the end of a minimum initial three-month reinstatement or cure

period, the lender or its servicing agent is typically able to direct the

trustee to record and publish the NOS in a newspaper of general

circulation in the city, county, or judicial district where the foreclosure

sale is to be conducted. It will be several weeks between this point and

when the actual foreclosure sale occurs, as the publication must run

multiple times prior to the sale. (This is a required notice and procedural

delay.)

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 49 6/18/2021 6:06:44 PM

Following the 120 day delay required under Federal law prior to

proceeding with a foreclosure, you will typically have a minimum of four

months, and potentially up to five or six months, to move out of your

home (if your lender or its servicing agent declines to negotiate a rental

arrangement with you, to modify or restructure your mortgage loan, or

to engage with you in a foreclosure prevention alternative or option).

The Foreclosure Procedure – Revisited

Homeowner Activities You Should Accomplish:

•

Contact your lender or its servicing agent – the sooner, the better.

The sooner you make contact, the stronger your negotiating

position. You are in the best negotiating position when you make

contact before you miss a single mortgage loan payment.

•

Ask to negotiate a plan to avoid foreclosure.

•

Work with your lender or its servicing agent to negotiate alternative

or optional mortgage loan terms that are acceptable to both parties.

•

Pay attention to any contact (mail or telephone calls) from your

lender or its servicing agent.

•

Review alternatives or options available to you to avoid the

foreclosure sale.

•

Consider making plans to move out of your home after the

foreclosure sale is conducted and the eviction process is concluded

(if neither the foreclosure sale can be avoided nor a tenant

relationship established).

•

Your obligation to move occurs after the completion of the eviction

process. The eviction process may be avoided should you be able to

establish a tenant relationship with the new owner of your home or,

in the absence of a successful third-party bidder, with the lender or

its servicing agent.

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 50 6/18/2021 6:06:44 PM

•

As part of the eviction process, the court may require you to pay

court costs and attorney fees. You are obligated to move from and

vacate your home when the eviction process is completed and you

are served with a notice of the eviction.

•

While some homeowners have successfully filed bankruptcy and

asserted a right to possession of the home even after the non- judicial

foreclosure process is completed, they may still be served with a

notice of eviction. Many bankruptcy courts do not recognize the

homeowner’s right of possession after foreclosure. You can be

sanctioned or otherwise required to pay costs and attorneys’ fees of

the new owner of the home (or the lender or its servicing agent)

should you still refuse to vacate.

•

Remember your lender or its servicing agent may have an incentive

to arrive at a modified or restructured mortgage loan payment. Stay

proactive in your efforts.

Activities Your Lender or its Servicing Agent Should Accomplish:

•

Contact the homeowner a minimum of 30 days before proceeding

with the foreclosure remedy to discuss the nature of the mortgage

loan situation.

•

Be sure the consumer loan is at least 120 days delinquent before

recording a NOD.

•

Work with the homeowner from the outset to negotiate alternative

or optional mortgage loan terms (modification or restructuring of the

mortgage loan).

•

Notify the homeowner of the right to a meeting with you as the

lender or servicing agent (if one did not take place before the NOD

was recorded). The homeowner also has the right to a follow-up

meeting within two weeks after the first meeting with the lender or

its servicing agent to keep the discussions active.

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 51 6/18/2021 6:06:44 PM

•

Give the homeowner specific information about how to contact the

U.S

. Department of Housing and Urban Development (HUD), which

will assist the homeowner in finding a HUD-certified loan/credit

counseling service, attorney, or other authorized agent to negotiate

on the homeowner’s behalf. In other words, tell the homeowner

that the homeowner can receive free professional counseling or

assistance through a HUD-authorized counseling service.

•

Continue to work with the homeowner to negotiate a plan to avoid

foreclosure. The lender or its servicing agent must contact the

homeowner and discuss foreclosure prevention alternatives or

options before the foreclosure sale can take place (unless a

demonstrated good faith effort to contact the homeowner proves to

be unsuccessful).

•

Direct the trustee to post on the security property and publish the

NOS in an authorized newspaper of general circulation in the city,

county, or judicial district where the homeowner’s property is

located. Send a copy of the NOS by certified postage prepaid U.S.

mail.

•

The NOS must be completed in English, Spanish, Korean, Chinese,

Vietnamese, or Tagalog, depending upon which language the

mortgage loan was negotiated at the time of its origination.

•

Direct the trustee to “cry” the foreclosure sale, i.e., sell the property

t a publicly-held sale, and to perform any activities necessary to

properly conduct the foreclosure sale. The bidding procedure

required by the lender or its servicing agent must be consistent

with applicable law.

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 52 6/18/2021 6:06:44 PM

General Information

uring the minimum three-month cure or reinstatement period, you may

continue living in your home even though you are unable to make your

monthly mortgage loan payments. You do not have to move from your

home until after the foreclosure sale is conducted and the eviction

process is completed. It may be beneficial to stay in occupancy of your

home to avoid any loss of property insurance coverage or to prevent

vandalism that may occur if you move out.

Should you be a borrower under a FHA loan or a veteran under a VA loan,

federal law establishes extended grace periods. FHA borrowers should

contact HUD/FHA and veterans should contact the U.S. Department of

Veterans Affairs for the latest homeowner safeguards so that you and

your lender or its servicing agent are aware of and comply with this

special set of guidelines.

The free counseling assistance through HUD-approved counseling

services may involve your authorization of a person to negotiate on

your behalf with your lender or its servicing agent. You will need to

provide enough financial information to your HUD-certified loan/credit

counseling service (or to your lender or its servicing agent if you are

negotiating personally) so they can verify a monthly mortgage loan

payment that you can reasonably afford.

If you and your lender or its servicing agent cannot agree on an

alternative or optional plan to avoid foreclosure before the end of the

minimum three-month reinstatement period, the lender or its servicing

agent will move forward -subject to rare exception- with the non-judicial

foreclosure procedure (unless otherwise delayed by the operation of

federal or state law).

Some lenders or their servicing agents are willing to pay “cash for keys”

to obtain possession after the foreclosure sale has been conducted.

Although lenders or their servicing agents are not required to make these

payments, you can still ask for them.

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 53 6/18/2021 6:06:44 PM

Many homeowners subject to a non-judicial foreclosure sale may fail to

address two aspects of the sale which warrant further review:

•

Resolving “junior” claims/liens against your home and

•

Determining what happens to the net sale proceeds, if any, when the

amount of the sale proceeds exceed your unpaid mortgage loan

(referred to as a surplus).

Resolving “junior” claims/liens against your home

One legal effect of a foreclosure sale is to extinguish (remove) “junior”

claims/liens against your home. Foreclosure sales cause liens against

the property to be extinguished, but your obligation to pay the

indebtedness underlying subordinate liens that are wiped out may

continue to exist for (1) non-purchase money loans and (2) other

obligations arising from an abstract of judgment or consensual lien not

specific to the property. This is true because while the security is gone,

the underlying obligation or contract to pay a debt still exists, even if no

longer secured by the property.

When foreclosing purchase money loan obligations, the foreclosure

extinguishes both the debt and the lien. Purchase money loan status

is established when you purchase a home that you intend to occupy

and obtain a loan or loans, whether “senior” or “junior” in recording

priority. This is true even if you first obtained one loan when you

bought the property and then refinanced that loan later and received

no new loan funds. Under current California law, the refinanced loan is

still a purchase money loan for deficiency judgment purposes except

for the new funds added to the original loan.

Any other loans you might have obtained (“junior” claims/liens), for

example, to put in a swimming pool, are non-purchase money loans.

When the lender or its servicing agent of the “senior” mortgage loan

forecloses through a non-judicial foreclosure, “junior” loans (whether

purchase money or non-purchase money loans)

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 54 6/18/2021 6:06:44 PM

are removed from the title of your home. This way, the new owner or the

lender or its servicing agent (in the absence of a successful third-party

bidder) acquires the title of your home free and clear of any “junior” loans

(claims/liens) you may have created or suffered.

When your home in foreclosure is subject to secondary or “junior” non-

purchase money loans or judgment claims/liens, you should consult an

attorney or an authorized loan/credit counseling service to determine the

best way to handle these debts.

When the lender or its servicing agent elects to pursue a judicial

foreclosure, it is generally because your “senior” mortgage loan is a

non-purchase money loan, or you refinanced a purchase money loan

and obtained additional new loan funds from the lender.

If your lender or its servicing agent start a judicial foreclosure, you will

should consult with an attorney familiar with federal and state

foreclosure law. This is important because predicate steps are required

to be performed of a lender or its servicing agent prior to your home

being sold at a judicial foreclosure sale. It is also important if your home

sells for less than you owe on your non-purchase money loan loan.

The difference is known as a deficiency in the form of a money

judgment for which you may be personally liable.

What Happens to Sale Proceeds

The proceeds of most foreclosure sales do not cover the unpaid principal

amount of the mortgage loan. If the sale proceeds do exceed your

mortgage loan debt (including foreclosure expenses), you are to receive

the difference (surplus). While this is a rare occurrence, particularly if

home values are in decline, you should monitor the foreclosure sale to

ensure you learn about, demand, and ultimately receive the net proceeds

or surplus funds.

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 55 6/18/2021 6:06:44 PM

The Actual Foreclosure Sale

This event will occur at the time on the day at the location noticed for the

scheduled foreclosure sale or the date of the postponed sale. It is a

privately-conducted, publicly-held sale. This is called“crying” the sale (as

in an auction). In a judicial foreclosure, the day and location of the sale

will be determined by the court.

Homeowners: What Not To Do

Losing your home through foreclosure is a traumatic experience that

usually occurs at a time when you may be facing significant financial,

physical, or psychological stress.

While some homeowners choose to “walk away” from (abandon) or trash

their homes in the face of foreclosure, it is important to realize that these

actions carry potentially significant legal consequences.

Walk Away from (Abandon) the Home

A homeowner can stop making their mortgage loan payments and

abandon their home. This plan is usually unsuccessful in the long-run. If

you “walk away” from your home, you essentially abandon the property

and your mortgage loan. Once your consumer loan is delinquent by

120 days or more, your lender or its servicing agent may begin the

foreclosure process and you may not be off the hook.

•

If your home loan is a non-purchase money loan (e.g., if it is a

refinance loan with new principal advanced or a vacation home

loan which is not your principle residence) you are not necessarily

protected against future liability. If you “walk away” from this type

of loan, you can be held liable for the lender’s losses following a

judicial foreclosure sale, including court costs and attorney fees.

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 56 6/18/2021 6:06:44 PM

•

If you purchased your home on speculation (hoping to resell the

home for a higher price) and have not occupied the property, the

loan you obtained to purchase the property is a non-purchase

money loan. If your lender or its servicing agent elects a judicial

foreclosure sale, you may remain personally liable for any deficiency

in the form of a money judgment at the time of the foreclosure sale.

•

If you “walk away” from your home, you are still liable for any non-

purchase money loans that are secondary or “junior” loans

(claims/liens). Foreclosure sales do not extinguish these debts and

your creditors can seek court judgments against you. In these cases,

a “junior” lender holding a non-purchase money loan (a “sold out

junior”) may sue in court to obtain a judgment for its losses, as well

as court costs and attorney fees.

•

Federal laws control federally-insured (FHA) loans, federally-

indemnified (VA) loans, and loans that are sold to Fannie Mae or

Freddie Mac. FHA and VA lenders holding such mortgages typically

file claims for the insurance or indemnification coverage. HUD/FHA

or VA may be able to pursue you for any losses they suffer following

a foreclosure sale and the payment of the proceeds of their coverage

delivered to your lender. Additional consequences may be imposed

upon veteran homeowners.

Laws pertaining to “walk away” homeowners are complicated and no

person should “walk away” from the home and mortgage loan without

seeking the advice from an attorney familiar with federal and state

foreclosure laws.

A common “walk away” situation occurs through the dissolution of a

union or marriage. In most families, both spouses sign the mortgage

loan documents for their home. If the couple becomes separated and a

properly-constructed property settlement agreement is not established

providing for funding of the mortgage loan payments, neither spouse

may individually be able to afford the loan payments and the spouse

no longer occupying the home may “walk away” potentially leaving the

other to shoulder the financial burden.

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 57 6/18/2021 6:06:44 PM

Should a non-judicial foreclosure sale occur because of dissolution of

union or marriage and both spouses signed the original mortgage loan

documents:

•

Each spouse may be required to vacate the home after the eviction

rocess is completed.

•

Each spouse may experience a loss in credit rating.

•

Each spouse may experience an impairment of the ability to secure

ew mortgage loans for at least five and perhaps as long as seve

ars.

issolution of a union or marriage does not automatically erase the name

of either spouse from their mortgage loan or from the consequences of

a potential foreclosure. Lenders or their servicing agents are unlikely to

voluntarily “remove” one spouse from the mortgage loan before the

foreclosure sale simply to preserve that person’s credit rating.

Trash the Home

Your home is collateral for repayment of your mortgage loan. Its value is

the ultimate source of repayment and should not be impaired by your

intentional or unintentional behavior.

Deliberate damage to your home is one form of “waste.” If serious

damage occurs, you may be prosecuted for a crime and you may be sued

for damages. Arson (the deliberate destruction of a home by fire) is the

most egregious example of waste.

No matter what circumstances bring a homeowner to the point of

foreclosure, no justification exists for that homeowner to retaliate

against a lender or its servicing agent by damaging the home.

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 58 6/18/2021 6:06:44 PM

Bankruptcy

oreclosure is not personal. Lenders are simply protecting their interests.

If you seriously damage your home before the foreclosure sale, you can

be held liable and have a money judgment entered against you which

can survive for decades. Bankruptcy usually does not remove this kind

of money judgment. Over the life of the judgment, the money damages

will be subject to accruing interest, and the creditor may pursue a

variety of collection proceedings, including taking a part of your

wages.

While your lender may elect not to sue you for physical damages (waste),

trashing your home is an ill-advised risk. Even if your lender chooses not

to pursue a claim for damages in the form of a money judgment, your

lender or its servicing agent can notify the district attorney and ask that

criminal proceedings against you be considered by that office. Also, the

successful new owner, who purchases your home typically “as is” at the

foreclosure sale, can also notify the district attorney or bring a civil action

against you for intentional damages to the home.

Most homeowners do not intentionally damage the security property by,

for example, ripping out walls, breaking pipes, tearing holes, removing

plumbing or electrical fixtures, or damaging exterior walls and roof

coverings. When any one or more of the foregoing occur, however,

disputes will likely follow among the new owner or, in the absence of a

successful third-party bidder, the lender and its servicing agent, and the

homeowner for intentional damages done to the home. The disputes

may lead to significant legal consequences.

The most common disputes are those over what items were removed.

Homeowners may remove personal property but not what became a

fixture to the home and, therefore, constitutes real property. Things that

are plugged in, and can be unplugged from water, gas, or electrical

services without damage, are generally personal property. Things that

are bolted down or connected by more than a water line, gas

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 59 6/18/2021 6:06:44 PM

line, or electrical outlets will typically be included in the definition of real

property. For example, refrigerators, washers, dryers, and coffee

machines are usually personal property. Exhaust vents, cooktops, built-in

intercom or speaker systems, and security alarm systems are commonly

treated as real property.

But more complex situations do arise. For example, should you have

an heirloom chandelier (brought from another continent by your

grandparents when immigrating to the United States) and the

chandelier was installed in the dining room, if removed and replaced

with another acceptable light fixture with any damage to ceiling painted

surfaces being repaired, the heirloom chandelier will likely be construed

as personal property. On the other hand, if you installed an expensive

steam shower and you simply don’t want to leave the equipment

behind so you tear it out, the shower is likely to be considered a built-in

or attached fixture and you could be prosecuted both criminally and

civilly for the intentional damage to the home.

Post-Foreclosure Option for the Former Homeowner

Bankruptcy can also be a pre- or post-foreclosure option for the

homeowner. You are entitled to file a petition in bankruptcy under the

applicable chapters of the U. S. Bankruptcy Code. Bankruptcy is an option

for homeowners who are hopelessly in debt and meet the definition of

being insolvent under the Bankruptcy Code. If the homeowner qualifies,

then the homeowner may use this method to sell the home under court

supervision.

The bankruptcy option may be pursued either before or after the

foreclosure sale. However, post-foreclosure petitions in bankruptcy filed

by the homeowner may be limited to assets other than the former home,

particularly when the homeowner no longer has or is entitled to legal

possession of the property.

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 60 6/18/2021 6:06:44 PM

Different types of bankruptcies exist for different situations. Mortgage

loans are debts secured by real property. A bankruptcy court may convert

a mortgage loan in certain fact situations totally or partially to an

unsecured debt and, depending upon the fact situation, may be able to

modify or restructure the mortgage loan.

Despite that the promissory note and home mortgage loan instrument

(deed of trust) cannot be modified, altered, or otherwise changed during

any bankruptcy case, even a Chapter 13, homeowners may still file

petitions in bankruptcy and obtain the benefit of the automatic stay. The

traditional Chapter 13 plan offering repayment of pre-petition arrearages

on a mortgage loan over three to five years can provide some relief which

will allow you to achieve a much needed “fresh start.”

Some lenders or their servicing agents may voluntarily agree to

modifications of residential mortgage loans in bankruptcy cases

because they would rather have a performing loan on their books with

regular mortgage payments coming in rather than a defaulted loan for

which they must set aside reserves.

Bankruptcy after the foreclosure sale is a common practice because it may

allow you to discharge certain debts. If you are considering bankruptcy,

consult with an attorney familiar with federal bankruptcy law.

Many lenders will not loan money to homeowners who filed bankruptcy

petitions within the past seven years. Others may extend credit to

homeowners after five years following a petition in bankruptcy, and yet

other lenders following a discharge or dismissal from bankruptcy will

typically impose upon homeowners a substantially higher interest rate

and increase the loan fees to obtain a mortgage loan.

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 61 6/18/2021 6:06:44 PM

Conclusion

Now that you have a better understanding of the non-judicial foreclosure

procedure and the judicial foreclosure remedy (as well as possible

alternatives or options you as a homeowner may pursue to avoid

foreclosure), you should be prepared to negotiate with your lender or its

servicing agent and to take the initiative to protect your home from

foreclosure.

If you have become the victim of foreclosure or real estate fraud, or if you

become aware of such fraud, please file a complaint with DRE. If the

person or company is unlicensed and performing “licensed activities,”

DRE will file and serve an order to desist and refrain. If the person or

company is licensed and performing in violation of the Real Estate Law,

DRE will commence an investigation and proceed with the appropriate

disciplinary action. Please log on to www.dre.ca.gov.

The following section includes a list of resources, agencies, and

organizations where you can find additional information.

Remember, to successfully solve your mortgage loan situation, you

must be proactive, and that includes utilizing all available resources to

the best of your ability to the extent that they apply to your particular

situation.

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 62 6/18/2021 6:06:44 PM

Resources

FEDERAL GOVERNMENT AGENCIES

Federal Housing

Administration (FHA)

U.S. Department of Housing and Urban Development

451 7th Street SW

Washington, DC 20410

www.fha.gov

1-800-CALL-FHA or 1-800-225-5342

Federal Trade Commission

Consumer Response

Center (FTC)

600 Pennsylvania Avenue NW

Washington, DC 20580

www.ftc.gov

www.consumer.ftc.gov

1-877-FTC-HELP or 1-877-382-4357

Consumer Financial

Protection Bureau (CFPB)

P.O. Box 4503

Iowa City, Iowa 52244

Telephone (855) 411-2372

www.consumerfinance.gov

U.S. Department of

Housing and Urban

Development (HUD)

U.S. Department of Housing and Urban

Development

451 7th Street SW

Washington, DC 20410

www.hud.gov

1-800-569-4287

U.S. Department of Justice

U.S. Trustee Program

Credit Counseling

and Approved Credit

Counseling Agencies

www.justice.gov

(202) 514-4100

ust.cc.help@usdoj.gov

U.S. Department of

Veterans Affairs (VA)

810 Vermont Avenue NW

Washington, DC 20420

www.benefits.va.gov/homeloans/

1-877-827-3702

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 63 6/18/2021 6:06:44 PM

STATE GOVERNMENT AGENCIES

California Housing Finance

Agency (CalHFA)

500 Capitol Mall, Suite 1400

Sacramento, CA 95814

www.calhfa.ca.gov

1-877-9-CalHFA or 1-877-922-5432

State of California

Department of Financial

Protection and Innovation

https://dfpi.ca.gov/

1-866-275-2677

Ask.DFPI@dfpi.ca.gov

State of California

Department of Real Estate

651 Bannon Street, STE 500

Sacramento, CA 95811

www.dre.ca.gov

1-877-373-4542

NONPROFIT AGENCIES

Homeownership

Preservation Foundation

(HPF)

7645 Lyndale Avenue S. Suite 250

Minneapolis, MN 55423

www.995hope.org

1-888-995-HOPE or 1-888-995-4673

LawHelpCA.org

www.lawhelpcalifornia.org

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 64 6/18/2021 6:06:44 PM

Additional DRE Publications

The Department of Real Estate posts various consumer alerts and

publications on its website.

Consumer alerts such as “Fraud Warnings for California Homeowners”

and “What You Can Do to Protect Yourself from Getting Ripped Off

in Real Estate and Home Loan Relief Scams” can be found at

www.dre.ca.gov/Consumers/ConsumerAlerts.html

The following publications can be found at the DRE website at

www.dre.ca.gov/Publications:

•

Fraud Warnings for California Homeowners in Financial Distress

•

Loan Modification Self-Help Guide

•

Preventing Real Estate Fraud: How to Protect Yourself and Your

Home

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 65 6/18/2021 6:06:44 PM

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 66 6/18/2021 6:06:44 PM

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 67 6/18/2021 6:06:44 PM

RE 15/2020

Foreclosure Brochure (Version 6 pre printer)TESTpdf.pdf 68 6/18/2021 6:06:44 PM