In foreclosure, your bank notifies you they intend to take ownership of your California home to recover the amount you still owe. Once they inform you your house will be auctioned off, you have just a few weeks to catch up on payments, sell your home, or stall by filing for bankruptcy.
What Happens if Your House Goes Into Foreclosure?
California Homeowners are usually considered “in default” of their loans after payment has gone unpaid for three months. Making up a missed payment can be difficult because you’ll still have the next mortgage payment come due, and then the next one. The late fees and other penalties also make catching up a struggle.
At the end of this 90-day period, the lender must contact you and anyone else on the mortgage loan. They perform a “foreclosure avoidance assessment” to determine your financial situation and explore your options to avoid foreclosure.
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Avoiding Default on a California Mortgage Loan
Short of repaying what you owe, which is likely not possible, there are a few things you may try after being warned of a potential foreclosure on your home.
- Seek a loan modification from the lender. In order to avoid the expense of a foreclosure, your bank may be willing to restructure your loan.
- Seek a forbearance. During difficult times, like a pandemic, you may have other legal options provided by California law and federal law. You may ask for forbearance from lenders. This would allow you to take a break from your payments while rebuilding your finances. You must still start repaying all of the money you owe after a forbearance period is over.
What Does a Notice of Default Mean for California Homeowners?
After 90 days have passed, the bank must wait another 30 days after the foreclosure avoidance assessment to begin the foreclosure process.
They may then record a “Notice of Default” in the county where your home is located. Their next requirement is to alert you to this filing within 10 days by certified mail. This marks the official beginning of the foreclosure process.
Avoiding Scams After a Notice of Default
The California Judicial Branch warns homeowners to be wary of all companies that contact you after a Notice of Default has been filed. The notice is recorded as a public record and many fraudulent companies and scam artists seek to send defaulted borrowers offers to “help” them avoid foreclosure.
These fraudulent companies could take your money and then do nothing to help. There are free services available from the government and nonprofit organizations to help borrowers. Additionally, you can call Steers and Associates for a free consultation to discuss your legal options to avoid foreclosure.
California Foreclosure and the Notice of Sale
After waiting at least 90 days after the Notice of Default is filed, the bank may file a Notice of Sale. Once you’ve been notified, the bank may auction off your home 21 days later.
Five days before the sale is your deadline to pay what you owe and “reinstate” the loan. This is called “reinstatement” of the loan.
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What Happens After a California Foreclosure?
After the sale, if you remain in the home, the new owner must serve you a 3-day written notice to move. If you don’t leave, the owner then attempts a formal eviction in court. This process could extend over several weeks.
If the owner wins, they ask the judge for papers that tell the sheriff to evict the tenants. The sheriff will post a Notice to Vacate and the tenant is given time to move out. During this process, the owner isn’t permitted to turn off utilities on you, lock you out, or remove your belongings.
How Long Does Foreclosure Take?
A foreclosure that ends in the sale of the home can take around 7 months to complete when there are no delays or complications. Most foreclosures do have delays and take longer to finish.
California’s Homeowner’s Bill of Rights often gives you more time to seek a resolution to your mortgage issues other than foreclosure. A backlog of foreclosure cases in California courts can also push back your foreclosure date.
Options for Homeowners to Stop a Foreclosure and Home Auction
Once you know you’re heading for foreclosure, you could attempt to sell your home. If you sell the home for more than what you owe on a mortgage, you could pay off the bank and any late payment penalties you’ve incurred. Depending on the sale price, you could even recover some of the equity you have in the home.
If you wait until you receive a Notice of Sale from your lender, you may only have three weeks to complete this sale. Selling a home this quickly will be a tall task for even the best real estate agent.
Your other option is to file for bankruptcy. At the very least, a Chapter 7 or Chapter 13 Bankruptcy provides an “automatic stay.” This feature puts a hold on all of your debt, including a mortgage. Your lender can’t take action to foreclose on your home or harass you until the bankruptcy process is concluded.
You may also come out of bankruptcy free of other debt that allows you a better chance to focus on catching up on house payments.
How Chapter 7 Bankruptcy Can Help With a Foreclosure
Filing for Chapter 7 Bankruptcy could delay your foreclosure, but you may still face losing your home once you emerge from a Chapter 7 discharge. If you owe late payments and fees when you enter Chapter 7, you’ll likely still owe and face home foreclosure when you finish your bankruptcy.
Your lenders can also ask the court for permission to proceed with a foreclosure even during an automatic stay. Filers with a lot of equity in their homes also risk having the home liquidated to pay creditors during the Chapter 7 process. This could be avoided if you have enough bankruptcy exemptions to keep your home off-limits during bankruptcy.
It’s important to speak with a bankruptcy attorney serving Southern California to make sure that if you do file for Chapter 7 Bankruptcy it will provide the protection you need from foreclosure.
Chapter 13 Bankruptcy Help With a Foreclosure
Your mortgage woes may not be your only financial worries. In some cases, filing for Chapter 13 Bankruptcy allows you several years of additional time to repay all of your debt and square away your mortgage.
In Chapter 13 Bankruptcy you can work with your bankruptcy attorney to set up a court-approved payment plan lasting from three to five years. These payments go towards an agreed-upon portion of your debt and the remaining balance is then discharged (erased) at the end.
Your mortgage payments won’t get erased, but a second mortgage could be wiped away. The payments you’ve missed and the late fees can also be negotiated down and added to your Chapter 13 payment plan. You also get time to catch up on house payments and continue them after your Chapter 13 Bankruptcy period ends.
Always discuss this option with a skilled Los Angeles Chapter 13 Bankruptcy attorney to determine if it will leave you and your family in a better position.
Contact a Bankruptcy Attorney Serving Los Angeles
If you are facing a foreclosure on your house, don’t hesitate to explore how bankruptcy could benefit you and allow you to keep your address. If you don’t feel you will avoid foreclosure, bankruptcy could keep your family in a home they love and also provide relief from your other debt.
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.