A Sacramento landlord in pre-foreclosure usually has five options: catch up the missed payments (reinstate), negotiate a workout with the servicer, refinance or bring in short-term financing, sell the property before the trustee's sale, or hand it back through a deed in lieu. California's process takes months, but rental owners get fewer protections than homeowners, so act early.
By Gary Burmaster, California real estate salesperson and CEO of All Inclusive Realty Group, Inc. Updated October 25, 2026. General information only, not legal or tax advice.
Pre-foreclosure is the window between the first missed payment and the trustee's sale. For a rental owner it often starts with something specific: a long vacancy, a tenant who stopped paying, a big repair, an adjustable payment that reset, or a balloon that came due. The good news is that most of the options below work better the earlier you use them. The hard news is that California's strongest borrower protections were written for people living in the home, not for landlords.
How does foreclosure work in California?
Most California home loans are secured by a deed of trust, so most foreclosures are nonjudicial: a trustee sells the property without a court case, following the steps in Civil Code 2924 and the sections after it.
| Stage | What happens | Where it comes from |
|---|---|---|
| Missed payments | The servicer sends late letters and may offer workout options. | Your loan documents and servicer policy |
| Notice of Default | The trustee records a Notice of Default with the Sacramento County Recorder and mails it to you. | Civil Code 2924 |
| Waiting period | At least three months must pass after the Notice of Default is recorded before the sale can be set. | Civil Code 2924 |
| Notice of Trustee's Sale | The sale date is posted on the property, published and recorded, at least 20 days before the sale. | Civil Code 2924f |
| Trustee's sale | The property is auctioned. For one-to-four unit homes, some tenants, owner-occupants and nonprofits get a short window to bid after the auction. | Civil Code 2924m |
You can generally reinstate the loan by paying the past-due amount plus allowed costs until five business days before the sale, under Civil Code 2924c.
Do California's homeowner protections apply to a rental property?
Mostly not. The California Homeowner Bill of Rights, including the rules against "dual tracking" a foreclosure while a loan modification is pending, applies to first-lien loans on owner-occupied homes of one to four units (Civil Code 2924.15). If the property is your rental, assume those extra protections do not apply, and do not assume the servicer will pause the sale while it reviews your paperwork. Ask in writing, and keep copies of everything.
What are my options to stop foreclosure on a Sacramento rental?
- Reinstate. Pay the past-due payments, late charges and costs to bring the loan current. Ask the trustee for a written reinstatement figure.
- Workout with the servicer. Forbearance, a repayment plan or a loan modification. Investor loans have fewer standard programs, so present the property's real rent roll and a realistic plan.
- Refinance or short-term financing. If the property has equity, a refinance or a business-purpose bridge loan can pay off the defaulted loan and give you time to stabilize, lease up or sell.
- Sell before the sale date. A sale pays off the loan and keeps the equity that would otherwise be lost at auction. If the property owes more than it is worth, the lender would have to approve a short sale.
- Deed in lieu of foreclosure. You transfer the property to the lender in exchange for releasing the loan. The lender must agree, and it usually requires clear title.
Bankruptcy can also pause a foreclosure, but it has serious consequences. Talk to a California bankruptcy attorney before relying on it.
What happens to my tenants if the rental goes to foreclosure?
Tenants keep important rights. Under Civil Code 1161b and the federal Protecting Tenants at Foreclosure Act, a bona fide tenant generally gets at least 90 days' written notice after the foreclosure before having to leave, and a tenant with a qualifying lease can often stay through the lease term. Keep collecting rent, keep the property maintained and keep security deposits accounted for under Civil Code 1950.5 while you work on a solution. A tenant's deposit stays a liability that follows the property.
How do I sell a rental in pre-foreclosure?
- Get the payoff and reinstatement figures in writing from the servicer or trustee.
- Pull the recorded documents so you know the exact sale date, if one is set.
- Price the property on its real condition and rents, not on what it might be worth after repairs.
- Decide whether a listed sale can close before the sale date. If the timeline is tight, a direct cash buyer who closes through escrow may be the safer route.
- Share the escrow opening with the trustee and ask whether the sale date can be postponed to allow closing. Postponement is up to the lender.
Where can I get free help with foreclosure?
HUD-approved housing counseling agencies offer free or low-cost foreclosure counseling and can help you talk to your servicer. You can find one through the housing counselor search on HUD's website at hud.gov. Watch for foreclosure rescue scams: be cautious of anyone who asks for money up front to "save" your property, asks you to sign over the deed, or tells you to stop talking to your lender.
Are there tax consequences to a short sale or foreclosure on a rental?
Possibly. Forgiven debt can be taxable income under Internal Revenue Code Section 61, with exceptions under Section 108, and a foreclosure or deed in lieu is treated as a sale for tax purposes, which can create gain on a rental with a low tax basis. The special exclusion for forgiven debt on a principal residence does not cover a rental. Ask a CPA before you choose a path.
How does AIRG help landlords in pre-foreclosure?
AIRG buys Sacramento rentals as-is, with tenants in place or vacant, including properties with deferred maintenance or code issues. You tell us about the property, Gary reviews it and sends a written cash offer, and you pick the closing date through escrow. Requesting an offer does not commit you; only a signed purchase agreement does. If the property has equity and you would rather keep it, our Direct Lending division makes business-purpose bridge and hard money loans on Sacramento-area investment property, subject to underwriting.
Get a written cash offer before your sale date
Frequently asked questions
How long does foreclosure take in California?
A nonjudicial foreclosure requires at least three months after the Notice of Default is recorded, plus a Notice of Trustee's Sale posted and recorded at least 20 days before the sale. In practice it often takes longer, depending on the servicer.
Can I stop a foreclosure by paying what I owe?
Generally yes. Under Civil Code 2924c, you can reinstate by paying the past-due amount and allowed costs until five business days before the scheduled sale. Get the reinstatement figure in writing.
Does the California Homeowner Bill of Rights protect landlords?
Mostly no. Those protections apply to first-lien loans on owner-occupied one-to-four unit homes under Civil Code 2924.15. Rental property owners should assume they do not apply.
Do tenants have to move out after a foreclosure?
Not immediately. Bona fide tenants generally get at least 90 days' written notice after the foreclosure, and tenants with qualifying leases can often stay through the lease term.
Can I sell my rental if it is already in foreclosure?
Yes, until the trustee's sale. A sale that closes before the sale date pays off the loan and keeps your remaining equity. If you owe more than the property is worth, the lender must approve a short sale.
Where can I find free foreclosure counseling in Sacramento?
HUD-approved housing counseling agencies provide free or low-cost help. Use the housing counselor search on hud.gov, and avoid anyone who asks for fees up front to stop a foreclosure.
This article is for informational and educational purposes only and is not legal or tax advice. Consult a California attorney about your specific situation.
