Yes, but only inside a specific window, and the window is narrower than most owners assume. A California non-judicial foreclosure on commercial multifamily can run from the recording of a notice of default to the trustee's sale in roughly four months. Inside that window, the owner retains the right to sell the property and use the proceeds to pay off the lender — that is the legal definition of equity of redemption. After the trustee's sale, the right is gone and the building belongs to the foreclosing party. The decision is whether to sell before the sale date, and how fast.
The transaction is functionally a normal sale with a forced timeline. The legal title is still in the seller's name. The buyer pays cash or financed proceeds at close, the existing loan (and any accrued interest, default interest, late fees, and lender's legal costs) is paid off through escrow, and the seller keeps whatever equity remains. The mechanics are not unusual; the timeline pressure is.
A California non-judicial foreclosure on commercial real estate follows a defined statutory path. The notice of default is recorded after the borrower has been in default and the lender has elected to proceed. After a minimum 90-day period from the recording of the notice of default, the lender can record a notice of sale, which sets the trustee's sale date no fewer than 21 days out. The total compressed timeline from notice of default to trustee's sale is typically four to five months, sometimes longer if the lender delays recording the notice of sale.
A sale inside that window has to close before the trustee's sale date. Buyers know this. Listing brokers know this. The buyer pool that engages with a sale-in-foreclosure listing prices the time pressure into their offer. The discount is real and it is not subtle. Realized prices on sales-in-foreclosure typically run 5% to 15% below comparable non-distressed sale prices, depending on how much time is left in the window and how visible the distress is.
The discount shrinks the further the owner is from the trustee's sale date. An owner who lists 30 days after the notice of default has four months of runway and produces something closer to a normal sale. An owner who lists 30 days before the trustee's sale date has almost no runway and produces a distressed-sale price.
Three levers materially affect the outcome.
Speed of decision. The single most consequential variable is how fast the owner moves from "I am in trouble" to "I am selling." Most owners delay this decision out of optimism — hoping for a refinance, a forbearance, a turnaround. The delay is the largest single contributor to the eventual discount. Owners who decide to sell within 30 days of the notice of default have meaningful options. Owners who decide at 90 days have constrained options. Owners who decide at 150 days have almost no options.
Loan reinstatement and forbearance negotiations. California allows the borrower to reinstate the loan (cure the default and stop the foreclosure) up to five business days before the trustee's sale date by paying all arrears, default interest, and lender costs. Many lenders also negotiate forbearance agreements that extend the timeline in exchange for performance milestones. A forbearance agreement that extends the sale runway by 60 to 90 days can convert a distressed sale into a normal sale.
Communication with the lender. Lenders prefer payoff to foreclosure. Foreclosure is expensive, slow, and produces an asset on the lender's balance sheet that the lender does not want. A borrower communicating actively about a sale process — providing the lender with timelines, marketing updates, and offer status — gets meaningful cooperation that a silent borrower does not. The lender's willingness to delay the trustee's sale or work constructively with the timeline often makes the difference between a clean exit and a forced one.
When the building's market value is below the loan balance plus accrued costs, a traditional sale doesn't produce a payoff. The owner needs the lender's agreement to accept less than the full loan balance — a short sale. The lender's calculation is whether the short-sale proceeds beat what the lender would realize through foreclosure and resale, net of carrying costs and disposition timelines.
For LA multifamily, short-sale negotiations are commercial transactions between sophisticated parties. The lender's loss mitigation department or special servicer evaluates the proposal against an internal model. Documentation usually required: a current broker opinion of value or appraisal, a hardship letter from the borrower, financial statements demonstrating inability to perform, and the proposed sale contract with the buyer.
Short sales take longer to close than standard sales — 60 to 120 days of lender approval cycles is normal — which conflicts directly with the foreclosure timeline. The structure that often works is to negotiate a forbearance with the lender (extending the foreclosure timeline) while simultaneously running the short-sale approval. The two processes have to coordinate; an owner who tries to run them sequentially often runs out of time on one or the other.
A sale in foreclosure is still a taxable transaction. The seller has capital gain on the difference between the sale price and the adjusted basis, regardless of whether the proceeds actually reach the seller after the loan payoff.
A short sale where the lender forgives a portion of the loan can produce cancellation-of-indebtedness (COD) income for the borrower. The tax exposure on COD income can in some situations be larger than the underlying capital-gain liability, particularly for borrowers who are insolvent or in bankruptcy. The tax planning around a short sale should involve a CPA experienced with distressed-sale tax mechanics — the math is not intuitive and the tax outcome can dwarf the transactional outcome.
The conversation has to start with honesty about the timeline. The owners who hold this together are the ones who acknowledge the situation quickly, retain experienced counsel and a broker who has worked through distressed sales, communicate proactively with the lender, and run the sale process at full speed. The owners who lose more than they have to are the ones who delay, hope, or try to manage the situation alone.
The other thing I tell owners in foreclosure is that the deficiency exposure is real and varies based on the loan structure. California has both judicial and non-judicial foreclosure options. Non-judicial foreclosures (the more common path for commercial multifamily) generally do not produce a deficiency judgment against the borrower for any unpaid balance after the trustee's sale. Judicial foreclosures preserve the lender's right to a deficiency. Knowing which structure the lender is using matters for the owner's decision-making — particularly for personally guaranteed loans.
A sale in foreclosure is a normal sale on an unforgiving timeline. The mechanics are not different. The runway is. The owners who recognize that fact early enough to act on it preserve materially more value than the owners who treat the timeline as flexible. The lender's clock is not flexible. The owner's options are only as broad as the time he gives himself.
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Michael Sterman is Senior Managing Director Investments at Marcus & Millichap, specializing in Los Angeles multifamily transactions.
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