California Reverse Mortgage Foreclosure Rules

When Your California Reverse Mortgage Can Come Due

"Due and payable" means the full loan balance must be repaid. That balance includes the interest and charges added over the years. Civil Code section 1923.2(f) says a California reverse mortgage may become due and payable when any one of these events occurs:

• The home is sold. This also covers any other transfer of title.
• No borrower lives there. All borrowers have stopped occupying the home as a principal residence, except as the absence rules below allow.
• A fixed maturity date arrives. This applies only if the lender and the borrower agreed to one.
• The lender's security is put at risk. This must be an event that the loan documents specify.

Two different kinds of events can lead to foreclosure. A monetary default is a missed money obligation, such as unpaid taxes, insurance or HOA dues. A non-monetary event is a death, a sale or a permanent move. This difference shapes which options remain later in the process, as the reinstatement section below explains.

For a HECM, the federal mortgage terms in 24 C.F.R. § 206.27(c) also list due-and-payable events. These include a borrower's death when no surviving borrower lives in the home, with a deferral for an Eligible Non-Borrowing Spouse, as well as unpaid property charges and a failure to perform a mortgage obligation. More detail is in this guide on reverse mortgages and non-borrowing spouses.

Knowing which kind of event triggered the default shapes what choices remain.

Will a Hospital Stay or Absence Put the Loan at Risk?

A family often asks whether a hospital stay or a few months with relatives puts the loan at risk. California sets two rules. Under Civil Code section 1923.2(g)(1), a temporary absence of no more than 60 consecutive days does not make the loan due. Under section 1923.2(g)(2), a longer absence does not make the loan due either, as long as it lasts more than 60 consecutive days but less than one year, and one more condition is met. Before leaving, the borrower must have taken steps to secure and protect the home in a way the lender accepts, as the loan documents specify.

The California statute does not set a separate rule for medical stays. For a HECM, the federal terms address illness directly. Under 24 C.F.R. § 206.27(c)(2)(ii), the loan can become due, with HUD's approval, if a borrower does not live in the home for longer than 12 consecutive months because of physical or mental illness, and no other borrower lives there as a principal residence.

Two more parts of section 1923.2(g) apply after the due date. Under (g)(3), the lender's right to collect is subject to the statute of limitations for written loan contracts. That period starts on the date the loan becomes due and payable. Under (g)(4), the lender must prominently disclose in the loan agreement any interest rate or fees charged between the due date and full repayment.

How the loan documents treat a particular absence is a question the servicer can answer.

Whether a particular absence affects the loan depends on its length and what the loan documents require.

HUD's Steps for a HECM, Briefly

On a HECM, HUD sets its own steps before a foreclosure starts, and the site's page on reverse mortgage foreclosure and default rules explains them in full. Under 24 C.F.R. § 206.125(a), the servicer notifies HUD when the loan becomes due. HUD's approval is needed for events such as a move or unpaid property charges. The servicer then notifies the borrower, the eligible spouse, the estate or the heirs. They have 30 days to act. Their options include paying the balance, selling the property, giving a deed in lieu of foreclosure, or correcting a condition that did not arise from the last borrower's death.

For unpaid taxes or insurance, 24 C.F.R. § 206.205(e) gives the borrower 30 days to respond to the servicer's written notice. Even after foreclosure begins, § 206.125(a)(3) generally lets a borrower correct the condition and reinstate the loan. Reinstatement costs are added to the balance. The servicer may refuse in three cases: if it accepted a reinstatement within the past two years, if reinstatement would prevent a later foreclosure, or if it would harm the lien's priority.

Liability is limited. Under 24 C.F.R. § 206.27(b)(8), the borrower has no personal liability for the balance, and the lender may collect only through sale of the property. The federal statute, 12 U.S.C. § 1715z-20(d)(7), says the same about any shortfall after the sale. Civil Code section 1923 likewise defines a California reverse mortgage as a "nonrecourse loan."

California adds two more rules. Under section 1923.3, the loan is a lien, or legal claim, on the home for all advances and accrued interest. That lien has priority over liens recorded later. Under section 1923.2(e), a lender that fails to make required advances, and does not cure the default after notice, forfeits to the borrower three times the amount wrongly withheld, plus interest. HUD describes the HECM program on its HECM program page.

California's Foreclosure Steps: Notice of Default to Sale

In California, a foreclosure under a deed of trust can move forward without a court case. This is called nonjudicial foreclosure, and the Civil Code sets its steps.

The process starts with a notice of default. Under section 2924(a)(1), the trustee or lender first records this notice with the recorder of the county where the home sits. The notice must do four things:

• Identify the deed of trust. It names the trustor and states where the deed is recorded, or describes the property.
• State that a breach occurred.
• Describe each known breach. It also states the election to sell the property.
• Include the cure statement. This applies where the default can be cured under section 2924c.

A waiting period follows. Under section 2924(a)(2) and (3), at least three months must pass after the notice of default is recorded. Only then is a notice of sale given, stating the time and place of the sale. Section 2924(a)(4) has one exception. The notice of sale may be recorded up to 5 days before the three months end, as long as the sale date is no earlier than three months and 20 days after the notice of default was recorded. A trustee's sale follows.

Under section 2924c(b)(1), the notice of default must begin with a statement headed "IMPORTANT NOTICE." It reads in part: "IF YOUR PROPERTY IS IN FORECLOSURE BECAUSE YOU ARE BEHIND IN YOUR PAYMENTS, IT MAY BE SOLD WITHOUT ANY COURT ACTION." It ends: "YOU MAY LOSE LEGAL RIGHTS IF YOU DO NOT TAKE PROMPT ACTION."

Can the Default Be Cured and the Loan Reinstated?

The question at this step is whether the home can still be kept. When the problem is money owed, California law gives a way back. To reinstate the loan means paying the overdue amounts so that the loan returns to good standing.

Section 2924c(a)(1) covers loans that have been declared due because payments were missed or because taxes, assessments, insurance premiums or lender advances went unpaid. In those cases, the borrower or another person the statute names may pay the amounts in default, plus permitted costs and fees. Once paid, the proceedings are dismissed or discontinued, and the loan is reinstated "the same as if the acceleration had not occurred."

Section 2924c(e) sets the timing. A monetary default may be reinstated from the date the notice of default is recorded until five business days before the sale date in the notice of sale. If the sale is postponed, or a new notice of sale is recorded, the right can revive as that subdivision describes. No right to reinstate exists during the last five business days before a sale.

Section 2924c's cure right is written for defaults of the kinds it lists, such as missed payments or unpaid taxes, assessments, insurance premiums or advances. It does not list a loan coming due because the last borrower died or the home was sold; for a HECM, the HUD options described above apply then. Because the reinstatement window closes before the sale, reaching the servicer and a HUD-approved housing counselor early keeps more options open.

The Servicer's Duty to Make Contact, and Its Limits

Some families wonder why no one called before the notice arrived. Civil Code section 2923.5 sets contact rules for the loans and servicers it covers. A servicer may not record a notice of default until 30 days after first contacting the borrower, or 30 days after meeting the statute's due-diligence steps for reaching the borrower. During that contact, the servicer must tell the borrower of the right to request a further meeting. If the borrower asks, the meeting must be scheduled within 14 days. The servicer must also give HUD's toll-free number for finding a HUD-certified housing counseling agency. Under section 2923.5(d), a borrower may give written consent for a HUD-certified housing counseling agency, an attorney or another advisor to speak with the servicer on the borrower's behalf.

These rules have limits. Section 2924.15(a) says section 2923.5 applies "only to a first lien mortgage or deed of trust that is secured by owner-occupied residential real property containing no more than four dwelling units." Section 2924.15(b) defines "owner-occupied" as the borrower's principal residence, securing a loan for personal, family or household purposes. Under its own subdivision (g), section 2923.5 also applies only to certain entities that another section of the Civil Code describes. No supplied official page says whether these contact rules reach a reverse mortgage; the servicer, a HUD-approved housing counselor or an attorney can say for a particular loan.

The Attorney General's Homeowner Bill of Rights page describes these protections for homeowners facing foreclosure generally. They include notice of options to avoid foreclosure, limits on fees, and limits on "dual tracking," which means pursuing foreclosure while a loan-modification application is being decided.

Foreclosure Rescue Scams

A notice of default is a public record. Scammers can find it. The California Courts Self-Help Guide warns that fraudulent companies search these records to "offer help" and then may take money and do nothing.

The Attorney General gives several warnings:

• No advance payment. No person or company may demand advance payment for loan modification services in California.
• Consultants must register. Mortgage foreclosure consultants who offer to stop a foreclosure must register with the Attorney General.
• Only the lender can stop it. The Attorney General says only the lender or servicer has the discretion to stop a foreclosure.

The Attorney General also speaks to reverse mortgages directly. A borrower "can face foreclosure should they fall behind on tax, insurance, or HOA payments." Those facing foreclosure on a reverse mortgage "should consult a lawyer." A spouse not listed on the mortgage who faces a demand to repay "should seek legal help."

The Department of Financial Protection and Innovation warns about a "mortgage rescuer" who asks for the deed in exchange for renting the home back. The Department of Real Estate urges seniors never to pay in advance for foreclosure relief services.

Where California Homeowners Can Get Help

Help can come from several directions at once. The servicer named on the notice is the first contact. It can state the amount owed and explain the options under the loan documents.

A HUD-approved housing counselor can explain those options in plain terms. HUD's HECM program page points to its HECM Counselor Roster and the number (800) 569-4287. The counseling that came before the loan is a different service, described in this guide to HUD reverse mortgage counseling.

A lawyer can say how the statutes apply to the family's own facts. The California Department of Aging states that legal services for housing and consumer fraud problems are available to persons 60 or older, regardless of income, through the local Area Agency on Aging. The courts' Self-Help Guide also offers general foreclosure information.