Judicial and Non-Judicial Foreclosures

Foreclosures are the unfortunate reality that may accompany owning real property during economic downturns or financial crises. Under California Civil Code section 2903, individuals and companies that hold an interest in real property maintain the right to redeem the value of their interest. Ideally, this right is limited to a payment schedule where a property owner makes regular payments towards the total amount of interest held against the property, usually in the form of a mortgage. However, in certain circumstances where the property owner is unable to meet this obligation, the debt holder may instigate both legal and non-legal proceedings to reclaim the interest in the property.

The most common proceeding of this type is a foreclosure, which can be both judicial (involving legal proceedings) and non-judicial (involving proceedings outside a court). Pursuant to California Civil Code section 2931, and California Code of Civil Procedure section 725(a), a creditor with a mortgage on real property, may initiate foreclosure proceedings against a debtor if the debtor fails to make the required mortgage payments. However, in the event of a foreclosure involving commercial property, the creditor maintains the right to keep any rents collected from units on the property towards the outstanding debt. Nonetheless, the parties may agree in writing to cancel this right, so that the property owner can continue to collect rent. To initiate any judicial foreclosure proceedings, the creditor must file a complaint with a court seeking legal relief for the outstanding debt on the property. However, the debtor maintains the right to seek relief from judicial foreclosure proceedings. For example, the debtor may oppose a judgment ordering the sale of a property. In the event that a sale is finalized, the debtor may also take steps to reverse the sale and retain ownership of the property.

In general, non-judicial foreclosures involve a mortgage that contains a power of sale clause. Per California Civil Code section 2932, under a power of sale clause, creditors may force the sale of property to collect the past-due value of the property. The property owner, or borrower, may still oppose the sale through legal proceedings. For instance, the property owner may seek injunctive relief from the court to stop the improper sale of real property. However, in order to effectively oppose the sale, the property owner must be able to provide adequate proof that the sale is not justified. The evidence may include information that there is no default (i.e. the mortgage was paid on time) on the property, and therefore, the creditor does not have the legal right to force the sale of the property.

In the case of both judicial and non-judicial foreclosures, debtors and creditors have certain rights and responsibilities, which should be protected and enforced accordingly. Thus, seeking the guidance of an attorney with experience and knowledge in real estate law, as well as the underlying litigation and transactional principles, can help protect interests, and prevent the unnecessary loss of property. You may call the Law Offices of Salar Atrizadeh today to speak with an attorney regarding your legal concerns.