Not legal advice. This article is educational. For legal questions about your specific deal, consult a California real estate attorney.

California is an attractive market for private lenders and investors—but it’s also one of the most regulated. If you’re borrowing or brokering hard money in the state, understanding how foreclosure actually works in California is critical. The state’s rules determine how quickly a lender can recover collateral, whether a deficiency is allowed, and what protections apply to owner-occupants vs. business-purpose borrowers. Those realities flow directly into pricing, leverage, timelines, and covenants on your loan.

Below is a plain-English briefing on the California foreclosure process—and how those guardrails shape private lending.

The two foreclosure paths in California

California recognizes two primary foreclosure routes:

  1. Nonjudicial foreclosure (trustee’s sale via the power of sale in a deed of trust)
    • This is the most common path for 1–4 unit properties and many commercial deals because it’s faster and doesn’t require filing a lawsuit. The timeline is driven by statutory notices: Notice of Default (NOD), then Notice of Trustee’s Sale (NOTS), and sale.
  2. Judicial foreclosure (a lawsuit in Superior Court)
    • Slower and more expensive, but the lender may seek a deficiency judgment (subject to significant limits) and the borrower may have a post-sale redemption right.

Why this matters for hard money: Most private loans are structured to allow nonjudicial foreclosure. A faster, more predictable remedy typically supports higher LTVs and faster closings than if a lender had to sue in court.

The nonjudicial timeline (and what borrowers can still do)

Here’s the high-level cadence for a typical trustee’s sale in California:

  • Record a Notice of Default (NOD). After required pre-contact steps (where applicable), the trustee records the NOD and mails copies. This starts the public foreclosure clock.
  • Wait at least 90 days, then record a Notice of Trustee’s Sale (NOTS). The NOTS sets the sale date, which must be at least 20–21 days out (practitioners commonly treat it as 21). Borrowers (and junior lienholders) generally retain a right to reinstate up to five business days before the sale by bringing the loan current.
  • Conduct the trustee’s sale. Title transfers to the high bidder (or the beneficiary credit-bids).

Key borrower protection: In many owner-occupied contexts, California requires outreach/“contact” efforts before recording the NOD, and a declaration to that effect. (Consumer protections like the California Homeowner Bill of Rights—HOBR—focus on primary residences and do not extend to most business-purpose investor loans.)

SB 1079: The 45-day post-sale window that changes bidding dynamics

SB 1079 reshaped aspects of California trustee’s sales for 1–4 unit residential properties. Among other things, eligible bidders—such as owner-occupants, certain nonprofits, and public entities—can step in after the auction and buy the property within a 45-day window, subject to strict notice and payment rules. The law also discourages bulk “bundled” sales at trustee auctions. For investors and lenders, this can affect post-sale certainty and timelines on certain assets.

Impact on private lending: Because the sale isn’t always the end of the story for covered 1–4 unit properties, some lenders price for added timing risk after auction, especially where an owner-occupant or mission-driven buyer could exercise rights.

Deficiency judgments: when a lender can (and can’t) pursue you for a shortfall

Two California statutes loom large:

  • CCP § 580d (nonjudicial foreclosure): If the lender forecloses nonjudicially, a deficiency judgment is generally barred against the borrower. In other words, the sale price is the lender’s remedy; they can’t sue you for any leftover balance. (There are nuances for guarantors.)
  • CCP § 580b (purchase-money anti-deficiency): For owner-occupied, purchase-money loans (and certain refis), California prohibits deficiency judgments even if the lender forecloses judicially. This is a consumer protection—not typical for business-purpose investor loans.

Impact on hard money terms: Because private lenders using nonjudicial foreclosure can’t collect a deficiency from the borrower post-sale (again, guarantor issues aside), many price risk into lower LTVs, interest-only payments, and tight covenants, or they may require personal/limited guarantees and conservative valuations.

What applies to investors vs. owner-occupants

A major source of confusion is which protections apply to business-purpose loans (typical hard money) vs. consumer/owner-occupied loans:

  • HOBR & loss-mitigation rules primarily protect owner-occupants on their first-lien principal residences. Business-purpose loans secured by investment property generally don’t get HOBR’s full suite (e.g., dual-tracking restrictions), though basic notice rules still apply.
  • California Financing Law (DFPI) licensing governs the lender/broker making consumer and commercial loans—it’s about who can lend and how, not about giving investors homeowner-style foreclosure relief.

Translation for borrowers: If you’re an investor taking a business-purpose hard money loan, expect fewer procedural “pauses” and a more streamlined path to sale in a default—another reason lenders can offer speed on the front end and require clear exit plans.

Practical effects on private hard money structures

  1. LTV & pricing reflect recovery speed. Because nonjudicial is available and generally predictable, many California private loans cap leverage around ~65–70% of value and use interest-only payments—balancing lender recoverability with borrower flexibility. (Exact caps vary by asset, sponsor strength, and market.)
  2. Covenants force early course-correction. Expect maturity dates, construction milestones, and draw inspections that prompt borrowers to engage well before the NOD stage.
  3. Guaranties and carve-outs. Even where 580d bars a deficiency against the borrower after a trustee’s sale, lenders may rely on guarantor liability (subject to “sham guaranty” limits) to deter waste, fraud, or bad-faith transfers.
  4. Collateral selection. Lenders look for clean title, clear priority, and sell-through potential at trustee’s sale. Properties with complex tenancy or regulatory overlays (e.g., rent-controlled, SB 1079-eligible) can price wider to reflect added timing/remarketing risk.

Where timelines matter most (from a borrower’s standpoint)

  • Cure/reinstate window. After the NOD is recorded, borrowers can typically reinstate (catch up arrears) until five business days before the sale—then the lender may require a full payoff. Building your “Plan B” well before that cutoff is crucial.
  • Sale-date dynamics. The NOTS requires ~20–21 days of lead time. Sales occur on business days during posted hours. Investors trying to rescue a deal via refi or sale must work backward from those hard dates.
  • Owner-occupied pre-NOD contact. In consumer contexts, the servicer must try to make contact and explore options before the NOD—this can add weeks to the clock. (Again, not typical for business-purpose.)

How these rules shape your hard money strategy

For borrowers/investors

  • Model conservative exits. Since deficiencies are barred after a nonjudicial sale, lenders underwrite to the collateral. Borrowers should size leverage and rehab budgets so that sale or refi remains viable even under softened ARV.
  • Plan around SB 1079 when relevant. For 1–4 unit residential collateral, factor in the 45-day eligible-bidder period after auction when evaluating worst-case timelines. This can affect how quickly a lender (or you, if credit-bidding) gains unencumbered title.
  • Communicate early. If schedule or budget slips, engage your lender before the five-day reinstatement cutoff. Many will modify/extend for a fee if progress and exit are credible.

For brokers

  • Set expectations on process & rights. Explain that business-purpose loans move faster both on funding and on foreclosure if a deal goes sideways—hence the focus on clean files, clear budgets, and exit plans.
  • Use compliance-first partners. Work with licensed California lenders (CFL/DFPI) and ensure docs (deed of trust, assignments, notices) track state law—enforceability matters when the market wobbles.

FAQs (quick hits you can use with clients)

Is foreclosure “easier” for hard money lenders?
Not easier—faster when structured for nonjudicial sale. The timeline is statute-driven and predictable, which is why private loans can close quickly up front.

Can a lender chase me for the balance after the sale?
If the lender forecloses nonjudicially, CCP § 580d generally bars a deficiency judgment against the borrower (guarantor issues aside). Judicial foreclosures are different and less common in this space.

Do homeowner protections apply to investor loans?
Most HOBR protections target owner-occupied primary residences. Business-purpose investor loans usually don’t receive those same protections, though core notice rules still apply.

What’s with the 45-day post-sale window I’ve heard about?
For certain 1–4 unit properties, SB 1079 gives eligible bidders (like owner-occupants and certain nonprofits) time after auction to purchase the property—affecting post-sale certainty and timing.

Bottom line

California’s foreclosure framework is predictable but strict. For private hard money, that means fast remedies (via nonjudicial sale), limited deficiency recovery, and special post-sale rules (SB 1079) on certain residential assets. Lenders price, size, and covenant loans around those facts—and borrowers who understand them can negotiate smarter terms, avoid surprises, and protect profits.

If you want a quick read on how these rules would affect your loan scenario (fix-and-flip, bridge-to-refi, cash-out, or construction), we can walk you through a California-specific term preview and timeline. Reach out.