Few things are scarier for a homeowner in Roseville than losing their home to foreclosure. You put a lot of money into buying the home and keeping up with mortgage payments during these difficult times. Unfortunately, for one reason or another, you miss one payment, and the missed payments accumulate until it becomes challenging for you to keep up. The foreclosure process then begins.
If your home is about to be foreclosed, declaring bankruptcy can be a solution. At the Sacramento Bankruptcy Attorney, we have an established reputation and expertise for defending homeowners against foreclosure via bankruptcy. We have successfully prevented home foreclosures in all the cases we have handled. Call us to share the details of your case, and we will help you.
What Is Home Foreclosure?
A home foreclosure is the process that kicks off when a borrower defaults on their mortgage loan. It is a lender’s final attempt to collect the money owed to them. When a mortgage lender forecloses a home, they generally repossess it and try to sell it to recover the money the borrower owes. On the other hand, the borrower will suffer from displaced living and damaged credit.
Foreclosure occurs because mortgages are real estate-secured. That means when you secure a mortgage loan, you use your home as collateral. And because your house is collateral, your lender can lawfully seize it when you default on your payments.
Types of Home Foreclosure In California
Should you fall behind on your home loan payments, your lender might foreclose your home using a nonjudicial or judicial method.
Judicial Foreclosure
A judicial home foreclosure starts when the creditors file a suit requesting a court order permitting a foreclosure sale. Failure to respond in writing will lead to the lender automatically winning the case. However, if you contest the foreclosure suit, the judge will scrutinize the provided evidence and establish the winner.
Should the lender win, the court will order that your home be auctioned. Once the home is sold, you have a redemption period during which you can purchase the house back from the highest bidder. Judicial foreclosure rarely occurs in California, as the process is costly and lengthy.
Nonjudicial Foreclosure
Nonjudicial foreclosure is the most prevalent form of foreclosure in California. Creditors can use the nonjudicial foreclosure option when there is a power-of-sale clause in the deed of trust or mortgage note, which allows them to sell the home and utilize the proceeds to repay the mortgage balance in case the borrower falls behind on the mortgage. For this type of foreclosure, a creditor does not have to obtain a court order to foreclose the home.
However, strict laws exist that govern the nonjudicial foreclosure procedure. If a creditor opts for this method, they must complete all out-of-court procedures defined in state laws and provide documents to prove ownership of the home loan and the borrower's loan default. Once they have completed the necessary steps, the creditor could sell the house at a trust sale. Most creditors choose the nonjudicial foreclosure process as it is quicker and more affordable than litigation before a judge.
How The Foreclosure Process Works
Despite the negative impacts of a foreclosure, understanding the stages involved is critical, as it will assist you in learning about mortgages, property ownership, and your financial options as a homeowner. The following steps describe the nonjudicial home foreclosure process:
Home Loan Withdrawal and Promissory Note Signing
When you want to purchase a house, the odds are you will look for a creditor to finance your purchase. You will withdraw a mortgage, also called a home loan. A mortgage is the total amount of money creditors lend a borrower to purchase property.
However, before you are given the money, you must sign a promissory note—a written agreement to repay the borrowed amount under fixed payments within a given period. Put otherwise; you may promise to repay the loan at a specified rate of, for example, two thousand dollars per month for a specified period.
Failure to Repay The Mortgage Triggers Preforeclosure
Per the signed promissory note, you must repay the creditor's money. Failure to do so raises a red flag, and the creditor will realize. The promissory note is an agreement you and the lender made. The lender decided to lend their money contingent on your capability to repay. And if they are no longer receiving money from your payments, they will find alternative techniques to pursue compensation. Otherwise, they will be out of the money they loaned you.
That is how preforeclosure begins. A preforeclosure is where a home is on its way to being repossessed. Once you default on your mortgage repayment promise, a preforeclosure will take place.
Receiving Notice of Default (NOD) and Your Options
After a creditor notices you have defaulted on your mortgage, they will file an NOD, that is, a court-recorded public notice declaring that you have defaulted on your mortgage. Just as its name suggests, a NOD is a notice from a creditor to a borrower informing them of the payments they missed.
Within ten business days from the filing date, the lender will send you a copy of the NOD. They will also send a copy to anyone else requesting it. Within 30 days, the lender will send a copy of the notice to other interested individuals, such as junior home loan holders, the borrower's successors in interest, et cetera. You will have ninety days after receiving the NOD to catch up on the late mortgage payments.
Often, financial challenges are the primary reason borrowers miss making payments. They simply cannot keep up with making payments. If that is the case, you have various financial options to help you avoid foreclosure. These include:
- Equity: during a preforeclosure, your first option to prevent a foreclosure is the equity in your home. If you have home equity, you can sell your home to raise the money required to repay the mortgage. For example, say you withdrew a mortgage for one million dollars. If your purchased home is worth one million and five hundred thousand dollars, you could sell it and repay the entire mortgage loan.
- Short sale: this refers to a borrower's request to sell the home when their house value is less than the mortgage value. For example, say the total mortgage value is one million dollars, but your home is only eight hundred thousand dollars. Will you still have to pay the outstanding mortgage loan balance after your short sale? The answer is no. The outstanding mortgage loan balance will be forgiven. However, your credit score will suffer massive damage, making it challenging to borrow cash again.
Notice of Sale and Home Repossession
If you fail to pay off the overdue loan within three months, a Notice of Trustee's Sale will be issued. This is a legal notice mentioning that your trustee will sell your home within a specified period. It is the creditor's way of informing you that your home will be auctioned. This auction might happen within a few weeks after issuing the Notice of Sale.
The notice contains the place and time of the sale and other details, such as the property's address. The date of the sale must be set at least twenty days after the ninety-day period ends. The notice is:
- Placed at the home and at a public area within the city where the home will be sold a minimum of twenty days before the selling date.
- Published weekly for 21 consecutive days, with the initial publication happening at least twenty days before the selling date,
- Sent to the homeowner, any successors in interest, anybody who asked for it, et cetera, at least twenty days prior to the selling date.
The creditor can put the home on auction as stated in the promissory note you consented to. The home is deemed the lender's asset. You could still stop the foreclosure proceeding by repaying the money within this time. However, at this point, time is essential.
How a Trustee Sale Works
Trustee sales are open auctions that reward the highest bidder. These sales must occur between nine and five o'clock on a business day and are run by a trustee with the discretion to preside over the sale at the lender's specified direction. During a trustee sale, the creditor can bid up to the total amount the borrower owes, including costs and fees, or they could bid a lesser amount.
In some other states, if the creditor is the highest bidder during the trust sale but has bid a lesser amount than the entire date, they can obtain a deficiency judgment against the borrower. California law usually does not allow deficiency judgments.
When the creditor is the highest bidder, the home becomes REO (real estate owned). However, if someone else is the higher bidder and proposes more money than the borrower owes, and the foreclosure sale leads to excess proceeds, you are entitled to the surplus money.
Should the home be sold at a trustee sale, the purchaser will possess it immediately. Therefore, you will have minimal time to vacate the property. However, if the home is not sold at the sale, the creditor will still need to obtain as much cash as possible. Thus, they will contact a realtor to list the home and look for a buyer.
The most critical aspect of the home foreclosure procedure is time. It is all based on timeframes. If you have any challenges making mortgage payments, you want to contact your lender immediately. Procrastinating the problem may make matters worse. This is not an issue that disappears if you ignore it. It can have devastating impacts on your life.
Preventing Home Foreclosure
Possible ways of stopping a home foreclosure and retaining your house are declaring bankruptcy, redeeming the home before it is sold, or reinstating the mortgage. Alternatively, you may successfully work out a deed in lieu of foreclosure or short sale as described above and prevent foreclosure. However, you will need to surrender your home.
Preventing Home Foreclosure Through Bankruptcy
If you are facing foreclosure, bankruptcy may help you prevent the process. In most cases, declaring bankruptcy under Chapter 7 can delay home foreclosure for months. Alternatively, if you wish to keep your home, you could catch up on overdue payments within a specified period by declaring bankruptcy under Chapter 13. Here is how bankruptcy can help you avoid foreclosure.
Avoiding Foreclosure Under Chapter 13 Bankruptcy
If you have fallen far behind on mortgage payments, declaring bankruptcy under Chapter 13 may be ideal. Chapter 13 is a debt reorganization bankruptcy. It involves the development of a repayment plan that reorganizes all your debts through a reasonable monthly payment plan. If you declare this type of bankruptcy, you will have 36 to 60 months to catch up with your home loan payments. Within this time, you can:
- Eliminate a third or second mortgage loan. If your home's value is less than your first home loan and there is no equity on your second home loan, Chapter 13 bankruptcy will enable you to strip the second mortgage (or third) from your loan value.
- Make use of the automatic stay. Once you declare Chapter 13 bankruptcy, the court will effect an automatic stay. The automatic stay prevents lenders from collecting from you. It also prevents them from proceeding with foreclosure (provided you have not had a previous bankruptcy case dismissed within the last twelve months). The automatic stay remains effective until your case is dismissed or completed.
- Catch up on mortgage arrears. Reorganizing your debts enables you to spread out the overdue payments over the period of your repayment plan.
Avoiding Foreclosure Under Chapter 11 Bankruptcy
Bankruptcy under Chapter 11 can assist a struggling business in remaining afloat in several ways, including helping its owners prevent foreclosure. Even though Chapter 11 was originally meant for large businesses or corporations declaring bankruptcy, it might also be an option for people who do not qualify to file for bankruptcy under Chapter 13 because of income or debt limitations.
After declaring Chapter 11 bankruptcy, you and your assets will be safeguarded through an automatic stay, halting repossessions, lawsuits, liens, foreclosure proceedings, or other collection activities. Your lawyer can also help you eliminate a third or second mortgage via lien stripping.
Avoiding Foreclosure Under Chapter 7 Bankruptcy
Even though your mortgage loan debts are nondischargeable under a Chapter 7 bankruptcy, you could wipe out unsecured debts like medical bills, personal loans, and credit card debt. Without these debts, catching up on your home loan payments can be easier.
The California bankruptcy statute also provides two property exemptions that permit you to keep given assets after declaring bankruptcy. For example, the homestead exemption enables you to exempt your home equity up to a given amount. A bankruptcy lawyer can help assess your financial situation and assets to establish whether bankruptcy under Chapter 7 is ideal for assisting you in avoiding foreclosure.
Lastly, a Chapter 7 bankruptcy also triggers an automatic stay, which remains in effect until the bankruptcy court lifts it or dismisses your case. Like in Chapters 13 and 11, this automatic stay prevents lenders from pursuing you for collection or continuing with the foreclosure proceedings.
Bankruptcy is a powerful tool to prevent foreclosure. But remember that timing is essential. You do not want to wait until the last minute to pursue this remedy. Delays significantly reduce your odds of bankruptcy being capable of resolving your problems. For example, most people who wait too long to take action either lose their homes or pay more to solve the issue than if they had acted sooner.
Also, remember that, as a homeowner, you enjoy more rights than you may realize. An experienced bankruptcy lawyer can assist you in upholding these rights and keeping your home.
Other ways to prevent home foreclosure if you do not qualify for bankruptcy under any of the chapters include:
- A deed in lieu of foreclosure: this option involves returning the home to the lender to avoid foreclosure. To be eligible for this option. You generally must prove you are going through financial hardship and that the home has no other encumbrances or liens.
- Loan reinstatement: Under California statute, during a nonjudicial foreclosure, a borrower can reinstate a loan until five business days before the selling date.
- Property redemption: Another way of stopping a home foreclosure in California is by redeeming the home. To do this, you must repay the full loan amount before the sale. Some states provide borrowers whose homes have been foreclosed with a right of redemption after a foreclosure sale, at which point they can repurchase the house.
However, under California law, a right of redemption is only available in a judicial foreclosure. The law does not grant borrowers a right of redemption in a nonjudicial home foreclosure. Therefore, once the lender has foreclosed your home nonjudicially, you cannot redeem it.
Find an Experienced Bankruptcy Lawyer Near Me
At Sacramento Bankruptcy Lawyer, we understand just how challenging and stressful the concept of foreclosure can be for you and your family. The idea of losing your house can be a nightmare, particularly when children are involved.
With decades of experience and expertise in foreclosure cases, we have helped homeowners throughout Roseville explore their options, such as whether declaring bankruptcy is the right option. We can help you, too. You need not be embarrassed regarding your situation or filing for bankruptcy. For most people, it is a positive step toward creating a new financial future and having their family back on its feet. Contact us at 916-800-7690 to set up a consultation.
