New Bankruptcy Law in California

Are you facing foreclosure? Did you receive a Notice of Default, or even a Notice of Trustees Sale, from your lender? If so, it is imperative that you understand the foreclosure process and your options.

What is Foreclosure?

When a homeowner defaults by failing to make payments on his or her mortgage, the bank or financial institution that holds the mortgage note may foreclose on the property. Foreclosure gives the legal ownership of a property to the bank (or the highest bidder at the public auction). Foreclosure proceedings vary by state.

California Foreclosure Process:

The primary method of foreclosure in California involves what is known as non-judicial foreclosure. This type of foreclosure does not involve court action. A lender typically initiates the foreclosure process when the homeowner is several months behind on the mortgage. Foreclosure proceedings generally start with the lender recording and mailing a document entitled, “Notice of Default and Election to Sell under Deed of Trust.” The lender must then wait 90 days before it can publish a sale date, which is set forth in a document entitled, “Notice of Trustee’s Sale.” The sale date must be at least 20 days after the initial publication of the sale. So, it takes approximately four months to complete a non-judicial foreclosure. During the foreclosure process, homeowners have numerous options, which are discussed below. However, time is of the essence, so those facing foreclosure should act quickly. Feel free to contact us immediately, so that we can assist you with the following options:

Chapter 7 Bankruptcy:

A debtor may file a Chapter 7 bankruptcy in order to discharge certain liabilities, such as credit card debts, personal loans, etc. Although Chapter 7 bankruptcy does not help a debtor reorganize, or otherwise catch up, on their mortgage payments, the filing of bankruptcy invokes an “automatic stay,” which typically delays the foreclosure process a couple months, and sometimes longer. By delaying the foreclosure process, and by discharging other obligations, many homeowners are able to save their homes. Alternatively, if a debtor does not wish to keep his home, he may still benefit from the extra time that the bankruptcy filing will provide.

Chapter 13 Bankruptcy:

A debtor may file a Chapter 13 bankruptcy to reorganize on their delinquent mortgage payments and other obligations. The filing of a Chapter 13 case stops the foreclosure process, and allows the debtor to propose a plan to catch up on any delinquent mortgage payments. As long as the debtor complies with his confirmed plan and makes his mortgage payments that become due after the filing of his bankruptcy, he is able to protect his home.

Chapter 13 Bankruptcy (WITH 2ND MORTGAGE REMOVAL):

A debtor in a Chapter 13 bankruptcy may be able to strip off (remove) his second and/or third mortgage loan if he can prove that his home is worth less than the amount owed against the balance owed against the first mortgage.

Loan Modification:

Loan Modification describes the process by which a lender modifies the terms of a mortgage to help a struggling homeowner. Many lenders are working with homeowners by lowering interest rates (temporarily or permanently), fixing interest rates that would otherwise adjust, and, in some cases, reducing principal balances. Homeowners are typically required to prove economic hardship, but that is typically not a problem for those facing foreclosure.

Forbearance:

A forbearance agreement is an agreement made between a mortgage lender and delinquent borrower in which the lender agrees not to exercise its legal right to foreclose on a mortgage, and the borrower agrees to a mortgage plan that will, over a certain time period, bring the borrower current on his or her payments. A forbearance agreement is typically designed for borrowers who have temporary financial problems caused by unforeseen circumstances, such as short-term unemployment or health problems.

Reinstatement:

A homeowner has the right to reinstate his loan, by bringing it current, up until five days prior to the foreclosure sale date. Reinstatement typically requires the homeowner to pay a lump sum to the lender equal to the sum of any delinquent payments, late fees and foreclosure fees. Often, this is not a feasible option for struggling homeowners.

Refinancing:

It is possible for a homeowner facing foreclosure to refinance his or her property, and thereby avoid foreclosure. However, in order to obtain a new loan, there must be substantial equity in the property. The terms of the loan would not be less favorable than a conventional loan, as the loan would be based solely on the equity in the property, as opposed to the credit worthiness of the borrower.

Sale/Short Sale:

If a homeowner is facing foreclosure, he may still have time to sell his property. If there is no equity in the property (i.e., the value of the home is less than what is owed), the homeowner can pursue a short sale, where the lender agrees to accept less than what is owed. We work with realtors who can complete short sale transactions very quickly, so feel free discuss this option with us, even if you are well into the foreclosure process. Short sales are generally viewed more favorably than foreclosures when obtaining future credit.

Deed in Lieu of Foreclosure:

If a homeowner wants to avoid a foreclosure sale, he can simply transfer the property back to the lender by executing a “deed in lieu of foreclosure.” This process, often referred to as a “friendly foreclosure,” has a negative impact on one’s credit.

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