Having major debt issues makes it seem like the weight of the world is on your shoulders. When the threat of home foreclosure is added, you may feel like the last place you can find peace of mind is being taken away.
Foreclosure is a serious obstacle, but in many cases, mortgage lenders want to avoid it as much as you do. There are ways to delay and even beat foreclosure.
There is also relief for some through Chapter 13 Bankruptcy. Bankruptcy in California can help you organize and pay off all of your debt without losing your home.
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What Is Foreclosure of Mortgage?
Foreclosure is the term for the legal steps mortgage lenders employ to take back property when a borrower has stopped making payments. After many other legal notifications over several months, the bank would attempt to auction off the home to complete a foreclosure.
Homeowners are considered “in default” of a mortgage after it’s gone unpaid for three months or more. Once 90 days have passed, it’s safe to assume a bank is considering a foreclosure.
However, there are many steps the bank is obligated to take before they can ask you to leave the premises. This extra time leaves the borrower with an opportunity to work out a new agreement with the lender and stay in the home.
Types of Foreclosure in California
There are two main types of foreclosure allowed in California. One involves the courts, and one doesn’t.
- Judicial Foreclosure is the option that involves court action. The lender files a lawsuit to foreclose on the home. The borrower would go to court to fight the lawsuit.
- Non-Judicial Foreclosure is the most common choice utilized by lenders. It doesn’t involve the court. Banks much prefer the nonjudicial option because it is usually a faster, easier, and much cheaper process. In order for non-judicial foreclosure to work, the mortgage must have a power of sale clause. The provision grants the bank the power to foreclose when borrowers default on their loans.
When a home is auctioned off in foreclosure, everyone hopes that the sale price is enough to pay off the remaining money the borrower owes on the mortgage.
If the home is sold for less than what is still owed, the debtor is sometimes still on the hook to pay the difference. Thankfully, this isn’t an option on the non-judicial path. If the lender doesn’t get full compensation by selling the home, they aren’t allowed to sue the borrower for the rest.
How Long Does a California Foreclosure Take?
If everything goes according to schedule, a foreclosure in California may take anywhere from four to seven months to complete. However, delays are not uncommon, and foreclosure proceedings have been known to take a year or more. As a rule, a judicial foreclosure takes even longer to complete.
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A backlog of foreclosure cases in California courts can also push back your foreclosure date. California’s Homeowner’s Bill of Rights could also give your family more time to seek a resolution to your mortgage issues before foreclosure.
The First Steps in Foreclosure
As mentioned above, you are considered “in default” after you’ve missed three months of payments.
At this point, you’d still be able to make the payments you’ve missed, but you’d also likely face hefty late fees that would also need paying.
Once the bank has gone 90-days without receiving a payment, a “foreclosure avoidance assessment” meeting is scheduled with you. During this evaluation, the bank will determine your financial health and talk over some options with you. They’ll bring up some solutions, but they likely won’t mention every path you could take to saving your home.
Foreclosure Notices for California Homeowners
If no resolution is reached, the bank must wait for another 30-days after the avoidance assessment meeting to take action.
California Foreclosure Notice of Default
Once the month is up, the bank files a “Notice of Default” in court 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 formal and public foreclosure process.
California Foreclosure Notice of Sale
90 days from the filing of the Notice of Default, the bank is permitted to file a “notice of sale.” Once that happens you don’t have long to take action.
Once you’ve been notified, the bank may auction off your home three weeks later. There is still time, even at this late hour to preserve your homeownership. Five days before the sale is your deadline to pay what you owe and your late fees to “reinstate” the loan and prevent foreclosure.
Options to Avoid Foreclosure In California
You do have options to explore when you want to fight a pending foreclosure. Talk to your lender about your situation and perhaps a new agreement can be reached that will give you a chance at making your monthly payments.
Lenders aren’t excited to begin the foreclosure process. If they can avoid this expensive and time-consuming option, they’ll usually work with you on some other solution.
Negotiate a Repayment Plan
You may not be able to “redeem the loan” by paying your late mortgage payments and late fees. If you had that kind of money, you likely would have already done it.
However, you should try asking your lender to work out a payment plan that you will be able to handle. This plan keeps you paying your current mortgage payments. But the payments you’ve missed and the penalties are placed in one lump sum that you pay back with mini-payments over an agreed period of time.
These payments would be made along with your normal mortgage bill each month. If you can manage the extra money each month, this is far better than risking the loss of your home.
Enter Into a Forbearance Agreement
During an extreme financial downturn, mortgage holders can ask for forbearance from their lender. Forbearance allows homeowners to avoid foreclosure by letting them take a break from their mortgage payments over several weeks.
Forbearance is sometimes available under normal circumstances. However, during a difficult and unforeseen financial crisis caused by something like a pandemic, they 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.
Forbearance grants homeowners a break from payments, without penalty, from between three to six months. The mortgage payments resume at this point. There is no reduction in the mortgage’s balance during forbearance.
Sign a Deed In Lieu
This option doesn’t save your home, but it can protect you from some of the negative effects of a foreclosure.
You essentially sign the house deed back over to the lender. This is a voluntary move. If this is acceptable to your bank, you walk away without owning anything else on your mortgage. They take over ownership of the home and the responsibility of selling it.
Agree to a Loan Modification
Early on when you are explaining your circumstances to a loan officer, you may ask your lender for a loan modification.
When allowed, your bank agrees to change the terms of your loan to help you resume normal payments. The loan is redrawn at a longer-term with a lower interest rate. Your payments would drop and your credit would take less damage.
Some lenders would even allow you to add your late payments and penalties to the principle of your new mortgage.
Chapter 13 Bankruptcy to Prevent Foreclosure
Another option that people facing foreclosure may not know about is the relief a bankruptcy may provide. Debtors often miss mortgage payments because other debts are draining their monthly cash flow. Chapter 13 Bankruptcy can delay foreclosure for years while also providing a lifeline on your other outstanding debt.
Chapter 13 Bankruptcy allows you to negotiate your debt balances down and pay off only a portion of it over a three to five-year plan. Your proposed plan would have to be approved by the bankruptcy court, but if it’s greenlighted, you would be protected from creditors over several years while you made your payments.
Your mortgage isn’t wiped away, but you’d have a better chance to stay current on payments and you’d stay in your house. The best part is that any second mortgage you took out may get discharged (erased) at the end of the Chapter 13 process.
Even better, your missed payments and penalties might be added to your negotiated debt paid over the length of your Chapter 13 Bankruptcy.
Bankruptcy won’t be the answer for everyone, but it’s more than worth it to discuss this option with a skilled Southern California Bankruptcy Attorney. Your consultation is free and it’s a good way to stay informed of all of your options.
Frequently Asked Questions
Can I Keep the Profits From a Foreclosure Sale?
Yes. You are entitled to any profits if your home auction brings in more money than you owed on your mortgage. Remember that the missed payments and late fees you owe would come out of this profit as well as any second mortgages you took out.
Do I Owe Property Taxes When My House Is in Foreclosure?
Your property tax debt would transfer to your lenders once they foreclosed on your home. In most cases, they would have to pay the property taxes and could no longer demand that additional money from you.
Contact a California Bankruptcy Attorney to Find Out if Chapter 13 Can Help You
Avoiding foreclosure on your home will be a huge priority, especially after you’ve received a default notice. Your other debts may complicate your efforts to save your house though. Bankruptcy may or may not provide a lifeline for you and your family, but you won’t know until you go over your situation with a bankruptcy expert.
There’s an easy and risk-free way to find out how bankruptcy can help you stay 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.