California mortgage laws explained: from closing to foreclosure
California regulates mortgages twice over — through DFPI lenders and DRE brokers — and stacks a county-indexed homestead, a five-year prepayment-penalty limit, and the Homeowner Bill of Rights on top of the federal baseline. What follows is the state layer — the rules that sit on top of TILA, RESPA and the federal servicing regime when the property is in California.
| Closing practice | Escrow closing state |
|---|---|
| Community property | Yes — community property state |
| Mortgage recording tax | California has no mortgage recording tax and no intangible tax on the note. |
| Transfer tax (deed) | California counties charge a documentary transfer tax of $1.10 per $1,000 (0.11%); charter cities such as Los Angeles, San Francisco, Oakland and San Jose add city transfer taxes that can exceed 1% and rise sharply on high-value sales. |
| Usury ceiling | California’s constitution caps interest at 10% on loans for personal or household purposes and at the higher of 10% or 5% above the Federal Reserve discount rate for other loans — but loans made or arranged by a licensed real estate broker and secured by real property are exempt, as are loans by California Financing Law licensees. |
| Foreclosure | Non-judicial · 4 to 8 months to sale · deficiency: barred after the usual sale |
The California settlement table
California uses neutral escrow rather than a roundtable closing: independent escrow companies licensed by the DFPI under the Escrow Law (Financial Code § 17000 et seq.) or title-company escrow departments hold documents and money, and buyer and seller sign separately. No attorney is involved in a typical residential transaction. Funding is dry — the escrow holder records the deed of trust with the county recorder and disburses only after recording is confirmed. Custom differs by region: escrow fees are split in Southern California and usually paid by the buyer in the north.
Marital property and homestead rules in California
California is a community property state; Family Code § 1102 requires both spouses to join in any instrument that encumbers community real property, so a non-borrowing spouse either signs the deed of trust or executes an interspousal transfer deed to establish separate property. Title may be held as community property with right of survivorship (Civil Code § 682.1). On FHA and VA loans, a non-borrowing spouse’s debts are included in the debt-to-income calculation because of community liability for debts incurred during marriage.
California’s homestead exemption (Code of Civil Procedure § 704.730, rewritten by AB 1885 in 2021) equals the county’s median single-family sale price for the prior year, with a floor of $300,000 and a ceiling of $600,000, both indexed to inflation each year since 2022 — so the protected amount differs by county and rises annually. The exemption is automatic for the dwelling you live in; a recorded declared homestead adds protection on a voluntary sale. It never defeats a deed of trust, tax liens or HOA assessments. For property tax, Proposition 13 caps assessed value growth at 2% a year until a change in ownership, and the homeowners’ exemption removes $7,000 of assessed value (Revenue and Taxation Code § 218), worth roughly $70 a year.
What California charges on the note and the deed
California has no mortgage recording tax and no intangible tax on the note. The documentary transfer tax ($1.10 per $1,000 at the county level, with additional city taxes in Los Angeles, San Francisco, Oakland, San Jose and other charter cities) applies to the deed, not the loan. Recording a deed of trust costs the county fee plus the $75-per-document Building Homes and Jobs Act fee (capped at $225 per transaction), from which owner-occupied purchase documents are exempt.
California counties charge a documentary transfer tax of $1.10 per $1,000 (0.11%); charter cities such as Los Angeles, San Francisco, Oakland and San Jose add city transfer taxes that can exceed 1% and rise sharply on high-value sales. Who pays is negotiated and varies by region.
Paying off early: the California rule
Civil Code § 2954.9 lets the owner of a one- to four-unit owner-occupied home prepay at any time, and permits a prepayment charge only during the first five years of the loan, capped at six months’ interest on the amount prepaid that exceeds 20% of the original principal in any twelve-month period. Broker-arranged loans face similar limits under Business and Professions Code § 10242.6, and the state’s covered-loan law bans penalties after 36 months on high-cost loans. Most California notes today contain no penalty at all.
Usury and predatory-lending protections in California
California’s “covered loan” law (Financial Code §§ 4970-4979.8, enacted as AB 489 in 2001) predates most state HOEPA copies: it captures consumer loans on owner-occupied one- to four-unit homes whose APR or points and fees exceed thresholds modeled on federal law, and it prohibits balloon payments in the first five years, negative amortization, advance payments, prepayment penalties after three years, and lending without regard to ability to repay. It is layered with the Homeowner Bill of Rights (Civil Code § 2923.4 et seq.), which governs servicing and foreclosure conduct. DFPI and the Department of Real Estate share enforcement depending on the licensee.
California’s constitution caps interest at 10% on loans for personal or household purposes and at the higher of 10% or 5% above the Federal Reserve discount rate for other loans — but loans made or arranged by a licensed real estate broker and secured by real property are exempt, as are loans by California Financing Law licensees. That exemption is why almost all California hard money is broker-arranged or CFL-originated.
Licensing and the state regulator
California has two mortgage regulators. The Department of Financial Protection and Innovation (DFPI) licenses lenders and servicers under the California Residential Mortgage Lending Act (Financial Code § 50000 et seq.) and the California Financing Law (Financial Code § 22000 et seq.); the Department of Real Estate licenses real estate brokers who make or arrange loans under the Real Estate Law (Business and Professions Code § 10130 et seq.), with an MLO endorsement. Both routes run through NMLS, and both agencies publish license lookups. Which regulator applies determines which disclosure forms the borrower receives.
California-specific notices, periods and disclosures
California adds several state disclosures to TRID. Loans arranged by a DRE broker require the Mortgage Loan Disclosure Statement (Business and Professions Code § 10240). Civil Code § 2948.5 bars a lender from charging interest for more than one day before funds are disbursed, Civil Code § 2954 restricts mandatory impound accounts on most loans below 90% loan-to-value, and Civil Code § 2955.5 prohibits requiring hazard insurance above the replacement cost of improvements. Before recording a notice of default, the servicer must contact the borrower and wait 30 days (Civil Code § 2923.5), and the Homeowner Bill of Rights bans dual tracking and requires a single point of contact.
If the loan defaults
California uses a non-judicial process and a typical uncontested case reaches a sale in 4 to 8 months. There is no post-sale redemption after a non-judicial trustee sale in California. California bars any deficiency judgment after a non-judicial trustee sale (Code of Civil Procedure 580d). The full timeline, redemption and mediation rules are on foreclosure in California; the investor view — usury, licensing exemptions, recovery speed — on hard money in California.
Frequently asked questions
Do I need a lawyer to close a mortgage in California?
California uses neutral escrow rather than a roundtable closing: independent escrow companies licensed by the DFPI under the Escrow Law (Financial Code § 17000 et seq.) or title-company escrow departments hold documents and money, and buyer and seller sign separately. Whatever the local custom, the federal Closing Disclosure still has to arrive three business days before signing, and the borrower may bring their own attorney.
Does California allow prepayment penalties on home loans?
Civil Code § 2954.9 lets the owner of a one- to four-unit owner-occupied home prepay at any time, and permits a prepayment charge only during the first five years of the loan, capped at six months’ interest on the amount prepaid that exceeds 20% of the original principal in any twelve-month period. Whatever the state permits, the federal Closing Disclosure must state plainly whether the loan has a penalty.
What does California charge to record a mortgage?
California has no mortgage recording tax and no intangible tax on the note. California counties charge a documentary transfer tax of $1.10 per $1,000 (0.11%); charter cities such as Los Angeles, San Francisco, Oakland and San Jose add city transfer taxes that can exceed 1% and rise sharply on high-value sales.
Who licenses mortgage lenders in California?
California has two mortgage regulators. The originator’s NMLS number appears on the loan documents and can be looked up on NMLS Consumer Access, which shows licensing history and public actions.
Federal layer: TILA / Reg Z · RESPA · TRID disclosures · ECOA · Fair Housing Act · all federal regulations. Buying here: first-time buyer programs in California.