Options When a California Foreclosure Has Started

Work backwards from the sale date

Every option has a deadline and they do not all arrive at the end. The most useful thing an owner can do on receiving a notice of default is write down the sale date, then the reinstatement cut-off five business days before it, and plan against those two dates.

Most of the bad outcomes we see come from acting in the last fortnight, when the only remaining options are the expensive ones.

Reinstating

Curing the arrears plus costs restores the loan and stops the process. It is the cleanest exit and the one with the earliest deadline. The trustee provides a reinstatement figure on request, and it is worth obtaining early even if the money is not yet in place, because it converts an unknown into a number.

Selling before the sale

Where there is equity, selling is usually better than being foreclosed on, because the owner captures the equity rather than losing the difference between market value and auction price. The constraint is time: a sale takes longer than most owners have left by the time they act.

Where the balance exceeds the value, a short sale requires the lender's agreement and takes longer again. It is worth starting early or not at all.

Challenging the foreclosure

Some foreclosures have defects: notices not served as required, the entity foreclosing not holding what it claims to hold, a payment history that does not support the default alleged, or a modification that was agreed and then ignored.

Where a real defect exists this is a route. Where it does not, litigation buys weeks at significant cost and the sale still happens, and we will say so rather than take the case.

What we do not do

Our firm does not offer loan modification, forbearance negotiation or foreclosure rescue services, and our firm does not accept advance fees for those services. Civil Code section 2944.7 separately applies to compensation for arranging or attempting to arrange a loan modification or other form of mortgage-loan forbearance involving a mortgage or deed of trust secured by residential real property containing four or fewer dwelling units.

Homeowners in default receive a great deal of contact from people who do charge those fees. A request for money up front to deal with your lender is the signal to stop and check who you are talking to.

What each option realistically requires

Reinstatement: the arrears plus fees and costs, in certified funds, before the cut-off five business days ahead of the sale. Request the reinstatement figure from the trustee early, because it is larger than the missed payments and knowing the number changes what is possible.

Payoff: the entire balance. In practice this means a refinance or a sale, and both need to be started weeks before they are needed.

Sale with equity: usually the best outcome where equity exists, because it captures the value rather than losing the gap between market price and auction price. Requires enough time to market and close.

Short sale: requires the lender's approval, which takes time the process may not allow. Start early or not at all.

Challenging the foreclosure: only where a genuine defect exists.

The equity question decides everything

Before choosing, establish whether there is equity. Obtain the payoff figure and a realistic view of value, not an optimistic one.

With meaningful equity, the priority is time, because almost any orderly disposal beats a trustee's sale. Selling, refinancing or borrowing against the equity are all better outcomes and all need runway.

Without equity, the priority shifts to what remains owed afterwards, which turns on the anti-deficiency position under sections 580b and 580d and on whether anyone guaranteed the loan. In many cases the answer is that a nonjudicial sale ends the exposure, which is worth knowing because it changes how much fighting is rational.

Recognizing the operators

Homeowners in default are heavily targeted, because notices of default are public record. The pattern is consistent: an approach shortly after the notice is recorded, an assurance the sale can be stopped, and a request for money in advance.

Civil Code section 2944.7 applies to a mortgage or deed of trust secured by residential real property containing four or fewer dwelling units. It prohibits charging or collecting compensation for arranging or attempting to arrange a loan modification or other form of mortgage-loan forbearance before the promised services are fully performed. Our firm separately does not offer those services.

Also treat with caution any proposal involving transferring title, adding someone to title, or renting your own home back. Those arrangements are how equity gets taken.

This article is general information about California law and is not legal advice for any specific situation. If you are dealing with this issue, the facts of your matter will change the analysis.