Legal Question in Real Estate Law in California

Re: loan default

I don't read Civil Code section 2924i to apply to a balloon payment on a loan secured by a deed of trust on raw land. That section only applies to loans on real property containing one to four residential units. That means it would only apply to property from single family residences to quadplexes.

Once the borrower defaults, and assuming that section does not apply, you will need to initiate foreclosure proceedings. You can do this by either a nonjudicial foreclosure sale, or an action to foreclose. Their are advantages and limitations to both, and I would recommend that you at least get a consultation and opinion letter from a competent lawyer, so you are aware of your rights and duties.

Very truly yours,

Re: loan default

Under California law, a demand for a balloon payment must be prepared in a certain manner. If the payment is not made, then a foreclosure can be filed. Please contact our office if you have any other questions.

Re: loan default

First, I assume yhat since this is only a piece of land, abd not a residence, it isn't covered by Civil Code section 2924i requiring advance notice of a balloon payment coming due. I further assume this carry-back "paper" is a note secured by a properly documented and recorded first or second deed of trust.

I think proper analysis starts with a good valuation of the parcel, either from your own knowledge or by having an appraisal made; the next I'd get a title report so you have a current picture of where your loan stands in relation to other liens, especially items that might be senior to yours, or that attach to the land, such as tax liens.

Then, I'd do a site inspection to see the current condition of the land. Look for tenants of any kind, signs of construction or other improvements you didn't know about, signs of waste or environmental harm, etc. that might affect value, marketability, or become a liability to you if you foreclosed.

Then do the math to figure out what you could net by going through a foreclosure, buying it yourself, then re-selling it. Your basic decision is how high to bid at the foreclosure auction if anyone shows up to bid against you. They have to bid all cash; your payment starts with the balance due you and anything over that is cash, so you have an advantage over other bidders. You also (hopefully) have the advantage of greater knowledge of the land.

The law does not allow you to go after the money owed to you directly. Your recourse is to the collateral, and if there is a deficiency following a foreclosure sale, you can't sue the borrower directly if you were the seller and you carried back part of the purchase price, per Code of Civil Procedure 580b.

You could, however, perhaps sue for waste, environmental harm, and certain other torts committed by the buyer/owner between purchase and foreclosure and eviction.

If the deed of trust identifies a trustee, I'd speak to that person or organization next. Then, at some point, you may need to find a local eviction service or attorney who does evictions and repossessions of land to assist you if there is anything on the land that needs eviction or removal or remediation before you take possession and re-sell.