Judicial Foreclosures Against Individuals’ Real Property
Step 1: Levy on the Property and File a Notice of Levy
After a writ of execution is issued, it must be delivered to the levying officer with instructions and the required fee. (Code Civ. Proc., § 699.530.) The levying officer then “levies” upon specified property of the judgment debtor by taking it into custody or otherwise subjecting it to a lien in favor of the judgment creditor. (Code Civ. Proc., § 700.0l5.) The levying officer is the sheriff of the county to which the writ is directed. Depending on the county, a registered process server may also be used to levy property. (Code Civ. Proc., § 680.260) After levying on a real property dwelling (via Writ of Execution), the levying officer must promptly notify the judgment creditor that the levy has been made. (Code Civ. Proc., § 704.750.) Within twenty days after receipt of such notice, the judgment creditor must:
- Apply to the court for an order for sale of the dwelling; and
- File a copy of the application with the levying officer. (Code Civ. Proc., § 740.750.)
The creditor should also obtain a litigation guarantee from the title company. The guarantee will contain a legal description of the property, the names of the current owners and a list of all deeds of trust, abstracts of judgments, tax liens and other liens recorded against the property. The creditor should also request two statements not often included in litigation guarantees:
- Whether a declaration of homestead has been recorded; and
- Whether a current homeowner’s exemption or disabled veteran’s exemption has been filed with the county assessor.
The creditor must determine the amount of all liens and encumbrances on the property to be included in the application for sale. The creditor can ascertain the precise amounts of obligations secured by senior liens by making a written demand for beneficiary statements from the senior lien- holders under California Civil Code section 2943. The beneficiary must provide the information within twenty-one days after receipt of the written demand. (See Civ. Code, § 2943.) A fee up to $30 may be charged by the beneficiary for the statement.
Step 2: Court Order for Application for Sale (Ex-Parte Motion)
The judgment creditor must obtain a court order for sale to foreclosure on a debtor’s place of residence or “dwelling” (Code Civ. Proc., § 704.750.) To do this, the judgment creditor must file the application for an order for sale in the county where the dwelling is located. (Ibid) If the dwelling is located in a county other than the county in which the judgment was obtained, the application should be filed with a court of similar jurisdiction. (Ibid.) This application is made ex- parte to the court. Ex-parte motions are required to follow California Rules of Court, rule 379, which governs notification requirements of the judgment debtor. If the dwelling is not located in the county where the judgment was entered, the judgment creditor must also file an abstract of judgment with the application and pay a $40 fee. The application must be executed under penalty of perjury, and must state the following:
- The legal description of the property and the street address of the dwelling;
- Whether the records of the county tax assessor indicate that there is a current homeowner’s or disabled veteran’s exemption for the dwelling and, if so, the persons claiming such exemption;
- Whether the dwelling is a homestead and the amount of the homestead exemption. This statement may be made on information and belief; and whether the county recorder’s records indicate that a homestead declaration has been recorded by the judgment debtor or his or her spouse (see Homestead Exemption Discussion, below);
- The amount of any liens or encumbrances on that dwelling, and the names and addressesof the lien-holders. (Code Civ. Proc., § 704.760.)
The attorney must also, together with the ex-parte application, submit an order to show cause regarding the sale of the dwelling to be signed by the judge and issued to the debtor. (Code Civ. Proc., § 704.770, Subd. (a).) The order requires the debtor’s attendance and explanation of why an order for sale should not be made in accordance with the judgment creditor’s application. Ubid.) The hearing for both the order to show cause and the application for order of sale can be heard no later than forty-five days after the application is filed. (Ibid.)
Step 3: Service by Judgment Creditor
At least thirty days before the hearing, the judgment creditor must satisfy the following service requirements:
- The creditor must serve the judgment debtor with copies of the Order to Show Cause, the application for order of sale and the official notice of hearing form. Service may be made personally or by mail.
- The creditor must also personally serve the above documents on an occupant of the dwelling; or, if there is no occupant present when service is attempted, must post the documents in a conspicuous place at the dwelling. (Code Civ. Proc., § 707.770, Subd. (b)(l), (2)-)
Note : The creditor essentially must complete the above service requirements within fifteen days. A hearing on the application can be no later than forty days after service of the application for order of sale, and the above service requirements must be met at least thirty days before the hearing date. That leaves the judgment creditor only fifteen days to effectuate service on the judgment debtor.
Step 4: Hearing and the Order
Upon the filing of the application and order to show cause, a hearing must be conducted by the court allowing the defendant an opportunity to oppose the application. (Code Civ. Proc., §704.780.) At the hearing, the court must first determine whether the dwelling is subject to the homestead exemption. If the exemption applies, the court must then:
- Determine the amount of the exemption (see discussion on exemptions below);
- Determine the Fair Market Value of the Dwelling; and
- Issue an order for sale of the dwelling subj ect to the homestead exemption, unless the court determines sale of the dwelling is not likely to produce a bid high enough to satisfy any part of the judgment creditor’s judgment (if the court finds the dwelling is not exempt, it need only issue an order for sale.) (Code Civ. Proc., §704.780, subd. (a)(l).)
Step 5: Issuance of the Order for Sale
An order for sale of the dwelling subject to the homestead exemption must set forth the amount of sale proceeds to be distributed to persons with liens or encumbrances on the dwelling and the names and addresses of each such person. (Code Civ. Proc., § 704.780, subd. (b).) If the court determines sale of the dwelling is not likely to produce a bid greater than the combined amount of the homestead exemption and all senior encumbrances, the property will not be ordered sold. (Ibid) The court clerk must transmit a certified copy of the order to the levying officer. (Code Civ. Proc., § 704.780, subd. (c).)
Step 6: Debtor’s Right to a Re-Hearing if He/She Fails to Appear
If the judgment debtor (or the attorney) fails to appear at the hearing, the debtor must be given an opportunity to request another hearing. Within ten days after the date of the order of sale, the judgment creditor must:
- Personally serve or by mail a copy of the order of sale and notice of the order using the official form “Declaration for Rehearing on Homestead Exemption” on the judgment debtor and the judgment debtor’s spouse;
- Personally serve the same documents on an occupant of the dwelling; or, if there is no occupant present when service is attempted, Post the documents in a conspicuous place at the dwelling. (Code Civ. Proc., § 704.790, subd. (b).)
Proof of service and of any posting must be filed with the court and levying officer. (Code Civ. Proc., § 704.790, subd. (c).) Failure to comply will result in the dwelling not being sold pursuant to the court order. (Ibid.) If the judgement debtor or spouse files the “Declaration for Rehearing on the Homestead Exemption” with the levying officer within ten days after being served with the notice of the order for sale (extended five days if served by mail), the levying officer must transmit the declaration to the court. (Code Civ. Proc., § 704.790, subd. (d).) The court must then set the rehearing for a date within twenty days of the date the court receives the declaration and the clerk must give prompt notice of the rehearing to the parties. (Ibid.)
Step 7: Execution Sale of Dwelling
An execution sale of a real property dwelling is noticed, advertised, and conducted in the same manner as the sale of any other real property. However, the minimum bid requirements are extremely severe.
The bid at the sale must exceed all liens and encumbrances plus the exemption amount. (Code Civ. Proc., § 704.800, subd. (a).) The highest bid may be accepted by the levying officer only if it exceeds the amount of the homestead exemption plus the amount needed to satisfy all liens and encumbrances on the property. (Ibid.) In addition, if the highest bid does not equal at least 90 percent of the property’s fair market value (as determined by the court), the property may not be sold unless, upon the judgment creditor’s motion, the court:
- Grants permission to accept the highest bid (which still must exceed the exemption and lien amounts); or
- Makes a new order for sale. (Code Civ. Proc., § 704.800, subd. (b).)
If an adequate bid is not received, the property may not be sold and must be released from the execution lien. (Code Civ. Proc., § 704.800, subd. (a).) However, the creditor’s judgment lien should remain on the property. Any property so released may not be subjected to a court order of sale upon a subsequent application by the same judgment creditor for a period of one year. (Ibid.)
Step 8: Costs
lf an adequate bid is received at the sale, the judgment creditor is entitled to recover reasonable costs incurred in connection with the sale of the dwelling. (Code Civ. Proc., §704.840, subd. (a).) This includes reasonable appraisal fees and fees for beneficiary statements and title reports. (Ibid.) However, if the highest bid does not exceed the amount of the homestead exemption plus “all liens and encumbrances,” the judgment creditor is not entitled to recover any costs of the levy. (Code Civ. Proc., § 704.840, subd. (b).)
Step 9: Distribution of the Proceeds
If an adequate bid is received, the proceeds of the sale are distributed by the levying officer in the following order:
- To discharge all liens and encumbrances on the property;
- To the judgment debtor in the amount of the homestead exemption;
- To the levying officer for all un-advanced costs;
- To the judgment creditor, in the following order: a. To satisfy the costs and interest accruing after issuance of the writ of execution for the sale; and then b. To satisfy the amount due on the judgment, with costs and interest (as entered on the writ of execution). (Code Civ. Proc., § 704.8l0.)
Note – There_is no right of redemption following an execution sale of real property, and such sales generally cannot be set aside.
California provides an automatic “dwelling exemption” against the forced judicial sale of the dwelling occupied by the judgment debtor or the debtor’s spouse. (Code Civ. Proc., § 704.720) The judgment debtor or other exemption claimant need not file a claim of exemption after a real property dwelling is levied upon. (Ibid.) Rather, the judgment creditor is required to obtain a court order for sale of the real property homestead. (Code Civ. Proc., § 704.750) The automatic exemption applies only to forced judicial sales of the debtor’s dwelling. (Code Civ. Proc., §704.720, subd. (b), In re Wilson (9th Cir. 1996) 90 F.3d 347, 350-351.) If the debtor voluntarily sells the property, the proceeds are not exempt. (Ibid.) If a homestead is sold at an execution sale, the exempt proceeds of the sale remain exempt for six months after they are received by the judgment debtor. (Ibid.)
An essential requirement of the dwelling exemption is that the claimant reside on the property on the date the judgment creditor’s lien attached and continuously thereafter. (Code Civ. Proc., § 704.710, subd. (c).) Therefore, a judgment debtor may not move into a dwelling to create an exemption after the creditor obtains a judgment lien or after levy. Ubid.) The dwelling exemption is not available for vacation homes because the dwelling must be the debtor’s principal residence. (Ibid.) The amount of the dwelling exemption is determined by the status of the debtor and the underlying circumstances:
- The current amount of a single debtor exemption is $50,000;
- The exemption is increased to $75,000 if the judgment debtor or the debtor’s spouse who resides in the homestead is, at the time of the attempted sale, a member of a “family unit” and: a. At least one member of the “family unit” owns no interest in the homestead; or b. One family unit member’s sole interest in the homestead is a community property interest with the judgment debtor;
- The exemption is $150,000 if the judgment debtor or spouse who resides in the homestead at the time of the attempted sale meets either the “elderly,” “disabled,” or “low income” qualifications. a. The debtor or spouse is either at least sixty-five years old, or physically or mentally disabled so as to be unable to engage in “substantial gainful employment” (substantial gainful employment is rebuttably presumed if the disabled debtor or spouse is receiving Social Security disability or Social Security benefits); b. The debtor is not married and at least fifty-five years old with a maximum $15,000 gross amiual income (including gross annual income of the judgment debtor’s spouse); or c. The debtor is married and at least fifty-five years old with a maximum $20,000 gross annual income (including gross annual income of the judgment debtor’s spouse). (Code Civ. Proc., § 704.730)
Special Rules Applicable to Married Persons:
The maximum combined homestead exemption for spouses on the same judgment cannot exceed $75,000 or $150,000 regardless of whether the spouses are jointly liable on the judgment or the homestead consists of community property or separate property (or both). (Code Civ. Proc., § 740.730, subd. (b).)
Unmarried Joint Tenants/Tenants in Common
If unmarried judgment debtors own a dwelling as joint tenants or co-tenants, their interests in the dwelling must be sold together. (Code Civ. Proc., § 704.780, subd. (a).) Each judgment debtor entitled to a dwelling exemption may apply it to his or her own interest. (Ibid.) Further, a debtor need not hold entire fee interest in dwelling. A debtor having less than the entire fee in the dwelling may nonetheless assert the dwelling exemption in connection with an execution sale of the property. (In re Hsia (ND CA 1995) 183 B.R. 201, 204 [claimants held undivided joint tenancy interests].) California allows the “automatic dwelling” exemption to be asserted by a tenant in common in connection with a court-ordered partition sale of the property. (Amin v. Khazindar (2003) 112 Cal.App.4th 582, 591 .) An execution sale of a debtor’s interest in joint tenancy property terminates the joint tenancy and extinguishes the right to survivorship, so that the purchaser at the execution sale becomes a tenant in common with the co-owners of the property. (Schoenfeld v. Norberg (1970) 11 Cal.App.3d 755, 760.)
THAT'S THE STEP-BY-STEP PROCEDURE
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