California homeowners faced with losing their homes have options to delay or avoid foreclosure. Homeowners wondering what action could temporarily stop the foreclosure process should know their options. They could work out a new loan agreement, sell the home, or in some cases file Chapter 13 Bankruptcy to earn debt relief and protection from lenders.
Can I Sell My House if It’s in Foreclosure?
Foreclosure allows a mortgage provider the means to reclaim a home once the mortgage holder has stopped making payments. Foreclosure isn’t usually an option for the bank until the homeowner has missed payments for three months. At this point, banks consider the borrower “in default.”
At this point, the mortgage lender would likely file a “Notice of Default” in court and the steps to foreclosure on the home would officially begin.
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Before the notice of default is filed, the bank will call you about your situation. They’ll try to determine why you aren’t paying your mortgage. They should also present you with options to avoid foreclosure, some of which will be discussed below.
Deadlines and Timeline in California Foreclosure
Three months after you are notified of that Notice of Default, the bank is permitted to file a “Notice of Sale.” This is when homeowners will know the foreclosure process is close at hand. After a Notice of Sale is filed, the home can be auctioned off in just three weeks.
Under normal circumstances, the foreclosure process may take anywhere from four to seven months to complete. However, several factors might stretch out the foreclosure process for up to a year or more. If the foreclosure process is handled in California court, recent case backloads might leave homeowners waiting for months upon months for resolution.
A Checklist of What to Do When Foreclosure Is Looming
Alert your mortgage lender at the first sign of trouble. After you miss even one mortgage payment you should contact a representative with your mortgage lender. You’ll want to be honest about your financial situation and your prospects of meeting or missing future payments. Banks will often work with borrowers who are upfront with them. Exploring your options before you enter into foreclosure territory is always a good idea.
Understand the steps in the foreclosure process. Don’t get caught unaware a week before your home goes to foreclosure auction. Stay informed on the time remaining before your home is foreclosed on. There are many ways to delay the foreclosure process and keep your front door keys, but the earlier you begin, the more options you have.
Reach out to a U.S. Department of Housing and Urban Development Counselor (HUD), even if your loan isn’t through a HUD lender. These departments of the federal government are able to put pressure on lenders to work with you before foreclosure is necessary.
Beware of foreclosure rescue scams. Once a Notice of Default is filed against your home, the risk of foreclosure is public knowledge. Foreclosure “Rescue Scam” artists are alerted and will try to make contact with you. These companies usually promise to pay off your debt and help you retain your home. They often find ways to take your money and leave you in no better position. They sometimes pay off the payments you’ve missed and then take ownership of your house and evict you. The California Attorney General has some valuable tips on avoiding these types of scams.
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Keep track of who you talk to and when. Log each call you take with your mortgage lender. Note what is discussed. There are cases where a bank will proceed with the foreclosure process after claiming they’ve tried to work out how to avoid foreclosure with you. You should be able to quickly show if you haven’t been informed of your full array of options. The bank could be shown to have acted in “bad faith” and might have to pay penalties and delay your foreclosure proceedings.
A Checklist of What Not to Do When Foreclosure Is Looming
Don’t hide from your lender. Debt issues can make you want to avoid talking to any creditor, but this is a mistake when facing foreclosure. Once payments are missed, the bank will attempt to reach out to the borrower. You should answer these calls and also reach out to the mortgage provider yourself if necessary. Banks are often ready to work with you after hearing about the difficulties you are experiencing. You could work out new loan arrangements or even be granted a short break from payments. Foreclosure is a long, expensive process for banks and they usually seek to avoid it if at all possible. Find out what they can do for you.
Don’t delay. Letting your late payments and penalties accumulate will only make it harder to dig out from under your debt and save your home. Working out a rescue plan with your mortgage lender is much easier if you take your problems to them early. If you decide to sell your home, the more time you have to list and take offers on it will only benefit you. Waiting until the Notice of Sale arrives means you have just three weeks to take action. That’s often too small of a window to take any action at all to save your home.
Don’t vacate your home. If you’ve already left your home, you’ve made it easier for the bank to continue with foreclosure. Many of the assistance programs available will only provide assistance if you are still in your home.
Don’t accept your lender’s word on your contract terms. Check everything your mortgage lender has told you. Add up your missed payments and penalties yourself. Go over your mortgage agreement to see if you are facing penalties that aren’t in your contract. If you need help confirming the correct information and reading the legal terms of your contract, have a real estate agent or a real estate lawyer go over your mortgage payments with you.
Best Options for Delaying a California Foreclosure
Homeowners in Southern California have several options when seeking to rescue their houses from foreclosure. Some of the paths allow you to keep your home, while other paths let you escape your mortgage by turning your home over willingly.
Deciding the best option for you will mean looking at your finances and determining if your financial downturn is a short-term issue or if your troubles may continue for the foreseeable future.
These are just a few of the options you may be able to try to escape the worst effects of a foreclosure…
Deed in Lieu of Foreclosure
You would sign over your home to the bank and give up your claim to ownership. This option doesn’t allow your family to stay in the home, but it does keep you from suffering many of the penalties of foreclosure.
The bank would own the home and would be responsible for selling it and you would usually walk away not owing anything.
Victims should know that signing over a deed in lieu will make it more difficult to buy another home over the next several years.
During a wide-reaching financial crash, mortgage holders can seek forbearance from their banks. Forbearance allows borrowers a brief break from their mortgage payments to allow their finances to recover.
Forbearance usually allows homeowners to hit pause on their payments, without penalty, from between three to six months. The mortgage payments resume at the end of the agreed-upon time. There is no reduction in the mortgage’s balance during forbearance.
During a difficult and unforeseen financial crisis caused by something like a pandemic, lenders may be legally obligated to grant forbearance. California instituted forbearance measures during the COVID-19 outbreak to keep people from losing their homes while out of work. Federally backed mortgage holders were also eligible for forbearance.
In normal times, forbearance is sometimes still an option. The mortgage company would need to prove financial hardship to the lender. The borrower would also need to demonstrate that their money flow will resume once forbearance ends.
“Short sale” is a term for when your home has lost value and selling it won’t recoup what’s owed on the mortgage for you or the bank. Your house is thought of as “underwater” on a loan when it is worth less than what’s owed.
The home is allowed to sell quickly at a very low price. The bank must approve a short sale and by doing this they would be accepting a loss. California is a non-recourse state, so any deficiency in the sale price, when compared to what’s owed, would be lost. The bank could not ask the debtor to repay the difference in most non-judicial foreclosures.
Lenders may still agree to these short sale terms, reasoning that a short sale saves them the cost and hassle of foreclosure. Former mortgage holders won’t collect any equity they had in the home, but they also won’t owe anything to the bank.
For homeowners with a mortgage through an FHA loan, a partial claim provides a way to pay back missed payments and penalties by adding them to the original mortgage.
You may have been temporarily laid off from work and had to miss a few mortgage payments. Your job may resume, and you could have the steady income to begin making payments again, but not enough to pay back what you’ve missed.
A partial claim federal loan allows you to borrow the money you need to get caught up interest-free. The balance of this new loan is added to your first mortgage, and you can pay it back in small payments as you pay your monthly mortgage.
Seek a Loan Modification
In some cases, a simple change to the terms of your mortgage will allow you to meet your payments each month. A change in the length of your loan or the interest rate could make a major difference in how much you’d need to pay each month to remain at your address.
Your bank may agree to this strategy to avoid foreclosure, that’s long-term and expensive. They’d rather have you paying less, but still working towards owning the home outright and taking it off their hands.
In some cases, lenders will allow missed payments and fees and penalties to be added to the terms of your new loan.
Chapter 13 Bankruptcy
Your monthly mortgage payment may not be your only debt issue. You could be behind on several credit cards, car payments, and even tax payments. Bankruptcy is a viable option for some people who need a break from many creditors to get their financial affairs in order and want to avoid foreclosure sale.
Chapter 7 is one option, but it’s often more of a delay tactic than a real solution. It won’t erase your mortgage, but it can help you with other debt so you can focus on what’s important. Lenders can still move forward with bankruptcy after the Chapter 7 process over a few months comes to an end. Some people earn too much to qualify for Chapter 7 debt relief.
Chapter 13 is a longer-term solution and that means it gives you a longer break from foreclosure. You’ll be subject to a three to five-year plan to pay off your current debt, often at a reduced rate. During this time you enjoy the protection of an “automatic stay.” This means creditors can’t harass you or sue you for what you owe them. Usually, your mortgage lender won’t be able to foreclose on you either.
Your plan would include your monthly mortgage payment and often the back payments and penalties you owe are folded in.
At the end of the three to five years, some of your qualifying debt is erased completely. You come out of Chapter 13 with less debt and should find it easier to continue making your payments.
California’s Foreclosure Intervention Process
If your mortgage is backed by the federal government, you likely have several more options and some added protections before you would lose your home to foreclosure.
Loans guaranteed by departments like Fannie Mae or Freddie Mac, the FHA, and the VA have built-in safeguards to help homeowners face financial ups and downs.
The State of California has created several programs to keep people from having to turn over their front door keys. As of 2022, one of those programs is California’s Mortgage Relief Program. It’s funded by federal money.
Applicants must meet certain income thresholds. They must have missed at least two mortgage payments prior to December 27, 2021. Additionally, they must have faced a pandemic-related financial hardship after January 21, 2020.
Talk to a California Bankruptcy Attorney About Foreclosure Relief
Bankruptcy may not provide the answer for every homeowner in financial trouble, but it’s definitely worth speaking with a bankruptcy professional serving Southern California families. Earning financial freedom while also keeping your home might be possible over a few short years.
There’s an easy and risk-free way to find out if bankruptcy can keep you in your home. Contact the Law Offices of Steers & Associates for a free bankruptcy consultation on your case. Our highly-regarded Los Angeles Bankruptcy Legal Team will go over your bankruptcy options with you and clearly explain their benefits.
Elena Steers is a highly experienced bankruptcy attorney, the founder of Law Offices of Steers & Associates, and previously worked as a Bankruptcy Trustee Assistant at the Office of the Chapter 13 Trustee in Los Angeles. Her current affiliations include the State Bar of California, National Association of Consumer Bankruptcy Attorneys, and Central District Consumer Bankruptcy Attorneys Association.