Benefits. The primary benefit of a judicial foreclosure over a nonjudicial foreclosure (trustee sale) is the ability to obtain personal money judgment in addition to the foreclosure. This feature is relevant if the amount of equity in the property is insufficient to cover the association's lien once all liens senior to the association's lien have been satisfied. It also has the benefit of allowing for court-authorized publication of certain notices where the owner is deceased.
Initiating Judicial Foreclosure. The process of collecting starts with following the procedures outlined in Civil Code §5660 including sending a statutorily compliant notice of intention to lien (or pre-lien letter) followed by a statutorily compliant recording of a notice of assessment lien. The Association then files a lawsuit seeking two remedies: money damages against the owner personally and the right to foreclose on the association’s lien.
Litigation. In approximately 95% of judicial foreclosure cases, a defendant will fail to answer the complaint and this will permit the Association to file a default against the defendant. The legal effect of a default is removing the defendant as an active litigant to the case which then permits the association to seek a judgment against the defendant. If the defendant answers the lawsuit, the case is litigated as any other case.
Deficiency Judgment. Should the board elect to foreclose on the property and the proceeds from the sale not yield enough to cover the amount of the association’s judgment, the association can apply for a deficiency judgment against the defendant. The application for a deficiency judgment must be made within 3-months of the issuance of the foreclosure sale. Failure to seek a deficiency judgment within this time waives the Association’s right to seek it later on, without exceptions. (Code Civ. Proc. §726; Life Savings Bank v. Wilhelm (2000) 84 Cal.App.4th 174.) A deficiency judgment is effectively a hearing before the court for the court to determine the amount of deficiency based on the fair market value of the property sold.
Excess Funds. If the property has more equity than what is needed to cover the judgment amount, the former owner has a right to recover any surplus funds after the costs of sale have been paid, the judgment is paid, and any senior and then junior liens are satisfied (in order of their priority) (Cockerell v. Title Ins. & Trust Co. (1954) 42 Cal.2s 284; Schumacher v. Gaines (1971) 18 Cal.App.3d 994).
Redemption Rights. One of the negatives to judicial foreclosures is the owner's right of redemption. In a trustee's sale, the redemption period is 90 days. In a judicial foreclosure, the redemption period is 90 days if the proceeds of the sale are sufficient to satisfy the association's lien. Code Civ. Proc. §729.030(a). The redemption period becomes one year if the monies from the sale are insufficient to satisfy the delinquency plus interest and collection costs. Code Civ. Proc. §729.030(b). The redemption period prevents the association from taking possession of the property unless the foreclosed owner voluntarily turns over possession.
Negatives. Judicial foreclosures can take longer and cost more than simple money judgment or a trustee's sale, especially when the matter is contested by the delinquent owner. As a result, associations tend to use small claims and superior court personal money judgments and trustee sales more often than judicial foreclosures.
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