On this page
- How does foreclosure work in California?
- How long do you have to reinstate the loan?
- What are your options?
- Why selling before the auction can protect your equity
- What changes between a 1 to 4 unit building and a 5+ unit loan?
- What happens to the tenants if the building is foreclosed?
- When the loan matures and no one will refinance
- The tax side of forgiven debt
- When to bring in an attorney or a CPA
- A deed of trust with a power of sale lets the trustee foreclose without a court. The minimum sequence is a recorded notice of default, at least three months, a notice of sale at least 20 days ahead, then the auction.
- You can reinstate a monetary default until five business days before the sale date, but that right is written for a loan accelerated before its maturity date.
- Until the trustee's sale the building is yours to sell. A market sale pays the loan off through escrow, and what remains after the liens and costs goes to you.
- AB 2424's listing postponement and 67 percent minimum bid, the SB 1079 bidder rules, the borrower protections listed in Civil Code section 2924.15 and the short sale deficiency bar in Code of Civil Procedure section 580e all stop at four units.
- After a trustee's sale, Code of Civil Procedure section 580d bars a deficiency judgment on that note. Forgiven debt can still create a tax bill.
The earliest a California trustee's sale can happen is three months and 20 days after the notice of default is recorded. Until that sale the building is still yours and you can sell it, even when you are behind on the loan or the loan is coming due and no lender will refinance it. Whether a sale works depends on whether escrow can close before the auction date, and on which rules can move that date.
The same statutes set that calendar for a duplex and for a 40-unit building. Past four units, most of the newer protections fall away.
How does foreclosure work in California?
A deed of trust with a power of sale lets the trustee named in it sell the property without a lawsuit, by the steps that begin at Civil Code section 2924. They come in this order:
- A default. Missed payments, unpaid property taxes or insurance, or a loan that reached its maturity date and was not paid off.
- A notice of default. It is recorded with the recorder of the county where the building sits, which in Los Angeles County is the Registrar-Recorder/County Clerk. On an owner-occupied property of one to four units with a first lien, section 2923.5 first requires the servicer to contact the borrower, or make diligent attempts, and then wait 30 days.
- At least three months. Section 2924 makes that much time pass after the notice of default before the sale can be noticed.
- A notice of trustee's sale. Under section 2924f it is posted on the property and in a public place, published weekly for three weeks, and recorded, all at least 20 days before the sale date.
- The sale. The trustee auctions the property unless the default is cured, the loan is paid off, or the sale is postponed.
Add those up and the earliest sale date is three months and 20 days after the notice of default records. Section 2924 does let the notice of sale be recorded up to five days before the three months are over, as long as the sale date still falls at least three months and 20 days after the notice of default. For a notice of default recorded on March 2, 2026, that puts the earliest lawful sale on June 22, 2026.
How long do you have to reinstate the loan?
You can reinstate a monetary default at any time from the recording of the notice of default until five business days before the sale date in the notice of sale, under Civil Code section 2924c. A postponement of more than five business days, or a new notice of sale, brings the right back, and it then runs until five business days before the new date.
Ask the trustee for the reinstatement amount in writing. It can include more than the payments you missed, and it changes as the process goes on.
One condition sits in the first line of section 2924c. The right applies when the balance became due, or was declared due, before the maturity date fixed in the loan because of a default in payments, taxes, insurance or advances. A loan that has reached its own maturity date is due in full on its terms, so there are no missed installments to catch up, and a maturity default needs a different plan.
What are your options?
Which exit fits depends on the equity in the building and the number of days left before the sale.
| Option | What happens | Who has to agree | When it fits |
|---|---|---|---|
| Reinstate | You cure the default and the loan continues on its terms | No one, within the section 2924c deadline, for a loan accelerated before maturity | You can raise the full reinstatement amount |
| Modify or forbear | The lender changes the terms, or agrees not to enforce for a stated period | The lender, in a signed agreement | The problem is temporary and you can show how it ends |
| Refinance | A new loan pays off the old one | A new lender | The building's value and income support a new loan |
| Sell at market | The buyer's money pays off the loan in escrow and you keep the rest | You and the buyer, if the price covers every lien | There is equity and enough time to close |
| Short sale | You sell for less than you owe, with the lender's consent | The lender, and any other lienholder being paid less than it is owed | There is no equity and the lender prefers a sale to foreclosing |
| Deed in lieu | You deed the building to the lender instead of waiting for the auction | The lender, which can refuse | There is no equity and no other lien on title |
When the building is worth less than the debt, the choice narrows to a short sale or a deed in lieu, and each needs the lender's consent. On five or more units, the other side of the table may be a special servicer, a note buyer or a court-appointed receiver instead of the bank that made the loan.
Why selling before the auction can protect your equity
At a trustee's sale, Civil Code section 2924k sets the order of payment. The costs of the sale come first, including the trustee's and attorney's fees. Then the loan being foreclosed. Then any junior liens, in order of priority. You receive whatever is left, if anything is. You do not set the price, and you do not choose the buyer.
A sale on the open market turns that around. You set the asking price with evidence behind it, buyers compete, the loan is paid from the buyer's funds at closing, and the equity above the liens is yours. You also avoid a completed foreclosure, which the Consumer Financial Protection Bureau says generally stays on a credit report for seven years.
The limit is the calendar. Escrow has to close before the sale date, or the date has to move. On residential property of one to four units, AB 2424 moves the sale back at least 45 days if the trustee receives your listing agreement with a licensed broker at least five business days before the sale. On anything larger, a postponement is the lender's and the trustee's to give, so ask for it early and get it in writing.
Shaya Lowenstein lists apartment buildings for their owners. Against a sale date, that means pricing the building from its rent roll and nearby sales, getting it in front of buyers quickly, and picking the offer whose escrow can close in time. He represents you as the seller. He does not buy buildings, and he does not lend.
What changes between a 1 to 4 unit building and a 5+ unit loan?
The foreclosure calendar, the reinstatement right and the bar on a deficiency judgment after a trustee's sale apply to a building of any size. Most of the newer protections stop at four units.
| Rule | 1 to 4 units | 5+ units |
|---|---|---|
| Notice of default, three months, notice of sale, sections 2924 and 2924f | Applies | Applies |
| Reinstatement until five business days before the sale, section 2924c | Applies | Applies |
| No deficiency judgment after a trustee's sale, CCP section 580d | Applies | Applies |
| Contact and 30-day wait before the notice of default, and the dual tracking limits, Homeowner Bill of Rights | Owner-occupied first lien home loans only | Does not apply |
| 45-day postponement for a listing agreement, AB 2424 | Residential property only | Does not apply |
| No sale below 67 percent of fair market value at the first sale date, AB 2424 | First lien, residential only | Does not apply |
| Owner-occupant, tenant and nonprofit bidder rules, section 2924m | Residential only | Does not apply |
| No deficiency after a short sale with lender consent, CCP section 580e | Dwelling of up to four units | Does not apply |
Read the Homeowner Bill of Rights row closely. Civil Code section 2924.15 limits those sections to a first lien on owner-occupied property of up to four units, and owner-occupied means the borrower's principal residence, securing a loan made for personal, family or household purposes. An investment fourplex falls outside it, although AB 2424 still covers that same fourplex.
What happens to the tenants if the building is foreclosed?
Bona fide tenants get at least 90 days' notice after a foreclosure sale, first under federal law and again under California's. The federal Protecting Tenants at Foreclosure Act requires the new owner to give that notice before any eviction and to honor a bona fide lease to the end of its term. The exception is a unit sold to a buyer who will live in it, and that buyer can end the lease on 90 days' notice. Congress restored the act without an expiration date in 2018, effective June 23, 2018.
California's Code of Civil Procedure section 1161b runs along the same lines. A month-to-month tenant gets 90 days' written notice to quit after the foreclosure sale. A fixed-term lease signed before the sale lasts to its end, unless the buyer will occupy the unit, the tenant is the borrower or the borrower's child, spouse or parent, the lease was not at arm's length, or the rent is substantially below fair market rent for a reason other than a subsidy. In those cases, 90 days' notice ends it.
When the notice of sale is posted, Civil Code section 2924.8 requires a separate notice to residents, posted on the property and mailed to "Resident of property subject to foreclosure sale." It tells renters that a new owner may offer a new lease or give a 90-day notice. On a building of one to four units, section 2924m also lets a tenant who lives there buy it after the auction by matching the last and highest bid.
The federal act does not override state or local laws that give tenants more protection. Inside the City of Los Angeles, check the building on the Housing Department's RSO property search, since the Rent Stabilization Ordinance covers rental units in the city first built on or before October 1, 1978.
When the loan matures and no one will refinance
A loan that matures unpaid puts the whole balance due on one date, and catching up on payments cannot cure it, because the reinstatement right in section 2924c is written for loans accelerated before maturity. The time you have is whatever passes before the lender records a notice of default, plus at least three months and 20 days after that.
Start before the maturity date. Ask the lender in writing for an extension or a forbearance agreement, test the refinance market with a current rent roll, and get a realistic value for the building so you know whether a sale would clear the balance. If the loan sits in a commercial mortgage-backed security, a default moves it to a special servicer, which is then the party you negotiate with instead of the bank that made the loan.
The tax side of forgiven debt
Under IRS Publication 4681, a debt a lender cancels or forgives for less than the full amount is generally treated as income. After a foreclosure, whether you have canceled-debt income depends partly on whether you were personally liable for the loan and partly on whether the balance was more than the property's fair market value.
For a nonrecourse loan larger than the property's value, the publication says a foreclosure produces no canceled-debt income. The entire debt counts as the amount realized on the disposition instead. Gain or loss is then measured against your adjusted basis, and on a building owned for many years that can mean a taxable gain. Some canceled debt can be excluded, though an exclusion can require reducing other tax attributes, and the exclusion for debt on a principal residence covers only debt discharged before January 1, 2026, or under a written arrangement made before that date.
These rules turn on facts only your CPA can check, such as how the loan was structured and how title is held. Bring the CPA in before you agree to a short sale, a deed in lieu or a loan modification that forgives principal.
When to bring in an attorney or a CPA
Bring in a California real estate attorney as soon as there is a dispute or a document to sign, and a CPA before any debt is forgiven. The attorney is for a payoff figure you dispute, a personal guaranty you signed, a pre-negotiation letter or forbearance agreement the lender wants signed, a request for a receiver, or a decision about bankruptcy. The CPA is for forgiven debt and for the gain that a sale or a foreclosure would produce. Shaya holds a real estate license and gives neither kind of advice.