On this page
- Every bid at a trustee's sale is an irrevocable offer, and the trustee can refuse to recognize a bid until the bidder shows it can pay the full amount in cash or an accepted form of check.
- Civil Code section 2924k pays the costs of the sale first, then the loan being foreclosed, then junior liens in order of priority, and the former owner last.
- Surplus claims run on section 2924j's schedule, with the trustee's notice due within 30 days of the trustee's deed and each claim due within 30 days of that notice.
- Once title is perfected, the new owner can remove a former owner who stays on after a three-day written notice to quit.
- A sale before the auction lets you set the price and collect the equity at closing instead of by claim.
A trustee's sale is an auction of your building run by the trustee under the power of sale in your deed of trust, and the building goes to the highest bidder who can pay. The money is then paid out in a fixed order under Civil Code section 2924k: the costs of the sale, the loan being foreclosed, any junior liens, and only then you.
Whatever reaches you comes through a written claim, on the trustee's calendar, after every junior lienholder has been paid.
How does bidding work, and who can bid?
Under section 2924h, each bid is an irrevocable offer by that bidder to buy the property for the amount of the bid. Before it recognizes a bid, the trustee has the right to require the bidder to show it can deposit the full amount of its final bid in cash, a cashier's check drawn on a state or national bank, a check drawn by a state or federal credit union, savings and loan association, savings association or savings bank, or a cash equivalent the notice of sale names as acceptable. A buyer who would need a loan to pay cannot meet that test.
On residential property of one to four units, more rules apply. AB 2424 bars a sale below 67 percent of the fair market value at the first scheduled sale on a first lien, and section 2924m lets prospective owner-occupants, tenants and certain other bidders take part in ways the foreclosure timeline sets out step by step. Neither applies to a building of five or more units, where the price is whatever the bidding reaches.
Who gets the money, and in what order?
Under section 2924k, the costs and expenses of the sale come first, including the trustee's and attorney's fees. Next comes the loan being foreclosed. Then junior liens and encumbrances are paid in order of priority, and the former owner receives what remains.
Here it is with made-up numbers. The winning bid is $1,400,000. The costs of the sale are $22,000, the first loan is owed $1,050,000, a second loan $190,000 and a recorded judgment $48,000.
| Paid, in order | Amount | Left after it |
|---|---|---|
| Costs of the sale, including trustee's and attorney's fees | $22,000 | $1,378,000 |
| The first loan, being foreclosed | $1,050,000 | $328,000 |
| The second loan | $190,000 | $138,000 |
| The judgment lien | $48,000 | $90,000 |
| The former owner | $90,000 | $0 |
The $90,000 at the bottom depends entirely on how high the bidding went. Had the winning bid been $1,300,000, the judgment creditor would have been short and the former owner would have received nothing.
How do you claim surplus funds?
Under section 2924j, the trustee has 30 days after the trustee's deed is executed to send written notice to the people who held recorded interests in the property as of the day before the sale, and as the owner of record you held one. Your claim has to reach the trustee, at the address the notice gives, no later than 30 days after the trustee sends it.
The trustee then works out the priority of the claims it received. If it has not done so within 90 days after the 30-day notice period, it has 10 days more to deposit the funds with the clerk of the court or to file an interpleader action. Where it cannot settle the priority, or the claimants conflict, it may file a declaration of the unresolved claims and deposit the part it cannot distribute with the clerk of the superior court.
On made-up dates, a trustee's deed executed on March 3, 2027 puts the notice out by April 2. A notice sent that day makes claims due by May 2. If the priority is still undecided on July 31, 90 days later, the deposit or interpleader has to follow by August 10. Keep your mailing address current with the trustee from the day the notice of sale arrives, and send your claim by a method that proves when it arrived.
After the auction, the deed and possession
The buyer's title rests on the trustee's deed. Under the current text of section 2924h, the sale is treated as perfected as of 8 a.m. on the actual date of sale if the trustee's deed is recorded within 60 calendar days after it.
Possession follows. Code of Civil Procedure section 1161a lets the new owner remove a person who stays on after a three-day written notice to quit, where the property was sold under the power of sale in a deed of trust that person signed and title under the sale has been duly perfected. The California Supreme Court held in the Dr. Leevil, LLC case that the new owner has to perfect title, which includes recording the trustee's deed, before serving that notice. A notice served before the deed records is premature, and an eviction case built on it fails even if the deed records before the case is filed.
Tenants stand in a different place. Bona fide tenants get at least 90 days' notice from a new owner under federal and California law, and a lease signed before the sale may run to its end.
A three-day notice after an auction is the first step toward an unlawful detainer case, and whether the sale itself was properly conducted is a question only an attorney can answer for you. Take the notice to a California real estate attorney the day it arrives.
Why a sale before the auction keeps more in your hands
The auction takes the price out of your hands. Nobody markets the building to buyers on your behalf, and on five or more units AB 2424's minimum bid does not apply. The costs of the sale, the trustee's and attorney's fees among them, come off the top under section 2924k, and whatever is left for you arrives only after every junior lien and a claims process that can end with the money on deposit at court.
A sale you arrange runs the other way. The notice of default itself says you may sell, provided the sale is concluded before the foreclosure is, and escrow pays each lien from the buyer's money at closing. You set the asking price, you choose the buyer, and the equity above the liens is paid to you when escrow closes, without a claim. A sale before the auction is the surer way to keep what the building is worth above what it owes.
Shaya handles the market side of that choice. He prices the building from its rent roll and recent sales nearby, looks for a buyer whose money and timetable fit the days left, and keeps the escrow set to close before the auction date.