Step-by-step process:

1.  Default Occurs

• Borrower (Trustor) fails to make payments or breaches loan terms.
• The beneficiary (Lender) instructs the Trustee to begin foreclosure.

2.  Notice of Default (NOD)

• Trustee records a Notice of Default with the county recorder.
• NOD is mailed to the Borrower and junior lienholders.
• Reinstatement period: Borrower can cure the default within 90 days after the NOD recording.

3.  Notice of Trustee’s Sale

• After 90 days, if the default is not cured, the Trustee records and publishes a Notice of Trustee’s Sale.
• Must be:
• Posted on the property
• Published in a local newspaper
• Mailed to Borrower and interested parties
• The sale date must be at least 21 days after the notice is posted.

4.  Trustee’s Sale

• Public auction held by the Trustee.
• Property sold to the highest bidder for cash.
• Trustee issues a Trustee’s Deed Upon Sale to the winning bidder.

5.  No Redemption Period

• Unlike judicial foreclosure, California non-judicial foreclosure offers no post-sale redemption period.
• Borrower’s rights end at the sale.

6.  Deficiency Judgment Rules

• For purchase-money loans on owner-occupied homes, anti-deficiency laws apply (Code of Civil Procedure §580b).
• The lender cannot pursue the Borrower for any shortfall after the foreclosure sale.

Timeline Summary

• Day 0: NOD recorded
• Day 90: Reinstatement period ends
• Day 111+: Trustee’s Sale can occur (21 days after Notice of Sale)
• Total: Approximately 111+ days from NOD to sale (if uncontested)

Why This Matters

• Lenders: Non-judicial foreclosure is efficient and predictable.
• Borrowers: Limited time to reinstate; no redemption after sale.
• Investors: Trustee’s sales offer opportunities but require due diligence.

The California Legislature has passed onerous laws that harm property owners of single-family 1-4 rental properties and other residential properties.

Gavin Newsom has passed several laws to thwart the non-judicial process and delay the eventual foreclosure date.  You can find specific instances by reading articles on my website; search for SB-1079, AB-130, AB-3108, and AB-2424.  Each article will discuss how the government has imposed cumbersome time barriers that delay the inevitable—namely, the lack of foreclosure moratoriums during the COVID pandemic.

There are separate articles on SB-1079, AB-130, AB-3108, and AB-2424 on my website.  All real estate practitioners, including mortgage brokers, lawyers, title representatives, escrow holders, and trustees, must be familiar with these onerous bills, which are now state Law.

https://danharkey.com/post/sb-1079-modifies-the-foreclosure-procedure-of-residential-1-to-4-properties-in-california  

https://danharkey.com/post/ab-130-how-it-damages-subordinate-financing-in-california-for-residential-property 

https://danharkey.com/post/the-california-legislature-has-passed-another-monster-law-making-it-more-difficult-to-foreclose-on-1-4-residential-units

https://danharkey.com/post/ab-3108-a-recent-law-signed-by-governor-newsom-in-california-amends-section-4973-of-the-financial-code 

Anti-deficiency laws in California are designed to protect borrowers from being pursued for additional money after a foreclosure sale.

What Are Anti-Deficiency Laws?

These laws prevent a lender from suing a Borrower for the difference between:

• The loan balance owed at the time of foreclosure, and
• The amount recovered from selling the property at foreclosure.

This difference is called a deficiency.

Key California Rules

·         Purchase-Money Loans (Owner-Occupied Homes)

o   If the loan was used to buy the Borrower’s primary residence, the lender cannot seek a deficiency judgment after foreclosure.

o   Covered under California Code of Civil Procedure §580b.

·         Non-Judicial Foreclosure (Trustee’s Sale)

o   When a property is foreclosed through the power of sale (non-judicial process), the lender cannot pursue a deficiency judgment, regardless of loan type.

o   Covered under §580d.

·         Refinances and Junior Liens

o   Refinanced loans or second mortgages may not have the same protection.  If a junior lienholder loses security in foreclosure, they may sue on the note (unless other protections apply).

Why It Matters

• Borrowers: Limits financial exposure after losing a home.
• Lenders: Encourage accurate underwriting, as recovery is limited to the property’s value.
• Investors: Understand that California is a non-recourse state for most residential purchase-money loans.

California’s anti-deficiency protections are strong, but they are not absolute.

Main exceptions where a lender may still pursue a deficiency judgment:

1.  Fraud or Waste

• If the Borrower commits fraud (e.g., misrepresentation during loan origination) or waste (deliberate damage to the property), the lender can sue for damages—even after foreclosure.
• These claims are separate from the foreclosure process.

2.  Non-Purchase-Money Loans

• Refinances, home equity loans, and cash-out loans are not considered purchase-money obligations.
• If the lender uses judicial foreclosure, they may seek a deficiency judgment on these loans (subject to other limitations).

3.  Commercial Property Loans

• Anti-deficiency protections primarily apply to owner-occupied residential property.
• Loans secured by commercial property, investment property, or vacant land generally do not have the same protection.

4.  Judicial Foreclosure on Non-Purchase-Money Loans

• If a lender chooses judicial foreclosure (instead of non-judicial), they can seek a deficiency judgment on non-purchase-money loans.
• However, they must waive the right to a trustee’s sale.

5.  Guarantors

• Anti-deficiency statutes protect borrowers, not guarantors.
• Lenders can pursue guarantors for any shortfall unless the guaranty is invalidated under “sham guarantor” rules.

6.  Cross-Collateralization

• If multiple properties secure a loan and one is foreclosed, the lender may still pursue a deficiency judgment against the other collateral.

Explanation of Judicial vs. Non-Judicial Foreclosure in California:

Judicial Foreclosure

• Process:
  The lender files a lawsuit in court to foreclose on the property.
• Timeline:
  It can take months or years because it involves pleadings, hearings, and judgment.
• Redemption Rights:
  Borrower often has a statutory right of redemption (up to 1 year after sale) to reclaim the property by paying the debt plus costs.
• Deficiency Judgment:
  Allowed for non-purchase-money loans (e.g., refinances, commercial loans).
• Cost:
  Higher legal fees and court costs.
• Use Case:
  Rare in California for residential property because non-judicial foreclosure is faster and cheaper.

Non-Judicial Foreclosure

• Process:
  Conducted by the Trustee under the power of sale clause in the deed of trust.
• Timeline:
  Typically ~111 days from Notice of Default to Trustee’s Sale (if uncontested).
• Redemption Rights:
  No post-sale redemption period—Borrower’s rights end at the sale.
• Deficiency Judgment:
  Prohibited under California Law (Code of Civil Procedure §580d).
• Cost:
  Lower cost, streamlined process.
• Use Case:
  Standard for California deeds of trust.

Key Differences at a Glance