California has one of the lowest, and at times the lowest, statewide homeownership rate in the country. Resting at 10% below the national average, it was at a high of 60% ten years ago but has dropped to 53% in recent years. Home buyers in the Golden State very often seek out special financing options for buying a house or renovating their current property. Small investment firms sometime offer hard money loans to buyers willing to use their home or other owned real estate as collateral to secure funding. In these cases, the loan usually funds much faster than with a typical big bank mortgage. Hard money loans also require much less paperwork than more common home loans.
California Foreclosure Laws
For most homeowners facing foreclosure in California, the process will be managed outside of the court system in what is referred to as a non-judicial foreclosure. In some special cases, the state court might manage the process if the state owns the property or if a probate court is involved but for the most part, foreclosures in California are non-judicial.
Property Redemption after Foreclosure Sale
Some states allow a homeowner to repurchase or redeem their home for a period of time, even after the foreclosure sale has happened. That is not the case in California. If the home is sold at auction, that sale is complete and the borrower cannot seek redemption.
Deficiency Judgments in California
Many states will allow lenders to seek deficiency judgments against homeowners after a foreclosure. This comes up when a home is sold in foreclosure but does not bring in enough money to cover the debt. However, in California, lender cannot ask for a deficiency judgment after foreclosure sale. Cal. Code Civ. Proc. § 580d.
Deed in Lieu of Foreclosure
At some point in the foreclosure process, when it becomes clear that the homeowner will not be able to keep the home, they sometimes make an agreement with the lender that is called deed in lieu of foreclosure. The borrower leaves the home and turns over possession to the lender. There is no court date, no more fighting and in most cases there is a little bit of money involved for the homeowner. Lenders are usually willing to provide some payment when the homeowner agrees to leave without a fight. It can help offset the costs of moving. That's why some realtors and other industry professionals will also refer to this agreement as "cash for keys".
Grace Period Notice
California is one of a few states that have a sort of grace period built into the foreclosure process. The lender that wants to foreclose must Foreclosing party must personally contact (or meet the requirements for attempting to contact) borrowers to explore options for avoiding foreclosure 30 days before recording the notice of default. The foreclosing party then records a three-month notice of default in the county recorder's office and mails a copy to the borrowers within ten business days following recordation. After three months expires (or up to five days prior), the foreclosing party records a notice of sale and mails a copy to the borrowers at least 20 days before the sale date. The sale date cannot be earlier than three months and 20 days after the recording date of the notice of default. The notice of sale is also posted on the property, in a public place, and published in a newspaper.
Service Members Mortgage Protections
Protections similar to those under the federal Servicemembers Civil Relief Act are also extended by the state of California to members of the state National Guard called or those ordered into active state service by the Governor or into active federal service by the President of the United States. This protection also applies to reservists who have been called to full-time active duty. Cal. Mil. & Vet. Code § § 400 to 409.13
High Risk Mortgage Protections
Cal. Fin. Code § 4973 makes a number of abusive loan practices unlawful. Section 4978 provides remedies that include authority for a judge to reform the loan to comply with the law. These provisions don't apply to mortgages held by the secondary market (Fannie Mae, Freddie Mac) or to assignees who have no reason to know of the loan origination violations. Cal. Fin. Code § 4979.8
Additional State Laws
The maximum interest rate allowed by law is 12%. California's interest rate limit for sales contracts is 12 percent, and 7 percent for interest rates on judgments. Numerous exceptions apply, based generally on who is making or arranging the loan. Most banks and similar institutions are exempt from the law. Also, loans arranged by real estate brokers that are secured by real property are also exempt from the law. If an exemption applies, there is no limit under California law.
California is a homestead state. California homeowners receive an automatic homestead exemption to protect equity when a court forces the sale of a house to pay for a judgment. The automatic exemption can be claimed only by a debtor who resides, or is related to one who resides, in that homestead property at the time of the forced judicial sale of the dwelling. The automatic homestead exemption may be used to prevent a home's sale following such judicial foreclosures if the creditor can't prove that the sale may result in proceeds sufficient to repay outstanding liens and the titleholder's exemption amount. If a debtor titleholder's equity is sufficient for such repayment, then the judicial foreclosure sale will proceed, but the homeowner should be paid the full exemption amount. That money is to be reinvested in a new personal residence.
Lender Licensing Requirements
A Residential Mortgage Lending Act (CRMLA) license is required for any company or person who makes or services residential mortgage loans in California. A CRMLA license is an alternative to the licenses under the California Finance Lenders Law or the California Real Estate Law. A licensed CRMLA lender is authorized to provide brokerage services to its borrowers.
California Hard Money Legal Issues in the News