What Is A Foreclosure?
When most people purchase a home, they do so by borrowing a portion of the purchase price from a bank or mortgage company. Moreover, some homeowners use the equity in their home and borrow against it, which is referred to as home equity loan or a 2nd mortgage. In both of the above situations, the lender will generally place a lien against the home. The reason the lender places a lien against the home is to protect their interest and secure repayment of the loan. If a borrower defaults on the payments due on the loan, the lender can force the home be sold in order to pay the outstanding loan balance.
EXAMPLE – John and Sarah purchase a home for $300,0000 by paying a down payment of $30,000.00 and financing the remaining $270,000.00 from ABC Bank. Per the terms of the loan, John and Sarah are to pay $1,212.43 per month for 30 years (assuming a 3.5% interest rate). After making the payments for 2 years, John and Sarah both lose their jobs and stop paying the monthly mortgage payments. Since John and Sarah defaulted on their obligation per the terms of the loan, ABC Bank is now able to force John and Sarah’s home be sold in order to pay the outstanding balance on the loan.
Types Of Foreclosures
- Non-Judicial Foreclosure is the most common type of foreclosure in California. This process does not require any court proceedings to take place in order to foreclose on the home. Here, the lender grants a third party the authority to sell the home upon a default in payments in order to pay the balance of the loan. This procedure is allowed to occur due to the power-of-sale clause in the deed of trust. The lender is not required to take the defaulting borrower to Court in order to foreclose on the property. By doing this, the lender does give up their right collect on a deficiency judgment for a borrower’s primary residence if the sale does not bring in enough proceeds to cover the balance of the loan. However, this is the preferred method in California.
- Judicial Foreclosures are a much more lengthy and costly process and are very rare in California. Judicial foreclosures require the lender file a lawsuit against the defaulting borrower. The purpose of the lawsuit is to get the Court to order the home be sold. This process is done when the deed of trust lacks a power-of-sale clause. Once the home is sold to the highest bidder, the defaulting borrower has a “right of redemption” period that allows him/her to buy the home back from the successful bidder.
Non-Judicial Foreclosure Process
Since it is extremely rare to encounter a judicial foreclosure in California, below you will find the main steps of the non-judicial foreclosure process.
- Upon default by the borrower, the lender must contact the borrower to assess the borrower’s financial situation and explore different options to avoid the foreclosure. This is called the foreclosure avoidance assessment period. Once the lender contacts the borrower in regards to this assessment, they are not allowed to begin the formal foreclosure process until at least 30 days have expired.
- If during the foreclosure avoidance assessment period the borrower and lender have not agreed upon a plan to avoid the foreclosure, the lender can now record a Notice of Default in the county where the borrower’s home is located. The recording of the Notice of Default initiates the formal public foreclosure process. The lender must send a copy of the Notice of Default to the borrower within 10 business days of it being recorded. Moreover, the borrower is now given 90 days from the filing of the Notice of Default to cure the default. If the borrower is able to cure the default during this period, the foreclosure process will stop.
- If after the 90 days is up you have not cured the delinquency, a Notice of Sale is recorded. The Notice of Sale essentially states that the defaulting borrower’s home will be sold at an auction and provides the date and time of the auction. The sale must take place at least 21 days after the Notice of Sale is recorded.
- The property is sold at a public auction on the day and time posted in the Notice of Sale. The successful bidder must pay the full amount of the bid immediately. The lender will usually bid at the auction and if nobody else outbids the lender, the home goes to the lender.
After The Foreclosure
The successful bidder on the home cannot just physically remove you from the property. Once purchased, the new homeowner will need to serve you with a 3-day written notice to “quit” (i.e. move out). If the defaulting homeowner does not move out within the 3-day period, the new homeowner will now need to go through the formal eviction process in order to get the defaulting borrower out of the home.
How Can A Bankruptcy Help?
Filing for Bankruptcy, depending on what your goals are, can help you out immensely. The reason that the Bankruptcy will be of great assistance to a defaulting borrower when they are facing a home foreclosure is because upon the filing of the bankruptcy, the Automatic Stay is put in place pursuant to 11 U.S.C. § 362. The Automatic Stay acts as a ban or injunction on creditors from pursuing collection attempts or enforcing liens. Simply put, a lender is not allowed to foreclose on your property.
If you are looking to buy some time prior to having to move out of the home, a Chapter 7 filing can accomplish this. Once the Chapter 7 is filed and the Automatic Stay is initiated, the lender cannot foreclose on your home until they have either received permission from the Court to proceed forward with the foreclosure or the Bankruptcy is completed. The way the lender asks permission from the Court is by filing a Motion for Relief from Stay. Per the guidelines in 11 U.S.C. § 362 (d), the Court can grant relief from the automatic stay for cause and/or lack of equity in the property. Generally speaking, however, the lender will usually just wait the 3 to 4 months until the Chapter 7 is completed rather than expend the time and cost on a Motion for Relief from Stay. Therefore, in most circumstances, the Chapter 7 filing will give you an additional 3 to 4 months in the home.
Some people, on the other hand, are looking to save their home and cure the delinquent payments over a period of time. If this is what you are looking to do, Chapter 13 is likely your best option. Filing for Chapter 13 allows you to reorganize your delinquent payments and pay them back in a 3 to 5 year Chapter 13 Plan. As long as you make the monthly payments to your assigned Chapter 13 Trustee, the lender cannot foreclose on your property. Thus, if you are $20,000.00 delinquent on your mortgage payments, you can reorganize that debt and pay it back over a 5 year Chapter 13 Plan at a rate of $333.34 per month.
Why Call Bains Legal?
Local Sacramento Bankruptcy Attorney Pauldeep Bains has the knowledge and expertise to stop a lender from foreclosing on your property. Mr. Bains has saved countless homes for clients in the greater Sacramento area by utilizing the complexity of the Bankruptcy Code to his clients’ advantage. Mr. Bains is ready and willing to use every necessary tool at his disposal to get you the results that you are in search of.
Do not let another day go by without knowing what options you have with your home. Call 916-800-7690 to set up your FREE consultation with our dedicated Sacramento Bankruptcy Attorney Pauldeep Bains. By calling our office, you will speak directly with Mr. Bains and get his personal advice regarding your particular situation. You will continue to deal directly with the Mr. Bains through the entire process and will not be passed on to a staff member like many other offices will do.
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.