Last month, Governor Gavin Newsom issued an Executive Order giving the courts special authority to address the COVID-19 pandemic as a means of alleviating the ongoing impacts it is having on California’s judicial branch. Under this authority, on April 6, 2020, the California Judicial Council issued 11 far-reaching temporary Emergency Rules that go into effect immediately. Among them is Emergency Rule 2, which temporarily stays any action for judicial foreclosure on a mortgage or trust deed, including any action for a deficiency judgment. Pursuant to the rule, courts may not issue any order, decision or judgment in such actions unless the courts find that it is required to further the public health and safety. The stay will remain in place until 90 days after Governor Newsom declares that the state of emergency related to the COVID-19 pandemic is lifted, or until the rule is lifted or repealed by the Judicial Council.
While secured lenders often choose to proceed against collateral by means of nonjudicial foreclosure, judicial foreclosure nevertheless remains useful, and is commonly used in connection with the appointment of a receiver over a borrower’s business or assets in order to preserve the collateral while a nonjudicial sale is pending. Therefore, this moratorium could have significant implications for many secured lenders.
For clients considering their options with respect to foreclosure and pursuing secured collateral, our team is actively tracking the situation and is available to consult and advise on how best to navigate these uncharted waters. If you are in this situation and would like to explore your options, please reach out to Dinesh Badkar, Grace Winters or your relationship partner.