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California Mortgage Foreclosure Laws – Pre-Notice of Default

Under the California mortgage foreclosure laws [Civil Code Section 2923.5], before lenders may begin the mortgage foreclosure process, they are required to attempt to contact the borrowers 3 times to determine if any alternatives to foreclosure exist.  This process must be completed 30 days prior to the filing of a "Notice of Default", effectively slowing-down the process. This change to the California mortgage foreclosure laws was enacted in July 2008 in an attempt to stabilize the housing market and help homeowners avoid foreclosure.

By requiring lenders to work with the borrowers, the California mortgage foreclosure laws better encourage alternatives to foreclosure, such as loan modification, deed-in-lieu, or forbearance agreements. Of course, Civil Code Section 2923.5 cannot force mortgage lenders to enter into agreements with the borrowers.  As a result, this California mortgage foreclosure law is merely delaying their ultimate resolution. 

Lenders Don't Want Options That Lose $$$

Unfortunately, in most cases lenders have been unwilling to agree to the financial losses that many distressed homeowners were seeking if they had entered into loan modification agreements.  It’s just business for the lenders, and delaying the inevitable financial losses has helped prop-up their balance sheets in the short term.

To complicate matters, many borrowers are frustrated with the lenders’ reluctance to approve their loan modification requests and are responding to the pending foreclosures with lawsuits.  One of the primary legal arguments is that the lenders’ representatives do not “swear under penalty of perjury” that the process specified in Civil Code Section 2923.5 was followed correctly. Because there have been a very large number of these lawsuits, the banks are asking the appellate court to address this issue in an effort to eliminate these lawsuits altogether. 

Legal Tactics Aren't Working

Regrettably, the attorneys are steering the homeowners toward legal tactics at the expense of finding middle-ground based on thorough financial assessments, planning, and negotiations.  I say "regrettable" because lawsuits are expensive and don't address the core financial issues. It would be better to undergo a fundamental financial assessment and analysis to better understand the lenders’ perspective and pressure points.

Attorney Aren't Financial Experts

Despite their best intentions, lawyers often lack the fiscal background and understanding of the financial pressure points that lenders face and how to use them for the advantage of the property owner.  This renders them largely ineffective in negotiating the debt reductions that homeowners need. With loan modification approval rates hovering well below 10 percent, property owners need to find alternatives to the typical attorney based negotiations. While each homeowner’s situation is unique, it all boils down to this issue.

What the homeowner can afford vs. how much the lenders should reduce and still make sense from a business perspective. 


While the issue can be easily stated, in reality, coming to the correct dollar amount is not simple!. The financial assessment and validation process requires a set of skills that is far different than what most attorneys are able to provide.

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