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This article is a highly simplified explanation of foreclosure law in California.

What is foreclosure?

Foreclosure is a legal process by which an owner's right to a property is terminated. 

Foreclosure is usually the result of a borrower’s default of a payment obligation. Typically, foreclosure involves a forced sale of the property at public auction.  The money received from the sale is applied to the debt owed.

California foreclosure:

California permits two kinds of foreclosure:

1. Judicial Foreclosure;

2. Non-Judicial Foreclosure.

Judicial Foreclosure rarely occurs in California.

In judicial foreclosure, the lender sues the property owner in state court.  A trial occurs.  Appraisals and other items are required.  An auction occurs. The owner can still redeem (buy back) the property from the successful bidder within one year after the auction sale.

Non-Judicial Foreclosure almost always occurs in California. Why?  The reason is that nonjudicial foreclosure is faster and far less costly than judicial foreclosure.

In non-judicial foreclosure, the lender may foreclose on a property without filing a lawsuit and without court approval.

Does the lender have to foreclose, or can the lender just sue the borrower for money owed?

In California, a creditor secured by a trust deed on real property must rely on the security before enforcing the underlying debt.

Can the lender sue me for money if the foreclosure sale does not pay off the entire loan?

 If the foreclosure sale does not pay off the entire loan, a “deficiency” is created.  Depending on the facts, a lender may or may not be able to sue you for the deficiency.

 Common Examples:

If a loan was used to pay for the purchase of “home” (or the associated closing costs during the home’s purchase), then that lender cannot sue you for the deficiency.

By “home”, I mean a owner occupied, residential dwelling of one to four units (not vacation homes, not investment properties, or not apartments with more than four units)

If a loan was NOT used to pay for the purchase of home (or the associated closing costs during the home’s purchase), then that lender can sue you for the deficiency if judicial foreclosure is used.

Examples of when a loan was NOT used to pay for the home (or the associated closing costs during the home’s purchase) are loans obtained after the home is purchased (typically refinancing loans, home equity loans, HELOCs, hard money second trust deed, hard money second mortgage, etc.).

If a lender uses non-judicial foreclosure, such lender may not sue for a deficiency. 

Exception: However, if there are two or more secured loans against the property, and Lender “A” uses non-judicial foreclosure, and Lender “B” who does not foreclose, is left with no security (i.e., "worthless security") and, thus, receives no payment from the foreclosure sale, then Lender “B” can sue you for the deficiency (as long as Lender B’s loan was not used to purchase the home.

Exception to Exception: The "worthless security" exception above does not apply if the lender itself has taken some action to make the security worthless. For example, one case held that a lender who had both a first and a second deed of trust on a property could not pursue the borrower directly on the debt secured by the  second trust deed if the lender had caused the second to be relinquished by foreclosing on its own first trust deed. Simon v. Superior Court (Bank of America) (1992) 4 Cal.App.4th 63.  

Note: While deficiency judgments not available to a lender who utilizes non-judicial foreclosure, a separate judicial tort lawsuit for fraud, waste, or malicious destruction of property may still be possible.


If the lender does not or cannot sue me for the balance owed, is the forgiveness of such debt taxable as income?

 Under federal law, a lender must report to the IRS any forgiveness of a debt totaling more than $600.00 (from, for example, a short sale, loan modification, or foreclosure).  Borrowers must report the forgiveness amount when they file their income taxes. The Mortgage Forgiveness Debt Relief Act protects borrowers of from such income tax liability with respect to their primary residential residence.  However, such Act does not stop deficiency judgments if such is permitted by state law.

According to the IRS, Mortgage Forgiveness Debt Relief Act benefits can be used for debts forgiven in tax years 2007 through 2012.

Other laws may prevent such forgiveness of debt income tax liability. To learn about other tax exceptions, see the article: Tax Consequences of Short Sale, Foreclosure, and Debt Settlement.  

How long does foreclosure take in California?

Depending on the timing of the various required notices, uncontested non-judicial foreclosure normally takes a minimum of 111 days. However, non-judicial foreclosure will be delayed if the borrower files for bankruptcy, contests the action in court, or seeks delays and adjournments.  Sometimes, some lenders delay the foreclosure process themselves due to backlog or other reasons.


Day 1-Day 90

Redemption Period

Lasts 90 days from the recordation of the “Notice of Default.”

Day 91-Day 110

Publication Period whereby notice of sale and sale date is published, posted and mailed.

Lasts 20 days from the end of Redemption

Day 111 or more

Trustee's Sale

Held 21 or more day days after first publication

The property is sold to the highest bidder or reverts back to the lender.

Note: This article intentionally avoided certain technical words such as "power of sale", "trustee sale", "recourse loan", "non-recourse loan", "purchase money loan", "nonpurchase money loan", "antideficiency statute", "junior lien", "one action rule", "one form of action rule", and other more legally precise language as well as, for the most part, did not cite cases or specific statutes. 


Foreclosure law is a complex area of law that is riddled with exceptions and variables that may apply depending on the facts of each situation.  Laws are frequently changing.  This article is not foreclosure or legal advice. Therefore, before taking or not taking any actions related to your property, you are urged to seek legal counsel from an attorney who is knowledgeable and experienced in foreclosure law.

Tax laws are complicated and changing.  This article is not tax or legal advice.  To determine whether or not and how the above tax laws apply to your particular situation, you are urged to seek counsel from an experienced and knowledgeable tax professional.  Moreover, be proactive.  Before going forward with a foreclosure, short sale, bankruptcy, or debt settlement, seek advice from your tax adviser to determine what, if any, tax consequences there may be.

The author of this article is a Christian bankruptcy lawyer.

See article: Bankruptcy and Foreclosure

Copyright 2010


Under the new bankruptcy laws, attorney Tozer is a debt relief agency because he helps people file for bankruptcy relief under the Bankruptcy Code.

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