California Foreclosure Process - Know the Timeline

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       As we head into the fall of 2011, we are seeing more and more nonjudicial foreclosures being started by lenders.  In California, if you are behind on your home loan, your lender will typically use a nonjudicial foreclosure process known as a trustee’s sale to sell your home.  While it is possible for a lender to use a judicial foreclosure process which is filed through a state court action, the judicial foreclosure process is much more expensive and takes longer.  The only time we typically see a judicial foreclosure is when the lender is certain that the borrower has sufficient income or assets to pay a deficiency balance….think doctors, investment bankers.

The following is the minimum timeline for a nonjudicial foreclosure in California:

Day 1- For loans made between January 1, 2003 and December 31, 2007 on residential one-four unit owner occupied properties, California Civil Code Section 2923.5(a), requires the lender to contact the borrower by phone or in person to assess the borrower’s financial situation and explore options for avoiding foreclosure.  During the conversation, the lender must inform the borrower of the right to meet with the lender within 14 days.  The lender must also give the borrower the toll free number for finding a HUD certified housing counseling agency. 

Day 31- The Notice of Default (“NOD”) is recorded in the county where the real property is located.  Within 10 days after recordation of the NOD, a copy of the NOD must be mailed by registered or certified mail to the borrower and to any parties with a recorded Request for Notice. The NOD must run 3 months before the Notice of Sale can be posted.

Day 116-121- The Notice of Trustee’s Sale must set forth the date, time and place of the Sale.  It must also include the total amount of the unpaid balance and reasonably estimated costs, expenses, and advances at the time of the initial publication of the Notice.  The Notice must be recorded, posted, published and also mailed by registered or certified mail as well as first class mail to the borrower.  The Notice must run once a week for 3 consecutive weeks in a newspaper of general circulation.

Day 135- Up to 5 business days before the Trustee’s Sale, the borrower may reinstate the loan i.e. bring current by paying the missed payments plus allowable costs.  If the Sale is postponed, the date for the borrower to reinstate is postponed accordingly.

Day 141- At the Trustee’s Sale, the property is sold through a public auction to the highest bidder.  The borrower still has the right to redeem the property, but he must pay the entire debt, plus interest and costs before the bidding begins at the Sale.

        Most nonjudicial foreclosure in California take far longer than 141 days because the foreclosure process will be put on hold during a loan modification or short sale.  However, there is no requirement for the foreclosure to be put on hold and a borrower should not count on additional time.  This is a complicated area of the law and the implications for personal liability and tax liability are great.  If you are considering a default on your home, I urge you to seek legal counsel as soon as possible to fully understand the consequences of the decision and the other options available to you.  In see people for free 30 minute consultations in my offices located in Walnut Creek, Antioch and Brentwood.    

WE ARE DEBT RELIEF AGENCY AND HELP PEOPLE FILE FOR BANKRUPTCY. THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UP IN MAKING ANY DECISION REGARDING A VOLUNTARY DEFAULT, SHORT SALE, FORECLOSURE OR BANKRUPTCY.  THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION.    GRIMESBKLAW.COM

© 2011 Joan Grimes

New Law on Short Sale - What you Should Know to Protect Yourself

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Effective July 15, 2011, California Code of Civil Procedure (“CCP”) 580(e) was amended to prohibit a deficiency judgment on any loan secured solely by a deed of trust on a 1-4 unit dwelling sold in a short sale.  Enough legal jargon…what exactly does this mean and how does apply to you?

First, it means that if your lenders agree to a short sale, it will release you from your personal liability on loans secured solely by a deed of trust against a dwelling of 1- 4 units.  If the lenders want the short sale to go through, they will have to be satisfied with the proceeds from the sale.  The banks can no longer demand that borrowers sign promissory notes… AND no more tricking borrowers into believing that releasing of the lien was in fact releasing their personal liability.  The lenders do not have to agree to the short sale, but if they agree, they cannot come after you once the short sale is completed.  However, if you think this is too good to be true…you’re right. Keep reading!

Second, there is no requirement for a release of personal liability on anything other than a consensual lien i.e. no requirement to release judgment lien or liens placed on the property such as by a homeowners association or taxing authority.  These parties do not have to agree to accept the proceeds from the sale as payment in full. The forgiveness of personal liability also does not apply to borrowers who are corporations, limited liability companies, limited partnership or political subdivision of the state.  In addition, it also does not prohibit the lender from obtaining a judgment for fraud with respect to the short sale or waste committed to the property.

Third, CCP 580(e) does not release you from any tax liability.  Remember, every short sale has tax implications. The IRS/State Franchise Tax Board wants to know two things: 1) Did you make any money on the deal and 2) Did you borrow any money which was not repaid?  If you made money on the deal, including taking out cash to buy another house, car, pay off credit card, you may have a gain. If you borrowed money which was not repaid, you will have Cancellation of Debt Income (“CODI”).  CODI will be taxable to you at your current tax rate unless an exception applies. Make sure you know all the tax implications before the short sale is completed.  If there is CODI, it can be discharged in bankruptcy, but only if the bankruptcy is filed prior to the short sale being completed.

In conclusion, CCP 580(e) is a mixed bag for consumers.  It may help reduce personal liability while increasing tax liability.  There is no question that this new law is going to hurt the lenders and help the IRS and State Franchise Tax Board.  This will be found money for the tax man.  Borrowers will see the forgiveness of personal liability and completely disregard the tax consequences.   Don’t be one of those people!  If you are considering a short sale, seek legal advice prior to starting the short sale process.  This is a complicated area of the law, but a bankruptcy or real estate attorney should be able to make to an analysis of your particular situation fairly quickly.   I see people for a FREE 30 minute consultations at my offices located in Walnut Creek, Antioch and Brentwood.

THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN MAKING ANY DECISION REGARDING A VOLUNTARY DEFAULT, SHORT SALE, FORECLOSURE OR BANKRUPTCY.  THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION.         GRIMESBKLAW.COM  (925) 323-7772     

© 2011 Joan Grimes