Sternberg Law Group


What is Foreclosure Moratorium in California?

24 May 2024 | Foreclosure

The COVID-19 pandemic has brought unprecedented challenges for homeowners across California. Widespread job losses, reduced hours, and medical emergencies have left many struggling to make their mortgage payments. In response, state and federal authorities have enacted foreclosure moratoriums to provide relief. But what does this mean for homeowners, and how can you take advantage of these protections?

Table of Contents

  1. Understanding Foreclosure
  2. The California Foreclosure Moratorium
  3. Federal Foreclosure Protections
  4. How to Seek Protection
  5. Potential Drawbacks and Next Steps
  6. Conclusion

1. Understanding Foreclosure

Before we dive into the moratorium, it’s essential to understand the foreclosure process. Foreclosure occurs when a homeowner defaults on their mortgage, and the lender repossesses the property. This process varies by state, with California using a non-judicial foreclosure system. Typically, lenders must contact the borrower to discuss foreclosure prevention options before starting the process.

2. The California Foreclosure Moratorium

In response to the pandemic, California enacted the COVID-19 Tenant Relief Act, which included protections for homeowners. The foreclosure moratorium prohibits lenders from initiating judicial or non-judicial foreclosure proceedings against eligible small landlords until 2023. To qualify, landlords must:

  • Own 10 or fewer rental properties
  • Be experiencing financial distress due to COVID-19
  • Be current on their mortgage payments as of March 2020
  • Have applied at least 15% of the rental income to the mortgage

3. Federal Foreclosure Protections

While California’s moratorium focuses on small landlords, federal protections apply more broadly. The CARES Act, passed in March 2020, allows borrowers with federally backed mortgages (FHA, VA, USDA, Fannie Mae, Freddie Mac) to request forbearance for up to 180 days, with the option to extend for an additional 180 days. During this time, lenders cannot charge penalties, interest, or fees. The foreclosure moratorium for these loans has been extended until June 30, 2021.

4. How to Seek Protection

Homeowners seeking protection under the California or federal moratoriums should contact their lender or servicer. Be prepared to provide documentation showing financial hardship due to COVID-19. For California protections, this includes proof of reduced income, increased expenses, or medical emergencies. Keep detailed records of all communication, including dates, times, and the names of representatives.

5. Potential Drawbacks and Next Steps

While the foreclosure moratorium offers critical relief, it’s not without potential drawbacks. Forbearance agreements mean missed payments must still be made, either in a lump sum at the end of the agreement or spread out over the remaining loan term. Homeowners should carefully review options with a housing counselor or attorney to avoid setting themselves up for future default.

6. Conclusion

The California foreclosure moratorium, along with federal protections, provide a lifeline for homeowners struggling amidst the pandemic. However, it’s crucial for borrowers to understand the terms, seek professional advice, and plan for the end of these protections. With the right guidance, Californians can weather this storm and preserve their most valuable asset – their home.