California seller financed forclosure process

[Tony F.]

Sold a property with a small house and a few other agricultural structures on it, on 10 acres, Northern California, deal closed early last year. I carried with a quick pay off structure. Buyer has been late on everything, but has paid most to date. Now they are in financial trouble, guessing not going to be able to make final balloon and interest payments. They will be paid up to about 80% of original debt. Final balloon due in a few weeks.

What happens if they don’t pay. Can I take the property back? (With legal process of course), or does it get sold at auction? I have a non judicial forclose company contact. But wanted to ask here first. Thanks!

[Don Konipol]

@Tony F.

Each state has specific laws, regulations, and requirements pertaining to the foreclosure process. Some states differ between commercial, residential and owner occupied real estate.

Every state uses the auction process to try to ensure that a market price is obtained for the property sold. The property taxes owed are paid first from the sale proceeds, and have priority over any other lien. The liens are then paid in the order of their priority, which is determined by recording date. Lien holders are allowed to add legal fees, and almost any other out of pocket expenses paid that the borrower was obligated to pay as part of the deed of trust, for example insurance.

With significant equity in the property, there is a strong possibility, perhaps even probability that the debtor will fight the foreclosure. Rather than try to guess what they might do in California, I’ll just list some of the ways that debtors have attempted to frustrate foreclosures that I have initiated because of their default

1. File for a Temporary Restraining Order. - usually granted for 60 to 90 days

2. File bankruptcy - 90 days if the debtor files pro se, up to 2 years if he’s willing to engage a knowledge, experienced bankruptcy attorney specialist. In BK filings, the parties will often reach some kind of settlement within 6 months, and the creditor May begin receiving “protection” payments at this point.

3. File multiple bankruptcies by continuing to transfer title to related parties who then file bankruptcy

4. Join the armed forces and get stationed overseas, you can’t foreclose while they are on active duty, and then must wait 120 days in addition to the regular state foreclosure time

5. Dodge service, you would then have to hire a private investigator to track them down, if you can’t then you partition the court to show service, usually adds 6 months to the process.

6. File a lawsuit in county court claiming wrongful foreclosure, when they lose they appeal to state Supreme Court.

Then there were times when the foreclosure process was as smooth as silk. I’d estimate we held about 600 notes through the years, and foreclosed on about 40. About half made an effort to fight or stall the foreclosure.