11 Options Homeowners Consider When Facing Foreclosure in California A Realtor’s Guide
Hello, and thank you for visiting my website. My name is Karan Bangar, and I am a licensed California real estate agent. If you are facing foreclosure, I understand this can be an overwhelming and stressful time. The purpose of this article is to educate homeowners on common options that may be available when a foreclosure is pending.
This blog is for general informational purposes only. It is not legal advice, tax advice, or financial advice. Every situation is different, and you should always consult with a qualified attorney, CPA, HUD approved housing counselor, or your mortgage servicer before making decisions regarding your property.
California Real Estate License 02139419
About Me
I have been actively involved in California real estate since 2019 and have worked with homeowners in a variety of difficult situations, including pre-foreclosure. There is no one size fits all solution. Timing, loan type, equity, income, and personal circumstances all matter.
Below are ten common paths homeowners consider when facing foreclosure. In many cases, several of these options may allow homeowners to keep their property if they are explored early enough.
What Is Foreclosure in California
Foreclosure is the legal process that occurs when a homeowner falls behind on mortgage payments and the lender seeks to recover the unpaid debt by selling the property.
California is a primary non-judicial foreclosure state, meaning most foreclosures occur outside of court. While each situation is unique, the general process typically includes the following stages.
Notice of Default
After approximately ninety days of missed payments, the lender may record a Notice of Default with the county. This officially begins the foreclosure process.
Pre Foreclosure Period
After the Notice of Default is recorded, the homeowner generally has about ninety days to bring the loan current or pursue an alternative resolution.
Notice of Trustee Sale
If the default is not resolved, the lender may issue a Notice of Trustee Sale, which sets an auction date. This sale date is often scheduled about twenty one days after the notice is recorded.
Trustee Sale or Auction
The property is sold at a public auction to the highest bidder. If there are no successful bidders, the property may become lender owned, also known as REO.
Homeowners have important rights throughout this process, including notice requirements and reinstatement rights. Timing is critical.
Three Common Outcomes When Facing Foreclosure
When facing foreclosure, homeowners generally end up in one of three categories.
Keeping the home
Selling the home
Losing the home through foreclosure
Below are common strategies associated with each path.
Options That May Help You Keep the Home
1. Repayment Plan
A repayment plan allows you to catch up on missed payments over time while continuing to make your regular mortgage payment.
This option typically requires lender approval and may be appropriate if the financial hardship was temporary.
2. Forbearance Agreement
Forbearance may allow for a temporary pause or reduction in payments.
Missed payments are usually repaid later. Lender approval is required and terms vary by servicer.
3. Loan Modification
A loan modification permanently changes one or more terms of your mortgage.
Approval is not guaranteed and the process can take time. Homeowners should carefully review affordability and loan structure and communicate directly with their loan servicer.
4. Personal Loan From Friends or Family
Funds borrowed to cure the default.
Homeowners should clearly understand repayment terms. High interest or poorly structured personal loans can create long term financial strain. Borrowers should be cautious of lenders who extend credit without regard to income or repayment ability, as this can increase risk.
5. Refinance
Replacing the existing loan with a new mortgage.
This generally requires sufficient equity, income, and credit qualification. Interest rates today may differ significantly from prior years, so homeowners should confirm long term affordability.
6. Bankruptcy
A federal legal process that may temporarily stop foreclosure through an automatic stay.
Common options include Chapter 7 (liquidation of assets) and Chapter 13 (reorganization of debt). Bankruptcy has long term credit and financial consequences. Homeowners should consult a qualified bankruptcy attorney.
7. Liquidating Assets
Selling personal or investment assets to bring the mortgage current.
This can be effective when appropriate assets exist. Homeowners should consider whether selling essential assets could create additional hardship, like a car that you need to get to work to make money.
8. FHA Payment Supplement
An FHA program that may temporarily reduce monthly payments for qualified borrowers.
This option is only available to FHA loan holders and program guidelines may change over time.
9. Turn House into Rental
Transform that house into a rental property and collect rent to pay the mortgage
Renting your home during pre foreclosure may provide temporary income and buy time to explore options with your lender. However, rent may or may not cover the full mortgage, and you remain responsible for tenant issues like repairs and legal obligations. Foreclosure can still proceed even with a tenant in place. This option may or may not work, it really depends on what you can get for the rental income.
Selling the Home
10. Selling With a Realtor
Listing the home on the open market may maximize value if the property is in marketable condition.
Timing is critical. If pursued early enough in the process, selling with a Realtor may be a viable option.
I am a licensed California real estate agent. If you would like a consultation, you may contact me directly.
Karan Bangar
California Real Estate License 02139419
Phone 925 470 6168
11. Selling to an Investor
Important Considerations
Selling your home to an individual or company that purchases properties as an investment is another option homeowners sometimes explore, often involving a cash transaction.
Real estate investing can be profitable and many investors operate ethically. However, foreclosure situations involve tight timelines and high pressure, so homeowners should proceed carefully and understand who they are working with.
1. Licensing and Accountability
In California, it is legal for an individual to purchase a home without holding a real estate license. That said, working with a licensed real estate professional provides an additional layer of accountability and regulatory oversight.
Licensed professionals are subject to state regulations and a formal complaint process through the Department of Real Estate. This does not guarantee conduct, but it does provide homeowners with a structured avenue for recourse if issues arise. Private buyers who are not licensed are not regulated in the same way.
Homeowners may wish to ask who they are dealing with and whether that person holds a California real estate license before deciding how to proceed.
My California DRE license number is 02139419.
2. Contract Type and Legal Protections
California law provides specific protections for homeowners in pre foreclosure situations through provisions related to Home Equity Sales Contracts.
These laws require specific disclosures, formatting requirements, and a clearly stated right to cancel within a defined period. These protections are designed to protect homeowners.
One commonly used form that incorporates these protections is the California Association of Realtors Notice of Default Purchase Agreement, which is available only to licensed real estate professionals.
Regardless of the contract used, homeowners should strongly consider having any agreement reviewed by a qualified real estate attorney before signing.
3. Unusually High Investor Offers
Getting the highest possible price for your home is important. However, if most investor offers are within a similar range and one offer is significantly higher, it may be wise to slow down and ask additional questions.
In some situations, a buyer may enter into a contract at a high price and later attempt to renegotiate close to the foreclosure sale date, citing repairs or other concerns. Because timelines can be limited, homeowners may feel pressured to accept a lower price at the last moment due to fewer alternatives.
This does not mean all investors operate this way. It does mean homeowners should understand how a buyer plans to complete the transaction and whether the offer is realistic given the circumstances.
If the Home Is Lost to Foreclosure
Allowing a foreclosure to proceed can result in serious consequences, including loss of the property, credit damage, potential tax implications, and emotional stress. In limited circumstances, lenders may pursue a deficiency balance depending on loan type and specific facts.
Final Thoughts
Foreclosure situations are time sensitive and complex. If you are exploring selling your home or want help understanding your options from a real estate perspective, you may contact me for a consultation. Speaking with qualified legal and financial professionals before making decisions is strongly encouraged.
Karan Bangar
Phone 925 470 6168
California Real Estate License 02139419