Foreclosure and Bankruptcy
Foreclosure in California is the process that a lender takes when a homeowner fails to pay mortgage payments. The end goal of a foreclosure is an auction sale of the property, either to the lender itself, or to another buyer.
Foreclosure is a two stage process.
Notice of Default and Election to Sell
The first stage starts when the lender records a ‘Notice of Default and Election to Sell’ with the county where the property is located. The lender is required to give you a copy of this document, called an ‘NOD’ by registered mail or certified mail. Sometimes people do not receive it; if you are significantly behind on payments, you can call your lender to find out if foreclosure has started. Once the NOD is recorded, it is on record for three months. During that three months, you can reinstate the mortgage by making up all the missed payments.
- NOTE – Many people receive letters from the collection department of their banks which say that they are in ‘default’ under the loan. This just means that the account is delinquent. A NOD will be a formal looking document that specifically says ‘Notice of Default and Election to Sell’ and it is recorded with the county. Only the NOD starts formal foreclosure.
If the loan is not cured within the three month period of the NOD, the lender can set a date and time for the foreclosure sale. The lender has to ‘publish’ the date and time of the sale in a newspaper and give notice to you as well. You may have as little as 20 days advance notice of the sale.
The second stage of foreclosure happens very fast.
Bankruptcy and Foreclosure
The most common foreclosure question is ‘will bankruptcy stop foreclosure?’
A Chapter 7 bankruptcy case will only temporarily stop the foreclosure process. What bankruptcy will do for you in this situation is to ensure that there will be no adverse tax or deficiency issues following the foreclosure. The lender can ask the bankruptcy court to allow the foreclosure to continue, and the court will let it happen if you are behind on the payments and you have no equity in the property. What you CAN DO to make the best of this situation in a Chatper 7 bankruptcy is to fold all of your other credit card debts, medical bills, and other miscellaneous debt into the bankruptcy. This allows you to focus on the bills that are absolutely essential – housing, transportation, food and health care. Your fresh start will free you from worries about losing the house and all the crushing debt that was dragging you down.
A Chapter 13 bankruptcy is designed to stop the foreclosure and allow you to make up the missed payments over time. There will be no foreclosure during a chapter 13 as long as you are making the payments you are supposed to make! Chapter 13 bankruptcy is the best solution if you are in foreclosure and are trying to stay in the house.
I am Ryan Davies and I provide bankruptcy services for the southern California communities of Lake Forest, Rancho Santa Margarita, Laguna Niguel, Laguna Beach, Laguna Woods, Aliso Viejo, Mission Viejo, San Clemente, Irvine, Costa Mesa, Newport Beach, Tustin and Santa Ana.
