Homeownership in California falls about 10 percent lower than the national average at just 54 percent. With the high cost of homes and the challenges financing through traditional mortgages can bring, many homeowners, especially in southern California, turn to less traditional types of financing to get the home they want. Although hard money loans are generally offered to investors who flip homes or purchase them to rent out to others, they can also be used to finance a mortgage to buy a home you intend to live in. This allows individuals to use their home as collateral and to get approved for the loan much faster than going through traditional banks. It also means less paperwork that needs to be filled out and understood.
For California homeowners who are facing foreclosure, the process is usually handled outside of court through a non-judicial process. Typically only cases that involve state-owned property or property in probate court require the courts to get involved.
While some states give homeowners the opportunity to buy their homes back, even after the completion of a foreclosure sale, this isn’t the case in California. Once a home is sold on the auction block, homeowners are unable to buy it back.
Another issue homeowners may experience in some states is the ability for the bank to go after the homeowner for any deficiencies once the foreclosure process is completed. This allows the bank to recover any money owed beyond what the sale of the home brings in. Fortunately, this isn’t allowed in California.
Deed in Lieu of Foreclosure
When it becomes clear a home will go into foreclosure due to a homeowner’s inability to pay, they can often go through a process known as deed in lieu of foreclosure. This means they voluntarily turn the property over to the bank and move out of their own accord without waiting for the foreclosure process. This avoids going to court and sometimes even allows the homeowner to leave the property with a little money for the effort because if saves the bank the cost of foreclosing. This money can help individuals with the costs of moving, including putting a down payment on an apartment or other rental property.
Grace Period Notice
California is one of just a few states that has a grace period built into their foreclosure process. Lenders are required by law to personally contact, or at least attempt to contact, the homeowner to discuss their options to avoid the foreclosure process. This must be done 30 days prior to the foreclosure notice period. The notice of default is sent to the homeowner with a three-month notice filed with the county recorder’s office within 10 days. At the end of this three-month period, the lender then files a notice of sale and sends it to the homeowner at least 20 days prior to the date of sale. This means the sale date cannot take place sooner than three months and 20 days after the foreclosure process begins. The notice of sale must also be publicly posted, often in the local newspaper, as well as on the property in question.
Service Member Mortgage Protection
Certain individuals who are members of the military are often protected under Servicemembers Civil Relief Act, which is a federal mandate. In addition to the military, California extends these benefits to National Guard members and those who are ordered into active state service by the governor. Reservists are also covered under this act, giving them peace of mind they won’t lose their homes while serving their country.
High-Risk Mortgage Protection
Abusive loan practices can create problems for individuals. This is why the state government has put protections in place to combat these practices. Judges have the power to order lenders to reform their practices to ensure equity. These protections don’t apply to mortgages through the secondary market, such as Freddie Mac, or those who don’t know the loan origination violations.
There are other laws in California in reference to foreclosures that are important to learn about. For instance, the law caps interest rates for mortgages at no more than 12 percent for sales and seven percent for judgments. However, there are exceptions to these rules in certain situations. Many banks and similar institutions are exempt from these rules. Real estate brokers can also help individuals obtain a loan that falls outside these limitations.
Another way California protects homeowners is with their homesteading regulations This law protects the equity the homeowner already has and must be requested by the individual living on the property or a relative of that person. This automatic homestead exemption can stop a foreclosure if the lender is unable to prove the sale can produce the funds to repay any liens and the exemption amount. If the sale is sufficient to cover it, the sale proceeds and the homeowner receives the exemption amount to be used to establish a new residence.