How To Stop Or Delay Your California Foreclosure

The Definitive Guide To Navigating Your Foreclosure

Is your mortgage company or  bank threatening to take your home? If Yes…

Have you taken action to delay or stop your foreclosure? If not, then it is very likely that you may lose your home.

Bottom line? If you want to have the possibility of saving your home or delaying your foreclosure, then know your rights.

In this guide we are going to list out what you can do if you are going to lose your home.

Let’s get started.

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Contents

How The Foreclosure Process works

The Foreclosure Process

Educated yourself on how a foreclosure work.

Foreclosure deadlines and dates

Foreclosure Timeline

Critical foreclosure timelines that you need to know.

What Are My Options?

Learn several important options you have during foreclosure.

avoid foreclosure a scams

Avoid Foreclosure Scams

Find out how long you can stay in your home.

graphic picture of keys

Payment free Options

Find out if you can keep your home. You have options.

question

Can I keep My House?

Don't be bullied by your mortgage company.

graphical image of a courtroom gavel

Should I fight Back?

Find out how long you can stay in your home.

short sale contract

Short Sale / Died In Lieu

Find out if you can keep your home. You have options.

Things to remember about a foreclosure

Things To Remember

Don't be bullied by your mortgage company.

CHAPTER 1:

The Foreclosure Process

Overview

The following information gives you an idea what happens when a foreclosure takes place. You have various options open to you before you proceed with the process. Therefore, you can negotiate a deal and follow a plan that will assist you in keeping your home. After reviewing the options, you may still choose to go through foreclosure. The choice you make depends on your debt load and lifestyle.

Why Foreclosure Occurs

Foreclosure normally follows unemployment or unexpected bills. If an adjustable rate mortgage is re-established at a higher rate, your payments can easily become too difficult to make. Once you start falling behind, you have several months before the lender begins foreclosure proceedings. 

Foreclosure is a long and tedious process – good news for the homeowner who is facing this event. That means you have time to plan, assess, and negotiate. Once you start having trouble making your house payments, you need to act. For example, if you have missed a few payments, you may be able to include the missed payments at the end of the loan or catch up over a specific time span. Even if your lender is not that flexible, you may be able to negotiate a plan.

Once you know that you are in trouble, never wait for the lender to contact you. Contact him or her instead. By referring to this guide, you can find out how to maintain a good rapport with your lending or mortgage company.

Do Not Panic

Because you do have some time to work out a plan, do not panic. Doing so could lead you to someone who is using foreclosure rescue to scam you. It is better to go through the foreclosure process instead of falling prey to one of these scams.

The foreclosure process in California is complex. Therefore, going through the steps can become confusing. However, if you understand the procedure timeline, you can more easily review the situation and the various options. The steps below show what happens during the foreclosure proceedings.

The Technical Details

In California, foreclosures are normally non-judicial. However, in some instances, homeowners go through judicial foreclosures. Non-judicial foreclosures are normally held because homeowners avoid going to court and the proceedings go faster. If you have taken out a mortgage on your home, you generally will need to go through a judicial foreclosure. 

On the other hand, if you secured the home with a deed of trust, you will normally go through a non-judicial foreclosure. Deeds of trusts are regularly used to secure properties in California. That is another reason why non-judicial foreclosures are popular.

Foreclosure Proceedings

Two types of foreclosures are defined in the U.S. These two types include a judicial foreclosure and a non-judicial foreclosure, which is also known as a Power of Sale. 

Taking a Closer Look at Judicial Foreclosures

Every state in the U.S. permits judicial foreclosures. A judicial foreclosure is performed through a state court via a lawsuit. As a result, this type of foreclosure can be more expensive and take longer than the non-judicial kind. In fact, some judicial foreclosures may take years to settle.

How a Judicial Foreclosure Begins

A judicial foreclosure starts when a lender files a lawsuit against the borrower in court. The borrower is served with a Summons and Complaint. The paperwork describes the type of loan and the default. If the borrower believes the foreclosure action is invalid, he or she can oppose the action. To do this, the borrower files an answer to the complaint.

What Happens If You Do Not Respond

If you do not respond in any way, shape, or form to a judicial summons, the lender wins the case and a foreclosure sale will be scheduled. If you object to the foreclosure, however, you can explain your reasons for objecting to the action. The judge, in turn, will decide whether the home can be sold. Borrowers should hire an attorney if they become embroiled in this type of legal action.

Responding to a Power of Sale – Non-judicial Foreclosures

As the name suggests, non-judicial foreclosures do not go through a court process. As a result, they proceed more quickly and with less expense. Most of these processes only last a few months after the NOD (notice of default) has been issued.

Receiving Notice

In a non-judicial foreclosure, the borrower receives notice of default and is informed when a sale is scheduled. The notice is recorded in the real estate records of the county, posted on the property, or mailed to the home owner. A Notice of Sale is published in the area newspaper to alert the public. This is published 90 days after the NOD or Notice of Default has been recorded. 

The auction date depends on certain factors. Technically, the auction can be scheduled 20 days after the Notice of Sale is posted. However, the auction can be delayed as long as a year if you wish to try to save your house. 

You can postpone the auction with the help of an attorney, cancel the sale by initiating a deed in lieu of foreclosure or arranging a short sale, or sell the home to the bank. If the house is returned to the lender, you have the option of buying the house back. 

Looking At Foreclosure in Three Basic Steps

1) Pre-Foreclosure

This part of the foreclosure process begins with a Notice of Intent to Foreclose or Notice of Default, which is referred to as a breach letter or NOI. This letter is delivered from the lender and officially begins the phase known as pre-foreclosure. The NOI is basically a notice in writing that comes from the lender, outlining what a borrower needs to pay and when the payment is due to avoid foreclosure.

Home Retention Programs

At this point, the borrower can elect to avoid foreclosure by taking advantage of home retention programs in the form of long-term loan modifications, forbearance plans, or a short-term repayment option. Short sales can be utilized where the sale of the home is less than the amount owed, or a transfer of title to the lender can be performed, which is called a deed-in-lieu foreclosure.

Never Ignore a Notice of Default (NOD)

You should never ignore an NOD if you do not want the foreclosure process to continue. While you may not be able to save your property, you may be able to do something to keep a foreclosure from being recorded on your credit report.

Stay in Touch with Your Lender

Always let a lender know early if you have any difficulty making payments. A lender’s ability to help a homeowner diminishes after each payment that is missed. Also, remain in your home. Abandoning a property may make it more difficult for you to qualify for any extensions or financial programs meant to help homeowners who fall behind in their payments.

Do not Fall for Scams

Always beware of scams. Scam artists like to prey on homeowners who are financially struggling. Never talk to anyone who charges a fee for modifying a home loan or provides counseling. Also, be wary of anyone who wants you to sign paperwork quickly or says that they can save your house if you transfer your home’s deed over to them.

2) Loan Acceleration

If you do not repay the amount in the arrears that is referenced in an NOI, the loan balance may be accelerated. The NOI only requires that a homeowner pay the payments that are past due along with the interests, costs, fees, and escrow amount that is needed to bring the financing up to date. 

Asking for the Full Balance Now

If you do not bring the amount current within the stipulated time, again, the lender has the right to accelerate the balance on the loan. This means he or she can state that the whole balance on the financing is due and payable now. In other words, the homeowner must pay off the entire debt. If the loan is accelerated the lender can easily move on to foreclosure.

3) The Trustee’s Sale for Foreclosure Auction

As a final step in foreclosure, the home is placed up for sale at an auction open to the public. The homeowner, at this point, receives a notice that states the date, location, and time of the sale. The Notice of Sale and auction date are also recorded publically. The recording is made in the local newspapers, on county land records, or may be posted on the door of a home up for auction. Notices by mail are also sent.

The Bidding Process

The bidding begins at the auction at a dollar amount that has be established by the lender. Usually, this amount is based on a home’s value or the amount of the obligation. Once the beginning bid is announced, the attendees at the auction may offer bids that are higher until the property is officially sold. 

When the Property Becomes Real-estate Owned (REO)

If no bidders participate in the sale, other than the bank or lender, the property’s title will revert to the lender. When this happens, the property is categorized as an REO (real-estate owned) property. After a period, REO properties may be sold by lenders so their losses can be recouped. 

The Final Steps after Foreclosure

Once the foreclosure sale has ended, a foreclosure deed is recorded that transfers a property’s title to a winning bidder or the lender. While the ownership has been transferred and the property is under new ownership, there are still certain processes that must be followed before the former homeowner is evicted.

Eviction

If you do not leave the home voluntarily after transfer of the title and there is no redemption period, a lender can seek the court’s assistance to evict you. In some instances, lenders are willing to discuss an arrangement called a cash for keys agreement. This helps a former owner with his or her moving costs. As part of this agreement, the former homeowner promises to leave the house in good condition

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CHAPTER 2:

Foreclosure Timeline

1. A Notice Of Default begins The Process

The Notice of Default or NOD is the first phase of the foreclosure proceedings. The NOD in California is recorded after a borrower fails to meet the terms of the mortgage loan. Usually, the NOD timeframe spans 90 days before the lender takes the next foreclosure step. 

At this juncture, the property is deemed to be in pre-foreclosure. The property owner receives a notice by mail with the estimated sale date. Usually, this notice is delivered after the homeowner has missed four months of payments.

2. Notice Of Trustee Sale

After 90 days have passed from the recording of the NOD, the lender issues a Notice of Trustee Sale. This notice is legally actionable and therefore acts as an intent to sell the foreclosed property at auction.

3. Auction Date

The date of the auction depends on one of various factors. Technically, the lender or trustee can schedule an auction 20 days after the Notice of Trustee Sale is posted. Nevertheless, you can postpone this event in one of a number of ways. As a result, some homeowners can delay an auction for as long as a year.

Foreclosure sales must take place on a business day between the hours of 9AM and 5PM. They must occur at the site that is listed in the Notice of Sale. The trustee auctions the property to the highest bidder, which may the lender. A borrower is permitted to delay or postpone the sale for one day.

Auction Outcomes

You can realize one of four outcomes prior to or after an auction.

  • Postponement. A new auction date is established and the foreclosure process begins again. This is usually done with the help of a foreclosure lawyer. Postponements permit you to buy additional time to restore your budget and become current. They also make it possible for you to devise a legal strategy to fight the foreclosure proceedings.
  • Cancellation. Cancellation enables you to cancel the auction by initiating an action, such as a short sale. Maybe you were able to make a loan modification for your property’s financing.
  • Bank Sale. Many times, the lender is the only party that can bid on the foreclosed property. In turn, the house goes back to the lender. If this happens, the homeowner may be able to regain his or her title after the auction sale. This can be done with the help of an experienced foreclosure lawyer.
  • Third Party Sale. A foreclosure property is frequently an attractive purchase to a third-party buyer – someone who wants to capitalize on distressed properties. In this case, you cannot regain the title to the home but must opt for selling it and relinquishing it entirely.

California Foreclosure Timeline

A Notice Of Default Begins The Process

Notice Of Default

The Notice of Default or NOD is the first phase of the foreclosure proceedings. The NOD in California is recorded after a borrower fails to meet the terms of the mortgage loan. Usually, the NOD timeframe spans 90 days before the lender takes the next foreclosure step.
At this juncture, the property is deemed to be in pre-foreclosure. The property owner receives a notice by mail with the estimated sale date. Usually, this notice is delivered after the homeowner has missed four months of payments.

A Notice Of Default Begins The Process

Have You Received A Notice Of Trustee Sale?

Notice Of Trustee Sale

After 90 days have passed from the recording of the NOD, the lender issues a Notice of Trustee Sale. This notice is legally actionable and therefore acts as an intent to sell the foreclosed property at auction.

Have You Received A Notice Of Trustee Sale?

Auction Sale Date Notice

Notice Of Public Sale

The date of the auction depends on one of various factors. Technically, the lender or trustee can schedule an auction 20 days after the Notice of Trustee Sale is posted. Nevertheless, you can postpone this event in one of a number of ways. As a result, some homeowners can delay an auction for as long as a year.
Foreclosure sales must take place on a business day between the hours of 9AM and 5PM. They must occur at the site that is listed in the Notice of Sale. The trustee auctions the property to the highest bidder, which may the lender. A borrower is permitted to delay or postpone the sale for one day.

Auction Sale Date Notice

You Still Have Options

Foreclosure Sale Outcomes

You can realize one of four outcomes prior to a foreclosure sale.

You Still Have Options

Postpone The Sale & Delay Foreclosure

Postponement

A new foreclosure sale date is established and the foreclosure process begins again. This is usually done with the help of a foreclosure lawyer. Postponements permit you to buy additional time to restore your budget and become current. They also make it possible for you to devise a legal strategy to fight the foreclosure proceedings.

Postpone The Sale & Delay Foreclosure

Cancel The Foreclosure

Cancellation

Cancellation enables you to potentially cancel the foreclosure by initiating a foreclosure prevention alternative, such as a short sale, deed in lieu, or a loan modification.

Cancel The Foreclosure

Bank Sale

Bank Repossession

Many times, the lender is the only party that can bid on the foreclosed property. In turn, the house goes back to the lender. If this happens, the homeowner may be able to regain his or her title after the auction sale. This can be done with the help of an experienced foreclosure lawyer.

Bank Sale

Third Party Sale

A Third Party Buys Your Home

A foreclosure property is frequently an attractive purchase to a third-party buyer – someone who wants to capitalize on distressed properties. In this case, you may not regain the title to the home but may retain the right to sue your lender for damages you suffered. 

Third Party Sale
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CHAPTER 3:

What Are Your Options?

You have several options and actions you can take when you are facing foreclosure. The following options are available to you:

  1. Reinstating the financing by making up missed payments, including the interests and fees.
  2. Negotiating a workout, such as a repayment plan, forbearance, or loan modification. This can be done through the lender with assistance from an HUD-approved counselor.
  3. Refinancing the loan in its entirety.
  4. Arranging a short sale.
  5. Arranging a deed in lieu of foreclosure or giving up the house.
  6. Setting up a reverse mortgage.
  7. Delaying foreclosure or stopping it by fighting foreclosure proceedings in court.

#1 - Reinstating Your Mortgage

If you can access another loan or have sufficient cash, you can reinstate the mortgage by making up the missed payments, including the costs, fees, and interest. You have a certain time period to facilitate the process after the lender gives you notice. 

In California, you have up to three months to reinstate your loan after a Notice of Default or NOD has been mailed to you. If, after that period, you have not negotiated a workout, the lender can accelerate the loan, or declare that the entire loan amount is due and payable now. 

He or she can also send Notice of a Trustee’s Sale, declaring that the house will be auctioned or placed for sale within 20 days. The law in California gives you up to five days before the foreclosure sale to reinstate financing. Most lenders would rather work out a plan rather than accelerate the loan. 

#2 - Negotiating a Workout

To negotiate a workout, you need to initiate the process with an HUD-approved counselor. With his or her assistance, you can do the following:

  • Receive temporary financial relief from making monthly payments or obtain a reduction in what you have to pay (also known as forbearance).
  • Work out a plan to make up the missed payments, either by scheduling the payments at the end of the loan period or adding them to your current payments for a specific time.
  • Lower the rate of interest so your payments are lower.
  • Reduce the principal of the loan balance.

#3 - Refinancing Your Home

If you can refinance your loan at a lower rate and pay off your old financing, you can have a new beginning. However, if can be difficult to refinance a mortgage unless your credit is good and your home value and equity are good to excellent.

#4 - Arranging A Short Sale Of Your Property

To arrange a short sale, contact a real estate agent that specializes in this types of sales. Never attempt the short sale yourself. In California, all short sale transactions must be overseen by a licensed real estate agent. After you have hired an agent, determine the listing price. It is best to list your property at 10% below the short sale value to encourage offers or to drive up the price. If you want to leave some room for negotiation, list the property at 10% higher than the short sale value. 

One thing you have to keep in mind if you sell your home by short sale is that you will probably have to move out immediately after the closing. While this may not be difficult to do if you want to leave anyway, you will miss out on the chance to sock some money into savings without having to pay a mortgage.

#5 - Arranging a Deed in Lieu of Foreclosure (Giving Up the Property)

If you do not want to keep the house, you can request that the bank or lender take the home back. This is done through a process known as a deed-in-lieu of foreclosure, or DIL. This process allows you to deed the real estate to the lender in exchange for forgiveness for any deficiency balance. A lender will only accept a DIL if the property has no other liens on it and it is vacant.

#6 - Setting Up A reverse Mortgage

Reverse mortgages permit older homeowners to convert the equity in their properties into a line of credit or income. They are only available to people who are at least 62 years old and occupy the property as the principal residence. A reverse mortgage differs from a traditional mortgage, as it does not necessitate that the borrower pay monthly payments to repay the loan. 

Even though you are not responsible for the payments on this type of mortgage, you do have to pay the property taxes, house insurance, and maintain the property. 

The proceeds of the loan are paid to the borrower through a line of credit, monthly payment, or through a lump sum payment. A combination of a line of credit and monthly payments can also be established.  A reverse mortgage becomes due and payable when the property is transferred, when the borrowers die, or when the home is no longer used as a principal residence. 

#7 - Giving Up your Home

While a deed in lieu of foreclosure is one way to give up your home, you do have other options. The choice you make should be done with the least emotional upset in mind. While this guide covers several fundamental choices for bypassing foreclosure, sometimes it is just best to walk away. 

If you elect to walk away, you will, no doubt, lose your home. Nevertheless, you can save what you would make in mortgage payments during this period. You do not have to make the payments to a lender but place them in savings instead. Doing so can result in substantial savings – savings that you can use to buy or rent a new home. 

People walk away from a foreclosure default for one of two reasons – either the mortgage is no longer affordable or the home is basically a poor investment. Think carefully before you walk away, as a deed in lieu of foreclosure or short sale are more positive choices.

#8 - Strategic Default

If you can afford to pay the mortgage but walk away, this move is known as a strategic default. Again, you may be better off by choosing a short sale or deed in lieu of foreclosure. Be careful about this choice, as you can be sued for the difference of the sales price and the amount you owed at the time of the auction. The liability for the difference is known as a deficiency. This amount can be discharged in a bankruptcy. However, if you do not opt for bankruptcy, you can be saddled with a large debt.

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CHAPTER 4:

Watch Out For Foreclosure Scams

Some companies scam homeowners by posting as a foreclosure rescue company. Be aware – if you are close to losing your home to foreclosure, you may be contacted by a foreclosure “rescue” company. These scammers go through public records and contact homeowners who have received notices of foreclosure.

Foreclosure “rescue” companies are only out to make money. If you have equity built up in your home, they try to con you out of it, or if you have money in the bank, they use their con artist skills to go after it. If you have a good deal of equity in your home, consider yourself a possible target for a mortgage rescue scammer.

An Example Of A Scam

One trick that a scam company uses entails the following:

  • A representative of the company says that he will buy your house temporarily and make the mortgage payments. He says that you can stay in the home and lease it from him. When the loan is paid off, you can buy the house back. However, usually the owner transfers ownership to the “rescuer.” Instead of sending the payments to the lender, the scammer refinances the property with the money. Then he sells the property, leaving you, the homeowner, without a workout plan or equity.

How To Protect Yourself?

To protect yourself, you need to do the following:

  1. Never depend on an oral guarantee. Make sure any contractual arrangement is in writing.
  2. Never sign an agreement unless you comprehend all the terms.
  3. Never sign a contract that features blank spaces or lines. Representations of which you have no knowledge can be added after the contract is signed.
  4. Never transfer your ownership to a proposed third-party lending company – the so-called rescuer.
  5. Never agree to financing that you cannot afford or that has to be paid back in a short term and at a high interest rate – conditions for remaining in your home.

Scammers Who Target Homeowners with Little or No Equity

If you do not have equity or very little equity in your home, you probably will not be contacted by anyone who wishes to obtain the title. However, you still have to be on the lookout. For example, some scammers, for a fee of course, offer to help you overcome foreclosure by locating affordable financing. 

They may also offer to negotiate with your lender for a loan modification or a freeze on the interest rate. However, these companies usually only help themselves to your money.

Forensic Loan Auditing – Another Scam to Avoid

This type of scam involves paying a company an upfront fee of around several hundred dollars. This fee enables a “forensic loan auditor” to survey your loan documents to see if your lender followed mortgage lending legislation. 

Companies that offer this service claim that audits discover lender violations around 90% of the time. They elaborate on this point by saying that you can use this information to delay a foreclosure, stop the process, or force the lending company to modify the loan or rescind the contract.

However, no evidence exists that demonstrates the merits of these so-called audits. Even if an audit did discover incidences of fraud or similar violations, you, as a homeowner, would still need to file a lawsuit against your lender to stop foreclosure proceedings. Delivering an audit report of this type to a lender will not impact foreclosure proceedings.

The Profile of a Scammer

The people who scam homeowners who are facing foreclosure use a number of “cons” to gain your trust and cooperation. Therefore, be careful of anyone who exhibits the following behaviors.

  • Contacts you by mail or phone. Legitimate foreclosure representatives do not contact you. You must contact or visit them.
  • Provides little details about the foreclosure process.
  • Claims to be associated with a governmental entity.
  • Uses “affinity” type marketing. For example, Spanish speakers will contact Spanish speaking homeowners while seniors or Christians will contact their peers who are in their age group or practice the same religion.
  • Provides testimonials from other foreclosure customers.
  • States that the process will be simple and fast. When you are facing foreclosure, the process is slow-going. It never is fast, nor is the remedy. Some of the bait that a scammer uses to lure a customer includes the following phrases: “I’d like to buy your house.” “Do you need instant cash?” “Stop foreclosure with only a phone call.”

Encourages you to cease any further contact with the lender.

If a company uses any of the above tactics, it probably is breaking the law. 

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CHAPTER 5:

Staying In Your House Payment Free

If you choose to fight in the court system, you can continue to stay in your home, payment-free. By challenging a bank’s action and waiting to file the associated paperwork, you can remain in your home without paying a dime. 

During a foreclosure review in the court, the homeowner can remain in his or her home and not make payments. If a bank does not allow a borrower to modify his or her mortgage, sometimes the only recourse a homeowner has is to find a problem with the current paperwork and take the matter to court.

How Long Can I stay In My House Payment Free?

Usually, you can stay in your home until the foreclosure sale is concluded. Foreclosure is not a short process and entails a number of steps. In fact, if you decide to fight the matter in court, you can stay in your house until the matter is resolved and not make a single payment during that time. 

However, that does not mean you will not have to pay attorney and courts costs after all is said and done. Nevertheless, as long as you are involved in the foreclosure process, you can stay inside your house

When you miss your first payment

When you miss the first payment that is your indicator to do something about the situation now and not later. Many people do not act immediately after they have missed a payment. This is where they get into trouble. 

When you fall behind with your first payment, contact the lender immediately. Tell him or her why you are behind and plan a workout arrangement without delay. By taking this stance, you will stay on a good rapport with you lender and maintain a more positive cash flow overall.

Before the foreclosure starts what should I expect?

Expect to receive a Notice of Default first – generally after you have missed your payment after 120 days in California. After this time, you will receive a Notice of Sale. Before you receive the sale notice, you need to contact your lender and an attorney to find out what you can do to save your home or sell it without going through the process. 

After you receive a formal notice

The formal notice or Notice of Default gives you 90 days to act and respond to your delinquency. You do not want to procrastinate. Face the problem head on and see what options are available. Take an affirmative stance to ensure that you can either keep your house or make arrangements to sell it yourself. Usually, the servicer cannot give notice until you are delinquent 120 days.  

The redemption period

The redemption period is a period where the homeowner in a foreclosure can redeem the mortgage and keep his home by paying a sum of money in a specific time period. All homeowners have the right to pay off the mortgage balance, plus the associated fees and costs, before a foreclosure sale takes place. Mortgages can also be redeemed by refinancing the debt or selling the home. 

While you do not have the right to redeem a property in California after a non-judicial foreclosure, you do have the right after a judicial foreclosure. However, redemption is not possible if a deficiency judgment is not allowed or waived. The redemption period is three months after the auction sale if the foreclosure price is equal or more than the outstanding debt, including interest and expenses. Otherwise, the period is one year after the auction or foreclosure sale takes place.

After you get a notice to leave 

Once your right to stay in your foreclosed home ends, you need to vacate it. Eviction, in this case, is part of the foreclosure process. A notice, called a Notice to Quit, gives the homeowner a certain about of time to vacate. Leave the house immediately after foreclosure or before a formal eviction begins.

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CHAPTER 6:

Can I Keep My House?

You can keep your house if you are facing foreclosure. You can find out more about various ways to hold onto your property by speaking to a competent lawyer. After all, everyone’s lifestyle and budget is different. Usually, you can apply for a loan modification or a reverse mortgage (if you are older) and stay in your home. You may also opt to file bankruptcy. 

Below are some ways you can keep your house and avoid foreclosure proceedings.

Financing Assistance to Avoid Foreclosure

If you are unable to meet your mortgage payments, you may find that you are dealing with one of two situations – one that is short-term and temporary or one that is long-term and permanent.

Solutions for Short-term and Temporary Payment Problems

 If you see the problem is short-term and temporary, you may want to consider the following:

  • Mortgage Reinstatement. If you have enough money or cash to reinstate your mortgage by making up the missed payments, plus, interest and fees, you can reinstate the mortgage for one lump sum.
  • Forbearance. Forbearance marks a temporary period where a regular house payment is suspended or reduced.
  • Repayment. This process enables a homeowner to pay down any past due amounts on his or her financing while continuing to make regular house payments.

Solutions for Long-term and Permanent Payment Problems

If your situation is long term and permanent, or you feel it will take years to recover from your financial setback, you may want to consider the following solutions.

  • Mortgage modification. A modification in the terms of financing, including, the loan balance, loan term, or interest rate.
  • Short sale. A short sale enables you to sell your property for less than the balance that remains on the loan. If your lender agrees to a short sale, you can sell your property and pay off all or part of your debt. This is an option you should strongly consider if you no longer can pay on your house.
  • Deed-in-Lieu of Foreclosure. A deed-in-lieu of foreclosure or DIL allows you to transfer your home’s ownership to the owner of the loan in exchange for a release from your debt obligation.

The Numbers of Foreclosure

Foreclosure can either be either necessary or can be avoided, depending on your financial situation. If your house is worth much less than what you owe, it may be in your best interest to walk away from the default. Doing so can give you time to save money for another place to live. 

However, if you have just missed a couple payments, you can find out a way to make up the missed payments by either adding them to the end of the loan’s terms or catching up on them through various means. Even if it means filing bankruptcy, you can keep your house if you do not want to move or you feel you cannot continue to afford the current payments.

When it makes sense to keep your house

It makes sense to keep your current home when you are only a couple payments behind. If you can streamline your debt through bankruptcy proceedings, you can begin anew and start making more affordable payments. You need to speak to a skilled foreclosure attorney or an attorney who is well versed in both foreclosure and bankruptcy laws.

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CHAPTER 7:

Fight Back

If you can prove that the foreclosing party did not follow the procedural rules for foreclosure or the terms of financing, you may be able to delay the foreclosure, at least for the time-being. You also have several ways you can fight this type of proceeding in court.

How to fight a foreclosure – strategies for defense

Some of the defenses that you can raise, if you file a lawsuit, include the following:

  • The foreclosing party did not follow the specific process for foreclosure. If you find that the foreclosing party did not follow specific state processes for foreclosure, you may be able to challenge the foreclosure. If you are successful, the court system will issue an order that mandates that the foreclosing party restart the process.
  • The foreclosing party is unable to show it owns the loan. This defense, many times, is unsuccessful because banks are more careful today about initiating the paperwork for a loan. They also check themselves, in this respect, when facilitating a foreclosure.
  • The servicer for the mortgage committed a notable mistake. The servicer of a loan account regularly handles deeds of trusts or mortgages. Therefore, this type of entity is more apt to make mistakes as it receives a large volume of business. You may be able to challenge a foreclosure, in this situation, especially if the payments were credited to the wrong party or dual-tracking was involved. Dual tracking entails pursing a foreclosure simultaneously with a foreclosure avoidance activity, such as a deed in lieu of foreclosure, short sale, or loan modification plan.
  • The borrower received fees that were in not authorized by the deed of trust or mortgage.
  • Overstating the amount the borrower must pay for reinstatement of a mortgage or deed of trust.
  • The borrower is a member of the armed services on active duty. The SCRA (Service Members Relief Act) offers special foreclosure protections for people who serve in the U.S. armed forces. 

When the Lender Cannot Obtain a Personal Judgment – The One Action Rule

In California, the state’s one action rule only allows a lender to take one action against a borrower in a foreclosure proceeding. Therefore, he can hold a trustee’s sale, sue for the balance of the debt, or foreclose judicially. 

Also, in California, a lender cannot obtain a personal judgment against the homeowner if the financing was a purchase money loan or a refinanced purchase money loan that was transacted after the first of January 2013. Neither can the lender obtain a personal judgment if the loan was seller financed.

Let the foreclosure proceed

Sometimes, it is just better to allow a foreclosure to proceed, especially if the home is no longer a good investment or you owe much more for the property than it is worth. If this is the case for you, you will find that you still can go on with your life and make a good start again. 

Foreclosure allows you to set the money aside that once went to the former payments so you can find a new place to live. Doing so will give you the ability to save and make arrangements for your future housing.

Be mindful of your neighbors

Your unwillingness to leave a home can lead to trouble, especially after your home has been sold. That is why you should speak to a foreclosure attorney. Not only does it upset the equilibrium in the neighborhood, it is disrespectful. A foreclosure attorney knows all the timelines, processes, and eviction guidelines. Attaining legal assistance can help you stay on track on how you should proceed – whether you choose to stay or leave.

Also, people who vacate their home during the process can drag down the value of the other homes in the neighborhood. That is why it pays—literally—to use the services of a foreclosure attorney. Abandoned homes hurt both neighborhoods and banks. 

Be wary of leaving the home before the sale

Some homeowners panic when they have missed a couple of house payments and believe they need to move out. However, an attorney will tell you that you have a right, legally, to stay in your house until the foreclosure is completed. 

A foreclosure process can take as long as a year. On the other hand, a fast-track foreclosure permits a bank to obtain title to a home more quickly so the property will not lose its value. In either event, it is important to stay in the home to normalize, if not neutralize, the situation.

Spanning Out the Foreclosure Process – California’s Homeowner Bill of Rights

In California, legislation has been introduced where a homeowner is protected during the foreclosure process so that the proceedings span out for a longer period. Protections under the Homeowner Bill of Rights (HBOR) provides special safeguards to California homeowners facing foreclosure.

The goals of this legislation is to give more rights to a homeowner who is going through foreclosure, giving him or her a better opportunity to review loan modifications as well as other methods of avoiding foreclosure.

For instance, the HBOR stops a servicer from recording an NOD (Notice of Default) until 30 days after the servicer has initially made contact to discuss foreclosure options. Contact must be made either by telephone or in person. 

Under this law, the servicer contacts the borrower to discuss his or her financial circumstances and look at ways to prevent foreclosure. During the first contact, the servicer must advise the borrower that he or she has the legal right to request a follow-up meeting. This meeting must be over the phone and, if requested, must occur within a timeframe of two weeks.

The evaluation of the borrower’s financial circumstances and discussion of alternatives may take place during the initial contact or at the follow-up meeting. In either situation, the servicer must provide the borrower with a toll-free number of the US Housing and Urban Development (HUD) agency.

The servicer must first try to contact the borrower by sending a first-class letter by postal mail with the aforementioned telephone number. After sending this letter, the servicer must try to phone the borrower at least three times at various hours on different days. If the servicer does not receive a response from the borrower within a 14-day period, a certified letter (return receipt requested) must be sent by the servicer.

Other Noted Protections Provided by the HBOR Law

Some of the noted protections that are also featured by California’s HBOR law include the following:

  • Placing a stopper on dual tracking. Dual tracking occurs when a servicer reviews a borrower’s loan modification application or other avoidance option while simultaneously proceeding with foreclosure. Under the HBOR, the borrower may submit an application for a foreclosure prevention option without worrying about a Notice of Sale being posted or the scheduling of a foreclosure sale. 
  • If an application of this type is pending, these two phases of the foreclosure process cannot take place.  Until the borrower receives written notice about his or her eligibility for a foreclosure preventative, a Notice of Sale or the sale itself cannot take place.
  • One point of contact. Servicers must supply borrowers with one point of contact during the foreclosure proceedings.
  • Robo-signing is not permitted. Robo-signing occurs when a bank employee or servicer signs a document for foreclosure, such as an assignment or mortgage or affidavit, without knowing if the information is correct or incorrect. 
  • The paperwork must be accurate and complete. Under the HBOR, servicers must survey the foreclosure paperwork and make sure the documentation is complete, accurate, and supported with details regarding the borrowing’s financing and loan status as well as the servicer’s legal right to foreclose.
  • A written denial notice. The HBOR also necessitates that a servicer provide a borrower with a written denial notice if the servicer rejects the request made by the borrower for a first lien financing modification. 

Moreover, the notice must give specific reasons for the denial and include information that allows a borrower to attain more documentation supporting the decision for refusal. The request made by the borrower for the additional paperwork must be made in writing.

The Homeowners Bill of Rights: When You Can Sue 

Because of the implementation of the Home Owner Bill of Rights in California, homeowners can sue the servicer or lender for violations made under certain sections of this law. Relief includes injunctive relief (given before the recording of the trustee’s deed upon sale) or relief for actual damages if the trustee’s deed has been recorded. 

Moreover, if the court finds that a violation was reckless, intentional, or resulted from willful misconduct by the servicer of the loan or the lender, the court has, in its power, the right to award the borrower the greater of three times the actual damages or statutory damages in the amount of $50,000.

Do You Meet the Criteria for the HBOR?

The safeguards given to homeowners through the Homeowners Bill of Rights or HBOR apply to first lien mortgages for properties that meet the following requirements:

  • Owner-occupied residences
  • Residential properties
  • Structures featuring not over four units

Small servicers of loans, or entities that perform less than 175 foreclosure sales annually, are exempt from some of the stipulated HBOR requirements.

Where You Can Find Out More Details about the HBOR in California

You can learn more about HBOR regulations in California at the Attorney General’s website for the state. This law is especially important to you in you live in California and are faced with foreclosure. Learn more about your protections by visiting the site and reviewing some of the specific legislation. You can learn more about the details by referencing this link.

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CHAPTER 8:

Short Sale / Died In Lieu

To initially find out if you are eligible for a loan modification, refinance, or short sale, you need to contact the servicer of your loan. You can find the phone contact number on your billing statement. Contact the bank or servicer listed and ask for the servicer. 

The Definition of a Short Sale

A short sale is a pre-foreclosure real estate transaction where the lender or owner of a mortgage loan agrees to permit the homeowner to sell his or her house “short” of the amount owed to the bank, releasing the property from the financing. Therefore, a short sale does not refer to the time (which can be lengthy) of the transaction. It refers to the settlement.

A homeowner who is upside down or underwater with regards to his or her mortgage often seeks to sell his or her home “short” to stop foreclosure. Because of the “shortage,” this type of real estate transaction is equated with debt forgiveness. 

This prevention method is often more attractive  to a lender versus going through foreclosure, which has risks and costs attached to it in terms of lost payments, insurance, taxes, eviction, and similar charges. A loan modification also features a related lack of certainty. A short sale foregoes these additional charges and issues by taking the non-performing mortgage financing off a lender’s books.

What You Will Need to Initiate a Short Sale

A lender’s loss mitigation department is responsible for approving a short sale. Loss mitigation refers to finding a method to avoid foreclosure. To obtain approval for a short sale, you must contact the servicer of your loan and request a loss mitigation application. The loss mitigation application must be filled out in full and include the following:

  • A financial statement in questionnaire form that features details about monthly costs and income.
  • Proof of income, if it applies.
  • Current or most recent tax returns
  • To recent bank statements for all the accounts that you hold
  • A hardship statement or affidavit

A short sale application usually requires that you add an offer from a potential buyer. A good many lenders require that they see an offer to buy before they consider a short sale transaction. If the property is attached to more than one mortgage, both mortgage holders must agree to the short sale. 

The first mortgage holder will offer a specific amount from the proceeds of the short sale to the second mortgage holder. If the second mortgage holder refuses the offer, it will void the transaction.

Most homeowners who complete the short sale process will usually face a deficiency judgment. Because the sales price is “short,” of the entire debt, the difference between the debt and sales price is called a deficiency. C

California has legislation in place that prevents a deficiency judgment after the completion of a short sale. Therefore, a lender cannot go after a homeowner for a deficiency judgment after a short sale in California. You can find out more about the specifics when you consult with a foreclosure attorney.

A Precaution to Note – Short Sale Flipping Schemes

In some instances, unlicensed short sale representatives target homeowners whose homes are on the verge of foreclosure and convince the lender to accept lowball offers, frequently using straw buyers for this purpose. For example, a short sale representative contacts a distressed homeowner, telling him or her that they will facilitate the sale of their underwater real estate. Payments to the homeowner may be promised to lure them into an agreement.

The short sale representative or facilitator follows up by contacting a licensed real estate broker in California who has scant knowledge about short sale real estate transactions. The facilitator offers to refer the listing of the short sale to the broker.  

The broker, in turn remits a referral fee to the facilitator. Once this happens, the facilitator presents the homeowner with an agreement, which allows the facilitator to act as the homeowner’s negotiator for the short sale transaction. 

The contract language may read as follows:

“Seller agrees that he will not market the property and will grant [short sale negotiator/facilitator] the right to market, negotiate and enter into agreements to sell the real estate to a third party.”

For its services, the facilitator or short sale negotiator charges the homeowner and seller an upfront fee and another charge for negotiation services. In turn, the facilitator presents a low-ball offer to the lender by using the name of a straw person or fictitious buyer. 

Because the facilitator has controlled the information given to the lender during the period for listing the property, the lender concludes that the offer he or she is given is the best offer and readily accepts it. 

Following this acceptance, the facilitator focusses on finding a second and legitimate buyer for additional money via a “flip.” To realize this goal, the facilitator, through the straw buyer, offers the soon-to-be newly purchased real estate through the multiple listing service. The facilitator will also contact the buyers’ agents who presented higher offers during the short sale process – offers that were withheld by the facilitator/negotiator from the lender.

After the closing of the second sale, the scammer or “short sale negotiator” can make on average as much as $50,000 to $70,000, including the broker referral fees and the fees he or she received from the distressed seller and homeowner.

The “short sale negotiator” in this example engaged in fraudulent activities because he did so without a California real estate license. Collecting the advance fees is also a violation of California law. Making a large profit through false pretenses and misrepresenting the true value of a home constitutes a crime and is called federal loan fraud. This felony is punishable by both fines and imprisonment. Therefore, short sale flipping is considered real estate fraud by the FBI.

Offer the lender a deed of lieu of foreclosure

If you are struggling to make your mortgage payment and the lender will not accept a repayment plan, loan modification, or forbearance, you can opt for a deed in lieu of foreclosure. The first step for taking this initiative is to contact the lender or the servicer of the loan and ask for a loss mitigation application. 

How to Facilitate a Deed in Lieu of Foreclosure

The application must be filled out in full and submitted with the following paperwork or information:

  • A financial statement in questionnaire form that offers details about expenses and monthly income.
  • Proof of income, if it applies
  • The current or most recent tax returns
  • Two recent bank statements for all your accounts
  • A hardship statement or affidavit

The lender may ask that you attempt to sell your home first before he or she accepts a deed in lieu of foreclosure. The copy of the listing agreement will show that you have already taken this type of action.

What You Need to Sign

If you are approved for this foreclosure prevention method, the lender will require that you sign certain documents. These documents include the following:

  • A deed that transfers the ownership of the real estate to the lender
  • An estoppel affidavit
  • In some instances, a deed in lieu agreement may be included

The estoppel affidavit establishes the terms of the contract and will feature a provision that the homeowner is acting of his or her own free will. It might also contain a provision that states that the transaction covers the complete debt satisfactorily. 

A deficiency in a deed in lieu of foreclosure agreement is the difference between the entire debt and the property’s fair market value. In most instances, completing a deed in lieu of foreclosure will release a borrower from all liability and obligations. California law protects homeowners from receiving a deficiency judgment from a lender, or seeking the difference of the fair market value and the amount owed. Nevertheless, you can still incur a tax liability for your forgiven debt.

Avoiding Deficiency judgments

If you decide to sell your house in a foreclosure sale, but you still owe a balance, that balance is considered a deficiency. Even if your house sells for the exact amount owed, a lender could still claim that you are deficient. He may want money owed for the costs associated with foreclosure.  

To collect any deficiency judgment, the lender or bank goes to court and sues the homeowner for the balance. If you are sued for this amount, you are ordered to pay the unpaid debt – a debt that is called a deficiency judgment

If you do not pay the amount, the lender can garnish your wages, garnish your checking or bank accounts, or apply a judgment lien again your personal property. You can avoid this process when you file for bankruptcy. While a Chapter 7 bankruptcy discharges the debt, a Chapter 13 bankruptcy permits you to repay the deficiency judgment over a period of time.

Income tax liability for deficiencies

In some instances, a lender will forgive you for a deficiency on your mortgage balance. However, you may be asked to pay tax on the amount, as it is considered a gift. That is because you do not have to pay the money back. If you do face a tax liability of this type, you can avoid having to pay it through a bankruptcy filing or insolvency exclusion. 

To use the insolvency exclusion, you need to demonstrate to the IRS that the liabilities owed surpassed the value of your assets when the debt was cancelled. Any cancelled debt is not included in a person’s income if he or she is insolvent.

Filing for bankruptcy can assist you in avoiding a tax liability because is discharged and therefore in not considered taxable income. To avoid the payment, you need to file for bankruptcy before the cancellation of the debt. This type of filing should only be undertaken if you feel that it makes sense.

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CHAPTER 9:

Things to Remember

1) The foreclosure process usually begins after three missed payments. While a foreclosure may be instituted after one missed payment, most lenders will begin a foreclosure by issuing a default notice after three missed payments, or when the borrower is delinquent 90 days.

2) The non-judicial foreclosure process is used when a power of sale clause is included in a deed of trust. This clause states that the borrower pre-authorizes a property sale to pay off home financing if a default occurs. The power to sell the real estate may be executed by the bank or lender or a representative that is called a trustee.

3) California is considered a non-judicial foreclosure state. Therefore, foreclosure sales can be performed without the need to go through the court system. Lenders, however, may also foreclosure judicially in California, if they elect to do so.

4) Once you miss one or two house payments, you will receive notices that you are behind on your payments. However, if you catch up on the payments during that period and continue making payments on time, the notices will cease. 

5) When a lender issues a Notice of Default (NOD), it means that he or she has filed for foreclosure. Once a NOD is issued, it means the foreclosure process has begun. After the Notice is filed, you still have time to reinstate your financing by paying the lender the payments that are outstanding, and the foreclosure costs and penalties. If you do not take this step, your house will be scheduled for a foreclosure sale. 

6) A borrower have a right of redemption if his or her house is foreclosed upon. A borrower has the right of redemption at any time before the finalization of a foreclosure. During this period, you can pay all the payments that are overdue and interests, penalties, and fees that are still due. By taking this step, a borrower is reinstating his or her financing. 

7) In California, a borrower cannot redeem a property after a non-judicial foreclosure is complete. He or she can only do this if the foreclosure was judicial. If the foreclosure was judicial, the foreclosed homeowner must pay the taxes and assessments, the amounts the new owners paid for maintenance, upkeep, fire insurance, and repairs, and the amounts that were paid in liens. 

All these charges must be paid in addition to the amount the new owners paid for the home at the foreclosure sale. Foreclosed homeowners have up to three months after the foreclosure sale to redeem a house from a judicial foreclosure if the proceeds covered the debt. Otherwise, if there was a deficiency, they have one year to redeem their former property.

8) The difference between what is owed on home financing and how much the lender received at a foreclosure sale is called a deficiency. For instance, if you, as the borrower, owed $100,000 on your loan and the lender recovered $50,000 after the foreclosure sale, the deficiency, or what you still owe, is $50,000. In California, you usually are protected against paying a deficiency judgment for a non-judicial foreclosure.

9) Declaring bankruptcy will stop foreclosure process. The moment you file for bankruptcy, an automatic stay goes into effect. This stay prevents collection activities, including foreclosure. By filing Chapter 13 bankruptcy, a borrower can stop foreclosure for a lengthy time period, or even permanently. Chapter 13 enables a property owner six months to create a repayment plan, negotiate a short sale, or check on a loan modification. If a workable plan can be implemented, the foreclosure will permanently stop.

10) California is a title theory state. Therefore, the title remains in a trust until payment is made in full for the loan. The document that secure this title is known as a deed of trust but may be referenced as a mortgage. With respect to foreclosures, California is considered consumer-friendly.

Mortgage and Foreclosure Policies Unique to California

1) The legal instruments that make up a California mortgage include the deed of trust, the note, and in commercial transactions, a security contract. Sometimes the mortgage is included with the security agreement or the mortgage or the mortgage is filed to show the debt owed and terms of repayment, which are established in the note.

2) The length of time for foreclosure in California normally takes 120 days for a non-judicial foreclosure. This process can be pre-empted if the borrower disputes the proceedings in court or files for bankruptcy.

3) In California, the right of redemption is complicated after the foreclosure sale occurs. The foreclosed homeowner can redeem the property by paying for the real estate in full, including costs, after a year. This is allowed unless the lender made a full-price bid on the property, in which case the period for redemption is shortened to three months.

4) A borrower has 90 days after the posting of a Notice of Default (NOD) to cure a default. While this period is called a redemption period, it is not considered an actual statutory redemption. No right of redemption is given if a deficiency judgment on a loan is prohibited or waived.

5) Deficiency judgments are permitted in California in very few instances. A deficiency judgment cannot be obtained if a property is sold in a non-judicial auction sale. Neither can a deficiency judgment be issued for a foreclosure that is associated with a purchase money mortgage.

6) In California, lenders can go to court to foreclose on a home – a process that is known as a judicial foreclosure. The court must issue the final judgment for foreclosure in these cases. If the deed of trust does not display “power of sale” terms, the lender must seek a judicial type of foreclosure. 

The property is sold in a publicly noticed sale. To initiate the process, a complaint is filed in a county court with a lis pendens. A lis pendens is a recorded paper that displays public notice of a foreclosure.

7) Statutes that govern California foreclosure proceedings are located in the state’s Civil Code, Section 2924.

Contact a California Foreclosure Legal Specialist

If you are unsure about your foreclosure rights or have questions about the related terms, you need to contact Equity Legal LLP. Learn all you can about the process to avoid it or exert your property rights.

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