In California a secured lender has two foreclosure options if a note is secured by a deed of trust or mortgage: 1) non-judicial foreclosure and 2) judicial foreclosure. The great majority of lenders proceed by non-judicial foreclosure because it is less expensive and relatively quick. However, there are circumstances where a lender might proceed by way of judicial foreclosure such as when the deed of trust does not contain a power of sale, the lender seeks a deficiency judgment, or the lender has been sued by the borrower. Judicial foreclosures are governed by Code of Civil Procedure section 725a et seq.
In a case of first impression, Arabia v. BAC Home Loans Servicing, the court was asked to determine if Code of Civil Procedure section 725a prohibits a loan servicer from filing a judicial foreclosure action in its name. The court concluded it does not so long as the right to foreclose has been assigned to the loan servicer because there is no such restriction in the text of section 725a.
In a related holding, the court held that the omission of a junior lien holder from the judicial foreclosure lawsuit does not violate section 726 because section 726 subdivision (c) specifically contemplates such a situation.
Section 726 subdivision (c) reads: “Notwithstanding Section 701.630, the sale of the encumbered real property . . . does not affect the interest of a person who holds a conveyance from or under the mortgagor of the real property . . . or has a lien thereon, if the conveyance or lien appears of record in the proper office at the time of the commencement of the action and the person holding the recorded conveyance or lien is not made a party to the action.”
The failure, therefore, to include a junior lien holder as a defendant in a judicial foreclosure action does not render the action improper as to the named parties, including the borrower, and the sale is not void; although it is ineffective as to unnamed junior lien holders whom still retain redemption and reattachment rights.