What is the difference between a judicial and a non-judicial foreclosure?
Most foreclosure sales take place outside of judicial proceedings. This is because many mortgage agreements contain a “power of sale” clause. A “power of sale” clause gives the lender the ability to sell the mortgaged property to satisfy the borrower’s debt if the borrower fails to make their contractual payments. This nonjudicial foreclosure process, however, must comply with strict statutory requirements regarding the timeline of a sale and notice procedures once the borrower defaults. (Civil Code § 2924.)
A lender may also initiate judicial proceedings to seek foreclosure on a defaulted property. In a judicial foreclosure, the lender is obligated to file a “notice of pendency” so that prospective buyers or other parties who become interested in the property are aware that the property has been subject to a foreclosure action. (Code of Civil Proc. § 405.25.) This notice is filed in the county where the property is located.
Until the court enters its judgment on foreclosure, the debtor is allowed, by statute, to pay the past-due amount and have the loan reinstated. (Civil Code § 2924c.) If the borrower is unable or unwilling to reinstate the loan, the court can order the sale of the property. (CCP § 726.)
How does a judicial foreclosure sale proceed?
Once the court enters an order instructing foreclosure – a “foreclosure decree” – the plaintiff (often the lender) must apply for the writ of sale with the clerk of the court. (CCP § 712.010.) The writ of sale is then “directed to the levying officer in the county where the judgment is to be enforced.” (Id.) Typically, the levying officer is the sheriff.
The sheriff is then required to record the writ of sale and give notice to the debtor and anyone occupying the foreclosure property. (CCP §§ 700.010 and 700.015.) At least 20 days before the property is sold, the debtor must be given the notice of sale in person or by certified mail. (CCP § 701.540.) Additionally, the notice of sale must be posted in a conspicuous location at the property, given to an occupant of the property when it is posted, and publicly posted in the city where the “property is to be sold.” (Id.) The notice must also be published “in a newspaper of general circulation” in the city where the property is located for three consecutive weeks. (Id.)
A sale pursued by a judicial foreclosure might be subject to redemption, which means after the court issues its foreclosure decree and even after the property is sold, the debtor has the right pay off their debt and “redeem” the property. (Civil Code § 2903; CCP § 729.010.) After the foreclosure decree has been issued but before the property is sold, the debtor may exercise their “equity of redemption.” (Civil Code § 2903; Wachovia Bank v. Lifetime Industries, Inc. (2006) 145 Cal.App.4th 1039, 1057.)
In some situations, the debtor has a right to redemption after the property is sold. This depends on whether a deficiency judgment is entered against the debtor during foreclosure proceedings. A deficiency judgment will be authorized if the foreclosure sale does not generate enough proceeds to cover the debtor’s unpaid balance so that the lender can personally recover the difference from the debtor. (CCP § 726(b).) The debtor has a post-sale right to redemption if the foreclosure decree authorizes a deficiency judgment. (CCP § 729.010(a).)
If the foreclosure decree does not authorize a deficiency judgment, the notice of sale cannot be posted or circulated until 120 days after the debtor is notified of the court-ordered property seizure. (CCP § 701.545.) This time frame gives the debtor an opportunity to collect funds so they can redeem the property before a sale goes through.
If the decree authorizes a deficiency judgment, the notice of sale can be posted and circulated without having to wait the 120 days. (CCP § 729.010(b)(2).)
The lender and debtor can both request, in writing, that the sale be postponed, which is then made effective by the sheriff’s public declaration of the postponement. (CCP § 701.580.) If the buyer cannot redeem the property by the time the redemption period expires and a sale goes through, the sheriff is required to distribute the proceeds to all lienholders in an order of priority specified by statute.
How does the buyer of a foreclosed property obtain title?
Once the sale occurs, the sheriff issues a deed of sale to the purchaser. (CCP § 701.660.) The sheriff must also record a copy of the deed in the county recorder’s office. This is called a “sheriff’s deed.” The sheriff’s deed must include: (1) the case number from the foreclosure judgment and the court in which it was made; (2) the date of the judgment; (3) the name and address of the lender and the name and the last known address of the debtor; (4) a description of the property; and (4) the date of the sale. (CCP § 701.670.)
The sheriff’s deed transfers the debtor’s interest in and title to the property to the purchaser. In this situation, the sheriff’s deed acts as a “quitclaim deed.” Notably, the deed is transferred without any implied covenants or warranties. This means that the buyer must conduct their own investigation of the property and its title because by accepting the sheriff’s deed, the buyer is also accepting any title defects, liens, or other encumbrances on the property. (see National Bk. of Bakersfield v. Williams (1916) 31 Cal.App. 705, 707.) The buyer’s title is not encumbered by any lienholders “junior” to the foreclosing lienholder, but it is subject to any liens of parties that should have been joined in the foreclosure proceedings.
How can the attorneys at Underwood Law Firm, P.C. assist you in a judicial foreclosure proceeding?
If your property is subject to a judicial foreclosure, California law provides ample opportunity for redemption before the property is sold. Additionally, if you are considering purchasing a foreclosed property, it is important that you understand the legal impact a sheriff’s deed will have on your property rights. Knowledgeable counsel from the experienced attorneys at Underwood Law Firm, P.C. can help you preserve your property rights if you are subject to judicial foreclosure or are considering purchasing a judicially foreclosed property. Contact us today.