Summary Of The California Foreclosure Process
If you miss one or two payments, a mortgage lender will usually contact you to demand payment. Under California Law (Civil Code Section 2923.5) the lender may not start foreclosure on your home until 30 days after contacting you to explore options to foreclosure. If you do nothing in response to the mortgage company’s attempts to contact you, or you cannot come to an agreement with them, the mortgage company generally sends a further notice advising you and all parties who have in an interest in your property that they are declaring a “default” of the loan obligations. The official notice is called a the Notice of Default.
What is the significance of a Notice of Default?
The Notice of Default is an official notice which must be served on all parties having an interest in your property and notifies all of the start of the foreclosure process. This notice is filed with the County Recorder’s Office and a copy must be mailed to all via regular and certified mail. The Notice of Default must spell out the specific amount of payment arrears. The filing of the Notice of Default begins what is known as the Reinstatement Waiting Period, which lasts 90 days. This is the time period that you get to cure the debt by paying off all overdue payments and paying all foreclosures fees.
What is the significance of a Notice of Trustee’s Sale?
After the 90 day Reinstatement Waiting Period is up, the Trustee has the obligation to do a final check to see if the deficiency has been cured. If the default has not been cured, a Notice of Sale of the property can be issued. You must also be officially served with this Notice of Sale. The Notice of Sale must be published in a local newspaper once per week for a period of at least 20 days. The trustee is also obligated to post the Notice of Sale in a conspicuous place on the property and in at least one off-property site, a sign notifying the public of the upcoming sale. The auction for sale of the home can be held after the 20 day Publication Period is up. However, even if the 90 day Reinstatement period is up you still can save your home by paying all payment arrears and foreclosure fees at any time up to five (5) business days prior to the date of the sale. See California Civil Code Section 2924(c)(a)(1)(e). Do not make the mistake of assuming your home is lost in foreclosure because the 90 day Reinstatement Period has run.
The Trustee does not need to file court proceedings to have the right to sell the property. The sale takes place in an auction where the property is sold to the highest bidder. If
anyone other than the beneficiary (mortgage company) purchases the property, they must have cash in hand to purchase the property.
After the Trustee’s Sale
If your home was sold at a foreclosure sale, that sale is final. There is virtually no chance the sale will be set aside by the lender. If your home was sold to a party other than your lender, who has no ties to the lender, then the sale is absolutely final in almost all cases.
At this point, you should be making serious moving plans unless you have a “cash for keys” agreement in writing with the lender. If you do not have a “cash for keys” or other move out agreement in writing with your lender, you are at risk for eviction which is not a process you want to participate in as a former owner. Do not let your situation get to the eviction process!
The right or wrong time to move
If you are unable to bring payments on your house current (and pay all foreclosure fees) or don’t want to save your home because it is too far “upside down” then don’t wait until the house is sold at foreclosure sale to move unless you have a move out agreement with your lender. The time to inquire with the Law Offices of Alec Harshey about when to move out or file for a bankruptcy is before the Notice of Default, but ultimately before Trustee’s Sale Date.
The right time to file for bankruptcy
Remember, if you want to save your house and qualify for Chapter 13 bankruptcy, you can stop the foreclosure of your home, save your home through Chapter 13 bankruptcy and if your second mortgage is entirely unsecured (no equity to secure it), strip that second mortgage from being a secured debt on your house and pay only a portion of that second mortgage as an unsecured debt through your Chapter 13 debt repayment plan.
If your home is worth less than you owe on it, then Chapter 7 bankruptcy will stop the foreclosure process in its tracks, but at some later date, after receiving bankruptcy court
permission, the lender will resume the foreclosure sale of your house if you do not have equity in your home. Depending on how quickly your lender acts after you file Chapter 7 bankruptcy, a Chapter 7 bankruptcy will delay your home foreclosure of a usual minimum
of five (5) weeks.
Short sale or foreclosure
A short sale, no matter how it is sliced and diced, will result in “cancellation of debt” as defined in the Internal Revenue Code. The lender who forgave the debt in the short sale must, by law, give you a Form 1099C on cancellation of debt. Cancellation of debt is presumptively income to you unless you prove otherwise to the I.R.S. If you do not meet certain Internal Revenue Code criteria, you will owe income tax on cancellation of debt income.
There are reasons why the short sale cancellation of debt will be income to you and there are reasons why it will not be treated as income to you. You should always consult a
knowledgeable tax professional before you decide to proceed with a short sale. Canceling a short sale part way through may get you sued by the unhappy buyer.
When you receive Form 1009C, you should consult with a knowledgeable tax professional to determine if you owe tax, because of the short sale cancellation of debt. The reasons are numerous as to why you may or may not owe tax.
If you are going to file Chapter 7 bankruptcy anyway, there is little, if any, reason to short sale your real property. Taxes are not dischargeable in bankruptcy until, at the earliest, 3 years after the filing of the return on which the taxes were due. A short sale tax debt will survive bankruptcy.
A Chapter 7 bankruptcy filing without a short sale will discharge your personal obligation on the mortgage or mortgages that you wanted to short sale. A discharge of debt in
bankruptcy is not a forgiveness or cancellation of debt. See 26 U.S.C. §§ 108(a), 108(b) and 108(c) and IRS Publication 4681. There is no cancellation of debt that has been discharged in bankruptcy. So if a bankruptcy is in your future, talk to your local bankruptcy attorney to see if you will qualify for Chapter 7 bankruptcy and if you do, consider skipping that short sale.
Will you owe your real estate lender after a foreclosure on your home or other real property? If you file Chapter 7 bankruptcy before or after foreclosure, you will not owe the lender after foreclosure. If you do not file Chapter 7 bankruptcy, then the answer depends on many factors, such as first mortgage, second mortgage purchase money loan, refinance, federally backed loan, commercial real estate or other factors.
The Law offices of Alec Harshey will be able to advise you whether your will owe your real estate lender any money after foreclosure.
The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for individual advice regarding your own situation.