The situations is as follows: It appears as though my brother and I are going into foreclosure because we can no longer pay the mortgage on the home/property we own. This property is owned by the two of us in a 50/50 ownership. We entered into our relationship several years before he married his present wife. They have only been married for three years. The question becomes: If we go into foreclosure proceedings, are my brother's wife's assets vulnerable to seizure by the lender?
Here are some Quick Facts about foreclosure in California
Judicial Foreclosure Available: Yes
Non-Judicial Foreclosure Available: Yes
Primary Security Instruments: Deed of Trust, Mortgage
Timeline: Typically 120 days
Right of Redemption: Varies
Deficiency Judgments Allowed: Varies
In California, lenders may foreclose on deeds of trusts or mortgages in default using either a judicial or non-judicial foreclosure process.
Judicial Foreclosure
The judicial process of foreclosure, which involves filing a lawsuit to obtain a court order to foreclose, is used when no power of sale is present in the mortgage or deed of trust. Generally, after the court declares a foreclosure, your home will be auctioned off to the highest bidder.
Using this type of foreclosure process, lenders may seek a deficiency judgment and under certain circumstances, the borrower may have up to one (1) year to redeem the property.
Non-Judicial Foreclosure
The non-judicial process of foreclosure is used when a power of sale clause exists in a mortgage or deed of trust. A "power of sale" clause is the clause in a deed of trust or mortgage, in which the borrower pre-authorizes the sale of property to pay off the balance on a loan in the event of the their default. In deeds of trust or mortgages where a power of sale exists, the power given to the lender to sell the property may be executed by the lender or their representative, typically referred to as the trustee. Regulations for this type of foreclosure process are outlined below in the "Power of Sale Foreclosure Guidelines".
Power of Sale Foreclosure Guidelines
If the deed of trust or mortgage contains a power of sale clause and specifies the time, place and terms of sale, then the specified procedure must be followed. Otherwise, the non-judicial power of sale foreclosure is carried out as follows:
A notice of sale must be: 1) recorded in the county where the property is located at least fourteen (14) days prior to the sale; 2) mailed by certified, return receipt requested, to the borrower at least twenty (20) days before the sale; 3) posted on the property itself at least twenty (20) days before the sale; and 4) posted in one (1) public place in the county where the property is to be sold.
The notice of sale must contain the time and location of the foreclosure sale, as well as the property address, the trustee's name, address and phone number and a statement that the property will be sold at auction.
The borrower has up until five days before the foreclosure sale to cure the default and stop the process.
The sale may be held on any business day between the hours of 9:00 am and 5:00 pm and must take place at the location specified in the notice of sale. The trustee may require proof of the bidders ability to pay their full bid amount. Anyone may bid at the sale, which must be made at public auction to the highest bidder. If necessary, the sale may be postponed by announcement at the time and location of the original foreclosure sale.
Lenders may not seek a deficiency judgment after a non-judicial foreclosure sale and the borrower has no rights of redemption.
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Disclaimer: This answer does not constitute legal advice. I am admitted in the States of New York, New Jersey and Massachusetts only and make no attempt to opine on matters of law that are not relevant to those three States.
If there is a deficiency judgment her separate property assets cannot be reached, Her community property interests can be reached to satisfy a community property debt.
However, if there is only a first on the property it is unlikely that there will be a deficiency. Most lenders will go the quicker, cheaper route and not seek a deficiency with a judicial foreclosure. A non-judicial foreclosure prevents the lender from seeking a deficiency.
The response given is not intended to create, nor does it create an ongoing duty to respond to questions. The response does not form an attorney-client relationship, nor is it intended to be anything other than the educated opinion of the author. It should not be relied upon as legal advice. The response given is based upon the limited facts provided by the person asking the question. To the extent additional or different facts exist, the response might possibly change. Attorney is licensed to practice law only in the State of California. Responses are based solely on California law unless stated otherwise.
In your instance, despite what the New York lawyer seems to opine is the law of California, you need an analysis of the circumstances of payment source and what the lender is using as its method of foreclosing on the security for the Promissory Note you and your brother signed for the loan on the property.
There is a "anti-deficiency" clause in California law, found at CCP 580b that runs to residential properties of less than four units. The rub, when trying to invoke that rule, is a requirement that the property be a principal residence of one or more of the Borrowers, in whole or in part. Your case might not fit under that protective section.
Where the sale of any property is by non-judicial foreclosure, i.e.: power of sale, then no deficiency may be had. See CCP 580d.
If the property does not qualify for the protection of CCP 580b the Lender may, at its choice, bring an action for judicial foreclosure, and thereafter seek a deficiency. That avoids the application of CCP 580d.
In your brother's case, if the creditor is seeking judicial foreclosure, the question then becomes whether the community assets of he and his wife are subject to any claim of the judgement creditor. That raises another series of tests as to the wife's interest, if any in the property in question. If it is not community property, she would not have liability for the debt. That circumstance is what needs to be reviewed by a lawyer as it involves fact issues of whether the property interest held by your brother was converted to an asset of the community.
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