Legal Question in Real Estate Law in California

First, as to redemption. There are two kinds of foreclosure in California...99.8% or more of the time, a foreclosure is done by having a trustee sell the property at public auction in a trustee's sale. After the deed is recorded in the auction winner's name, there is no right of redemption. Rarely, a foreclosure is conducted by going to court for a judicial foreclosure; here, there is a right of redemption for either three months (if the selling price covers what's owed) or one year if there is a deficiency. See Code of Civil Procedure sections 729.010 to 729.090.

A lender employing the trustee's sale procedure to foreclose cannot come after other property, and must be content with the results of the trustee's sale. A lender might on rare occasion and with adequate provocation sue a borrower for some other wrong other than failure to make the payments - such as fraud on the loan application, or for "waste" of the collateral, but such cases are extremely rare.

Transferring assets to relatives to make collection efforts more difficult is fraud. See the Uniform Fraudulent Transfer Act, Civil Code sections 3439 to 3439.12. A lender can sue under the UFTA and have the transfer invalidated. Besides, this step is probably unnecessary anyway.

It's unfortunate that the short sale didn't go through before the foreclosure, but this seems to be common. A lender's willingness to participate in a short sale is not to be taken as an indication of forbearance. The two processes seem to go on simultaneously, and often the foreclosure sale date arrives before the short sale closes.

I would suggest that your mother find a lawyer near her who understands and works in the field of investment real estate to use occasionally as an advisor. There doesn't seem to be anything brewing currently that requires immediate lawyer attention, but it's possible, and having someone to bounce questions off could be comforting, and might head off a lawsuit.

I would be happy to meet with your mother and you at my Downtown San Jose office for an initial consultation to go over the present situation and make recommendations for the future, and then to be available on a consulting basis going forward as Mr. Whipple suggests. Having an attorney who you can pick up the phone and have a $60 conversation with whenever you want, can save thousands of dollars, or more, in the long run. It's possible if you and she had an attorney to consult at the time, you could have even avoided the foreclosure. Give me a call or send me an email if you would like to make an appointment.

Just to add to Mr. Whipple's great answer, I believe he is assuming that the loan foreclosed upon was used entirely to purchase that rental house/investment [purchase money loan]. If it was not, then their might be a problem with the lender being able to go against her other assets. She should read the Nolo Press books on being a landlord and consult with a real estate attorney to find out what her rights are as to the loans and any other questions she might have, including reviewing her rental agreements to see if they are adequate. Also, she should consider setting up a trust to avoid having the properties go through probate and paying all those unneeded fees and the trouble it causes.

I disagree to some extent with Mr. Whipple's response, in that it is not entirely legally accurate.

The right of redemption is the right of a defaulting mortgagor or trustor to recover property after a foreclosure sale, by paying the entire outstanding debt. California no longer recognizes a right of redemption after a nonjudicial foreclosure sale, that is, a sale held by a trustee under a power of sale. There is no post sale statutory right of redemption after the exercise of the power of sale in a deed of trust. (Bank of Italy Nat. Trust & Sav. Assn. v. Bentley (1933) 217 Cal. 644, 655.) �Once the trustee�s sale is completed, the trustor has no further rights of redemption.� (Moeller v. Lien, supra, 25 Cal.App.4th at p. 831.)

The statutory rights of redemption only remain for judicial foreclosure sales. Those are foreclosures that occur when the lender files an actual lawsuit to foreclose.

Although there is no right of redemption, there is a statutory right of reinstatement, which exists before the trustee's sale in a nonjudicial foreclosure. This right of reinstatement is set forth in Civil Code section 2924c. In pertinent part, that section provides that whenever all or a portion of the principal sum of any obligation secured by a deed of trust or mortgage of real property has become due by reason of default in payment of interest or of any installment of principal, the trustor may pay the entire amount due that is in default and reasonable costs and expenses, as if no default or acceleration had occurred. (Civ. Code, � 2924c, subd. (a)(1).)

The right of reinstatement may be made at any time within the

period commencing with the recordation of the notice of default until five (5) business days prior to the date of sale. (Civ. Code, � 2924c, subd. (e).) When a sale is postponed for more than five (5) days, the right of reinstatement is revived, to expire five (5) business days prior to the new date of sale. (Civ. Code, � 2924c, subd. (e).)

Theoretically, it would be possible to redeem the property, if you could show that the trustee's sale was void, or if you could show it was voidable, and could tender the unpaid amount. But you don't provide any information regarding the sale, and it was most likely valid.

Once a lender conducts a nonjudicial foreclosure sale, by having the trustee exercise the power of sale at a trustee's sale, that foreclosing lender is prohibited from obtaining a deficiency judgment by the provisions of Code of Civil Procedure section 580d. A deficiency is the difference between what the property sold for at the trustee's sale, and the outstanding debt.

That rule, however, does not apply to lenders holding junior liens on the property, or to situations in which more than one parcel of property is security for the loan that is in default. That section also does not bar a lawsuit for rent skimming, waste, or fraud.