Legal Updates

Rethinking Foreclosure Strategy for Private Lenders in California

For years, many private lenders approached foreclosure in California as a relatively straightforward remedy. When a borrower defaulted, the path forward was often clear. Initiate the process, follow statutory timelines, and recover through a trustee’s sale. That approach no longer reflects today’s reality. Foreclosure in California has become more nuanced, not because the core process has changed, but because the risks surrounding that process have. Lenders who treat foreclosure as a routine next step are increasingly exposing themselves to delay, cost, and avoidable disputes. The Process Has Not Changed. The Environment Has. At a surface level, non-judicial foreclosure in California still follows the same structure. A Notice of Default is recorded, statutory waiting periods apply, and a Notice of Sale is issued before the property is sold. What has changed is everything around that process. Borrower protections have expanded. Compliance expectations are higher. There is greater scrutiny on how lenders communicate with borrowers and whether alternatives were properly considered before moving forward. As a result, the margin for error is smaller than it was even a few years ago. Foreclosure Is Now a Strategic Decision One of the biggest shifts in the current market is that foreclosure should no longer be treated as an automatic response to default. Instead, lenders should be asking a different set of questions at the outset: Is the borrower cooperative or adversarial? Is there sufficient equity to justify the timeline and cost? Are there viable alternatives that could resolve the loan faster? What is the likelihood of delay based on the borrower’s actions? These considerations often determine outcome more than the foreclosure process itself. When Alternatives Produce Better Results In many cases, lenders are finding that resolving a default outside of foreclosure leads to better results. Loan modifications, negotiated payoffs, and deeds in lieu of foreclosure can reduce both timeline and legal exposure. They also tend to preserve borrower cooperation, which can be critical when dealing with contested situations or distressed assets. This does not mean foreclosure is off the table. It means foreclosure should be one option among several, not the default starting point. Timing and Execution Matter More Than Ever Even when foreclosure is the right path, timing and execution have become more important. Initiating foreclosure too early, without evaluating alternatives or ensuring full compliance, can create unnecessary complications. Waiting too long can erode value or allow a situation to deteriorate further. The most effective lenders are those who approach each default with a clear strategy, rather than relying on a standard process. A Shift in Mindset for Private Lenders The California foreclosure framework still provides lenders with strong remedies. What has changed is how those remedies should be used. Lenders who adapt to this shift and take a more deliberate, loan-specific approach are better positioned to control outcomes, manage risk, and recover value efficiently. Those who continue to treat foreclosure as a routine process may find that it no longer delivers the same results. Melissa Martorella, Esq. Partner at Fortra Law Click to contact Melissa Martorella is a Partner and Department Head of Fortra Law’s Banking and Finance practice group. She manages a large team of attorneys and loan processors in the preparation of loan documents and related transactional documentation, with her practice primarily focused on representing nationwide mortgage professionals and supporting their transactional needs. She also provides the compliance guidance necessary to navigate mortgage lending transactions across all fifty states, leads the firm’s non-judicial foreclosure practice, and advises clients on all default-related matters. Ms. Martorella has been recognized by her peers as a Super Lawyers® Rising Star from 2018 through 2022—an honor awarded to only 2.5% of attorneys—and has been named a Southern California Rising Star each year during that period. She is also actively involved in the industry as General Counsel of the American Association of Private Lenders.