For the prior video in this series covering the initiation of the judicial foreclosure process by filing a complaint in the Superior Court of the county where the property is located, click here.

The end of the reinstatement period

Until the court enters a judgment ordering the sale of the secured property, called a foreclosure decree, the property owner has the right to bring the delinquencies current, called reinstatement. A foreclosure decree ends the reinstatement period.

A foreclosure decree orders the sale of the real estate to satisfy:

  • the outstanding debt; and
  • cover foreclosure-related expenses incurred by the mortgage holder. [Code of Civil Procedures §726(a), (b)]

The foreclosure decree also states whether the property owner will be held personally liable for any deficiency in the property’s fair market value (FMV) to satisfy the debt owed. [CCP §726(b)]

Importantly, FMV is never determined by the amount of the high bid at the judicial foreclosure sale.

A judicial foreclosure sale is conducted by a court-appointed receiver or sheriff, called a levying officer.

After the court decree authorizing the judicial foreclosure sale, the foreclosing mortgage holder is issued a writ of sale by the court clerk. In turn, the writ of sale authorizes the receiver or sheriff to record a notice of levy. Both describe the property to be sold and state the levy is against the security interest the mortgage holder holds in title to the property under its mortgage lien. [CCP §712.010]

The levying officer records the writ of sale and the notice of levy in the county where the property is located. They also mail the writ of sale and the notice of levy to the owner and any occupant of the property. [CCP §700.010]

The junior mortgage holder

Before entry of a judicial foreclosure decree, a junior trust deed holder or other mortgage holder also have the right to reinstate the note by paying the trust deed delinquencies and foreclosure costs, bringing the trust deed note current.

After entry of a foreclosure decree ordering the property to be sold, the junior mortgage holder has until the time the property is sold to the highest bidder at the foreclosure sale to redeem the property by paying all amounts owed on the debt and foreclosure costs. [Calif. Civil Code §2903 et seq.]

Once a property is sold at a judicial foreclosure sale, any liens subordinate to the foreclosing mortgage holder’s trust deed are wiped out and eliminated from the title. [Calif. Code of Civil Procedure §§701.630; 729.080(e)]

If the junior mortgage holder does not reinstate the note or purchase the property at the judicial foreclosure sale, and the owner later redeems the property, the junior mortgage holder will then be able to recover the amount of their lien, plus interest. [CCP §729.060(b)(5)]

A creditor holding an unrecorded lien not actually known to the foreclosing lender does not need to be named or notified of the judicial foreclosure action to have the unrecorded lien extinguished on completion of a recorded mortgage holder’s judicial foreclosure sale. [CCP §726(c)]

If the junior mortgage holder of record is unnamed or unserved in a judicial foreclosure action by the senior trust deed holder, the junior trust deed holder still has an enforceable trust deed after completion of a senior trust deed lender’s judicial foreclosure sale.

If the senior mortgage holder is time barred from filing another judicial foreclosure action, a junior trust deed holder of record who was not given notice of the judicial foreclosure action may initiate their own judicial or trustee’s foreclosure proceedings to enforce their trust deed. The junior trust deed holder’s interest is now senior to the interest of the high bidder at the first mortgage holder’s judicial foreclosure sale. [Little v. Community Bank (1991) 234 CA3d 355]

Consider a wiped-out junior trust deed holder whose note evidences a recourse debt. The junior mortgage holder whose security interest in the property has been exhausted by a foreclosure sale on a prior mortgage sues to collect the debt from the owner who executed the note. Accordingly, the junior mortgage holder obtains a money judgment on the note since their trust deed has been eliminated and they hold no security in the property to foreclose.

With a money judgment replacing the now unsecured note, the junior mortgage holder records an abstract of judgment. The recorded abstract of the money judgment:

  • creates an involuntary lien on all properties vested in the name of the owner; and
  • replaces the trust deed note but evidences a different debt (the money judgment) with different rights than the prior mortgage debt.

If the owner redeems the property after the judicial foreclosure sale, the junior trust deed holder has a lien on the property which they can foreclose if not paid. The junior mortgage holder can also proceed with a sheriff’s sale to collect on the money judgment by a foreclosure on all properties attached by the recorded abstract. [O’Neil v. General Security Corporation (1992) 4 CA4th 587]