As is the case in a number of other states, California law provides two methods through which a lender can foreclose on real property:
• Non-Judicial Foreclosure
• Judicial Foreclosure (via the state court system)
What differences exist between the two procedures? Does one have an advantage over the other?
Used more frequently than the alternative, non-judicial foreclosure can be utilized as long as the deed of trust securing the loan transaction contains a “power-of-sale” clause. Under the power of that clause, the trustee may – at the request of the owner of the note and deed of trust, and after a default by the borrower – sell the real estate to pay off the balance of the loan. Usually, the default is a failure to pay the monthly installments due under the terms of the note that is secured by the deed of trust. Default can occur due to other circumstances, however. Ordinarily, if the borrower has failed to pay designated taxes or has failed to insure the property, that constitutes default and could result in a non-judicial foreclosure.
If the mortgage or deed of trust does not contain a power-of-sale clause or if, for other reasons, the note holder determines that a non-judicial foreclosure is not advisable, it can proceed against the borrower in a judicial foreclosure. As is implied in the procedures name, this type of foreclosure involves the filing of a lawsuit against the borrower alleging the original debt, the default on the part of the borrower, and a “prayer” that order be issued requiring the sale of the real estate for the benefit of the lender.
Which Procedure is Favored?
There are many more non-judicial foreclosures than foreclosures that proceed through the courts. One reason, of course, is that virtually all deeds of trust contain power-of-sale clauses. While non-judicial foreclosures in California can appear to move at the speed of an overweight tortoise, they are actually much quicker than judicial foreclosures. Non-judicial foreclosures have one particular disadvantage: The lender gives up the right to any deficiency judgment against the borrower if the property is worth less than the outstanding debt. Most lenders give up that right to save the time. After all, what good is a deficiency judgment against a borrower who has so little that he or she (or they) cannot afford the monthly installments to save the residence?
Judicial foreclosures have one significant disadvantage themselves: “The right of redemption.” For a period of one year after the judicial foreclosure sale, the borrower has the right to buy the real estate back. Again, the chances of that happening are slim. If the borrower could get the kind of funds to repurchase the real estate within one year, the borrower would likely have been able to avoid the foreclosure in the first place.
Expert Legal Counsel is Key to Foreclosure Processes
Whether a lender chooses the non-judicial or the judicial route for foreclosure, it is advisable to retain the services of an experienced, competent attorney who is skilled in real estate law. For years now, CKB VENNA LLP has represented lenders, mortgage companies, mortgage servicers, and others in foreclosures and other types of real estate disputes. Our team understands the complexity of the issues and stands ready to represent you aggressively. We have offices in Rancho Cucamonga, San Bernardino, and Los Angeles. Contact us by telephone – 909-980-1040 – or complete our online form.