Default, foreclosure, reinstatement, and anti-deficiency rules in California

Default and foreclosure

Default is failure to perform a loan obligation. Acceleration makes the unpaid balance due under the loan terms. Foreclosure enforces the security interest by selling the property; default alone does not transfer title.

California forecloses most deeds of trust through a nonjudicial trustee's sale under a power of sale. Judicial foreclosure proceeds through court. Actual rights depend on the loan, property, parties, and applicable statutory protections.

Notices and intervention

California Civ. Code § 2924 permits recording a notice of sale up to five days before expiration of the three-month period following recording of the notice of default, provided the sale occurs no earlier than three months and 20 days after recording of the notice of default. Three months does not mean 90 days.

Reinstatement cures the default and restores the loan to good standing, rather than paying off the whole debt. Redemption concerns satisfying the secured debt to recover or preserve ownership. These concepts are not interchangeable. Under California Civ. Code § 2924c, after reinstatement the beneficiary or mortgagee must execute and deliver a rescission notice to the trustee within 21 days. The trustee records it within 30 days after receipt of the notice and allowable fees and costs, unless full payment and a properly recorded reconveyance or discharge make that unnecessary.

Under California Civ. Code § 2924.11, a written foreclosure prevention alternative approved after recording a notice of default bars recording a notice of sale or conducting a trustee's sale while the borrower complies with the written modification, forbearance, or repayment plan.

Deficiency protection

A deficiency is the shortfall when foreclosure proceeds do not cover the secured debt. A shortfall alone does not establish personal collectibility. California Code Civ. Proc. § 580b protects specified purchase-money obligations, including seller financing secured by the property sold and a lender's purchase loan on a dwelling for no more than four families occupied at least partly by the purchaser.

For qualifying refinances executed on or after January 1, 2013, protection follows purchase-money debt. New principal advanced for unrelated purposes is excepted; amounts applied to the purchase-money obligation or refinancing fees, costs, and related expenses are not that exception. Principal payments apply first to the purchase-money balance, then to the new advance. Identify the loan's purpose and protected amount before analyzing collection.