A notice of default on a rental or project property does not mean the property is lost. It means a clock has started, and in California the Civil Code sets its length. If you own the property as an investment, you have two ways to stop a trustee’s sale: catch up what is past due, or pay the loan off. This post covers the timeline, the two moves and the math of a bailout loan when catching up is not enough.
We are a direct lender in San Diego. This is general information, not legal advice: have a real estate attorney read your notice and your loan documents.
If the property is your home, read this first
Everything below is about investment property: a rental, a flip or a project you do not live in. If the property in default is your own home, different rules and protections apply, and this post is not your guide.
California’s Homeowner Bill of Rights generally applies to first-lien loans on owner-occupied homes of no more than four units, and Civil Code 2924.15 limits a list of its protections to a home that is your principal residence, securing a loan made for personal, family or household purposes.
If that describes your situation, talk to a HUD-approved housing counselor before you talk to any lender. Our owner occupied program is a consumer loan with its own rules, and nothing in this post describes it.
How a California foreclosure runs on a deed of trust
A California investment loan is commonly secured by a deed of trust, which lets a trustee sell the property without a court case if the loan is not repaid. The statute sets the steps and the minimum gaps between them.
| Step | Minimum timing | Statute |
|---|---|---|
| Notice of default recorded | Starts the clock | Civil Code 2924 |
| Waiting period | At least three months from the recording | Civil Code 2924 |
| Notice of trustee’s sale posted, published and recorded | At least 20 days before the sale date | Civil Code 2924f |
| Earliest possible sale date | Three months and 20 days after the notice of default records | Civil Code 2924 |
| Last day to reinstate | Five business days before the scheduled sale date | Civil Code 2924c |
| Last chance to pay off | Before the sale | Civil Code 2903 |
The notice of default is recorded with the recorder of the county where the property sits and must state the breach and the lender’s election to sell (Civil Code 2924). The lender may record the notice of sale up to five days before the three months run out, but the sale cannot be set earlier than three months and 20 days after the notice of default.
The notice of trustee’s sale is posted in a public place and on the property, published once a week for three consecutive calendar weeks with the first publication at least 20 days before the sale, and recorded at least 20 days before the sale (Civil Code 2924f). On residential property of one to four units, that notice must also warn that the date may be postponed one or more times by the lender, the trustee or a court. Treat the first date as the real one.
Reinstating versus paying off
Reinstating is catching up. You pay everything in default: missed payments, advances the lender made for taxes, assessments or insurance, payments that came due after the notice was recorded, and the costs and trustee’s or attorney’s fees the statute allows. The foreclosure is then dismissed and the loan carries on as if it had never been accelerated (Civil Code 2924c).
You can reinstate from the day the notice of default records until five business days before the sale date. If the sale is postponed by more than five business days, the right revives until five business days before the new date. The notice of default also tells you that the lender will itemize the amount on written request, and that before the notice of sale is posted you and the lender may agree in writing to more time or a payment schedule.
One trap: that cure is written for a loan whose balance became due before its maturity date because of a default. If your loan has already matured, the balance is due on the note’s own terms, so expect a payoff quote rather than a reinstatement, and have your attorney confirm how your documents read.
Paying off is redeeming. California gives anyone with an interest in the property the right to redeem it from a lien after the debt is due and before that right is foreclosed (Civil Code 2903). In practice that means paying the entire balance the lender demands: principal, interest, any default interest and late charges your note provides for, advances, and the foreclosure costs to date. Once the reinstatement window closes, the statutory notice puts it plainly: unless your loan documents or a written agreement allow more time, paying the entire amount demanded is the only legal right left to stop the sale.
Which one is cheaper depends on the loan you have. If the existing loan carries a rate you want to keep and years left on its term, reinstating costs only the arrears, and on a business purpose file a second mortgage can sometimes fund it, with rates and leverage quoted per property. If the loan has matured, is priced badly or sits with a lender you need to leave, the answer is a payoff, and that usually means a new loan.
Get both numbers in writing, early
First get two figures from your current lender: the reinstatement amount and the payoff. Civil Code 2943 defines the documents. A beneficiary statement shows the unpaid balance, the interest rate and any overdue installments. A payoff demand statement sets out everything required to satisfy the loan in full as of a date, with a per diem so escrow can carry the figure to a later closing.
Three details matter once you are in default:
- The lender has 21 days from receiving your written demand to deliver the payoff demand statement.
- Once a notice of default is recorded, that duty only applies if your demand arrives before the notice of sale is first published. Ask late and you may wait.
- Asking for a statement does not change the sale date.
A licensed escrow holder is also entitled to ask, so have escrow send the demand the day the file opens.
What a bailout lender underwrites
A bailout loan is underwritten on the property, not on the last twelve months of payments. Our hard money residential bridge accepts defaults and notices of default, matured loans and bailouts on non-owner occupied SFR, condo, townhome and 2-4 unit property, and weighs them against the equity. The published terms are up to 75% LTV, 1 or 2 years, $150,000 to $25,000,000 and rates of 9.00% to 13.00%, with a 650 minimum credit score. Rates are subject to change and every loan is subject to underwriting. Four things decide the file:
- Value. An appraisal or, where appropriate, a broker price opinion sets the value the cap applies to, not your own estimate.
- The cap. The new loan has to cover the whole payoff, which already contains the arrears and the foreclosure costs, plus the costs of closing the new loan, all inside 75% of value. That is a ceiling, and a file with a default can be sized below it.
- Title. The preliminary report will show the notice of default and anything else recorded against the property, such as junior liens, tax liens or judgments. Each has to be paid, released or subordinated at closing; our post on title and escrow covers what clears and what stalls.
- The exit. Whatever caused the default has to be solved by the plan that repays the new loan. A bridge that only buys time is a second default with a later date.
A worked example with round numbers
These figures are illustrative only, not a quote. A fourplex held as a rental, valued at $1,000,000, with a notice of default recorded two weeks ago:
- Largest loan at 75% LTV: $750,000.
- Payoff demand: $700,000, made of $650,000 of principal and $50,000 of interest, late charges, advances and foreclosure costs.
- Closing costs on the new loan: assumed at $20,000 for the example. Points and fees are quoted per deal on the Letter of Intent.
- New loan needed: $720,000, or 72% of value, leaving $30,000 of room under the cap.
Interest-only on $720,000 is $5,400 a month at 9.00% and $7,800 a month at 13.00%, carried until the exit closes.
Two things break the math. If the appraisal comes in at $950,000, 75% is $712,500 and the deal is $7,500 short, which you bring to closing. And if the payoff grows by $10,000 a month while the default runs (another assumption), the $30,000 of room is gone in three months, just before the earliest sale date the statute allows.
Start early: every week removes an option
In the first weeks, every route is open: reinstate, refinance, sell on your own timeline or agree new terms with the lender. Then the doors close in order. Once the notice of sale is published, the 21-day payoff rule stops covering new requests. Five business days before the sale, reinstatement ends. After that only a full payoff works, and a payoff funded by a new loan still needs title, a valuation and escrow.
If selling is the plan anyway, Civil Code 2924f gives one to four unit residential property a 45-day postponement, once, when the trustee receives from the owner a listing agreement with a California licensed broker at least five business days before the sale, by certified mail or a tracked courier.
Our standard process closes in 5 to 7 days once the file is complete and as fast as 3 days on a clean file; the bridge program’s published range is 3 to 14 days. Our post on how fast a hard money loan can close explains what decides where a file lands. Call when the notice of default arrives, not when the notice of sale is posted on the property.
The exit: how the bailout loan ends
A bailout bridge runs 1 or 2 years, and the plan that repays it matters as much as the property.
- Sale. You sell on your own timeline instead of the trustee’s, and escrow repays the bridge.
- Refinance into a rental loan. Once the defaulted loan is paid off and the property is stable, a rental DSCR loan can take out the bridge: 5, 7, 30 and 40 year fixed terms, up to 80% LTV, a 620 minimum credit score and no debt-to-income calculation. Ask how a recent default reads on the takeout before you sign the bridge.
- Sale of another asset. Credible when that sale is under contract or the money is committed.
Our post on the hard money exit strategy shows how lenders test each one.
Commercial property in default
A commercial property under a deed of trust goes through the same notice of default and trustee’s sale steps, and the trigger can be a maturity rather than a missed payment: the balloon comes due and the refinance is not ready. Our hard money commercial bridge covers retail, office, industrial, multifamily, mixed use and land at up to 70% LTV, on otherwise the same published terms (1 or 2 years, $150,000 to $25,000,000, 9.00% to 13.00%, 650 minimum credit score), with defaults, matured loans and bailouts accepted and closings in as quickly as 3 days. If a bankruptcy has already been filed, the court is part of the file; see our bankruptcy buyout page.
What to send us
To size a bailout, send the recorded notice of default and any notice of sale, the payoff and reinstatement figures or copies of your written requests, the property details with leases and rents, and your exit with the evidence behind it.
We lend across California from San Diego; see San Diego bridge loans if the property is in the county. Send a loan request or call (619) 617-2797 the week the notice arrives.
