What is a Home Foreclosure?
When purchasing a home, the most common form of financing it is by borrowing from a bank or mortgage company to make a portion of the payment. For homeowners who use the equity in their home and borrow against it, they are taking out a home equity loan or second mortgage. When either of these situations occurs, it is likely that the lender will place a lien against the home in order to secure the remaining balance and protect their interest. If a borrower fails to make payments on the loan, the lender has the option to take action and force the sale of the home to pay the outstanding loan balance.
EXAMPLE – Sam and Jenny purchase a home for $400,000. To do so, they paid a down payment of $40,000 and financed the remaining $360,000 from XYZ Bank. The loan requires Sam and Jenny to pay $1,616.57 per month for 30 years (at a 3.5% interest rate). 5 years into the loan agreement, Jenny loses her job and now can’t continue paying their monthly loan payments. Because Sam and Jenny defaulted on their obligations, XYZ Bank has the opportunity to force their home into a foreclosure to pay off the loan’s outstanding balance.
Types of Foreclosures
Non-Judicial Foreclosures are the most common foreclosures to occur in California. The deed of a trust includes a power-of-sale clause which allows for the lender to take action without being granted permission by the Court beforehand. Instead, the lender is able to grant a third party the authority to sell the home as a result of a default in payments. If the sale does not cover the full balance of the loan, the lender loses their right to collect on a deficiency judgment since they granted a third party’s authority.
A non-judicial foreclosure occurs as described below:
- If the borrower has defaulted on his/her payments, the lender must contact the borrower to discuss his/her current situation and consider other options before proceeding with a foreclosure. Once contacted, the lender must wait at least 30 days to begin the formal foreclosure process.
- If the borrower and lender have developed a plan during the 30 day time period, the lender can now record a “Notice of Default” in the county in which the property is located. The lender must provide the borrower with a copy within 10 business days. From here, the borrower is given 90 days from the notice’s filing date to cure the default. If successful in doing so, the borrower is able to end the foreclosure process and prevent further action from occurring.
- If the borrower fails to cure the delinquency during the 90 day period, a “Notice of Sale” is recorded. A “Notice of Sale” allows for the home to be sold at an auction and sets a date and time for the auction to occur. The auction must occur at least 21 days after the notice is recorded.
- The home is sold in a public auction on the established date and time. Bidders place bids, and whoever places the highest bid must pay the full amount immediately. The lender generally participates in the auction. If the lender is the highest bidder, he/she receives the home.
Judicial Foreclosures are a rare occurrence in California. These foreclosures tend to require a more length and costly process. In order to take action, the lender must first file a lawsuit against the borrower. If the deed of the trust lacks a power-of-sale clause, the Court may order for the home to be sold. Once sold, the defaulting borrower has a “right of redemption” period. During this time, the borrower is given the opportunity to buy the home back from the highest bidder.
After the Foreclosure
Although the highest bidder “wins” the home during the auction, he/she may not evict you immediately. First, you must be served with a 3-day notice stating that you move out. If you do not follow the notice and are still residing in the home after the 3-day period, the bidder must complete the formal eviction process to remove you from home.
Benefits of Filing for Bankruptcy
Filing for bankruptcy relief during this time can help prevent the immediate foreclosure of your home. Once you have filed for either Chapter 7 or Chapter 13 relief, the Automatic Stay is put in place pursuant to 11 U.S.C. § 362. The Automatic Stay prevents creditors from taking action against you, such as collection attempts or enforcing liens. With this, a lender is unable to go about foreclosure proceedings at this time.
Choosing whether to file a Chapter 7 or Chapter 13 can be determined by your goal. For example, if you are hoping to gain some more time before being pushed out of your home, it could be appropriate to file a Chapter 7. During this time, the Automatic Stay will prevent the lender from foreclosing on your home until the Court has given them the permission to do so or your Bankruptcy case is completed. If the lender decides to ask for the Court to make a judgement, they must file a Motion for Relief from Stay. As directed in 11 U.S.C. § 362 (d), the Court will utilize the Automatic Stay to prevent the foreclosure at this time. Instead of dealing with the hassle of going through this extra step, the lender will generally wait a few months until the Chapter 7 is complete, giving you an additional 3 to 4 months to prepare for your home’s foreclosure.
If you are hoping to keep your home and make up the delinquent payments, it may be more beneficial to file a Chapter 13. The goal of a Chapter 13 is to keep as much of your property and assets as possible. When a Chapter 13 is filed, your Chapter 13 Plan is created and establishes a payment plan for your delinquent payments over a 3 to 5 year period. If you follow your plan and make payments regularly to your assigned Trustee, the lender cannot force you out of your property and go forward with the foreclosure proceedings. In addition, the Court may eliminate any liens resulting from another mortgage or home equity loan depending on the circumstances.
How Can Sacramento Bankruptcy Lawyer Help?
If you fear being faced with a home foreclosure, it is important for you to be aware of your options. By contacting Sacramento Bankruptcy Lawyer, you will work directly with our dedicated Sacramento Bankruptcy Lawyer Pauldeep Bains to discuss your case. With his knowledge of the Bankruptcy Code and ability to apply it uniquely to his clients’ advantage, Mr. Bains has been successful in saving countless homes for clients in the greater Sacramento area. To prevent lenders from taking further action against you, call 916-800-7690 today to set up your FREE consultation and speak directly with Mr. Bains to discuss your options.
We help clients in the following areas: Sacramento, Elk Grove, South Sacramento, West Sacramento, Natomas, Citrus Heights, Antelope, Fair Oaks, Gold River, Rancho Cordova, Roseville, Rocklin, Lincoln, Wheatland, Yuba City, Marysville, Woodland, Davis, and Lodi.