Jun 17, · Post-Foreclosure Concerns. A new owner after a foreclosure sale cannot simply enter the property, change the locks, and move in if the borrower was living at the property. The new owner will need to evict the resident through an unlawful detainer process. The foreclosure sale date must be at least 20 days after the end of the three-month period. The Notice of Sale will be: posted at the property and in a public place in the city where the property is to be sold at least 20 days before the sale karacto.xyz: Amy Loftsgordon, Attorney. The foreclosure process in California is a little bit different than it is in many other states, in fact most other states. California is what’s called a non-judicial foreclosure state. So what that means is that a court and a judge is not involved in the foreclosure process.
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Durrett v. Washington National Insurance Co. Some early bankruptcy court opinions outside of the Fifth Circuit held that a foreclosure sale was not a transfer of a property interest of a homeowner. One such case was Madrid, F.
The Madrid opinion agreed with other preference cases which found that the enforcement of a mortgage within 90 days before a bankruptcy filing could not be struck down as a preference where the mortgage lien was recorded outside the 90 day look back period. Ehring, F. The second element of proof needed to establish a preference is that the property was transferred to an existing creditor of the property owner. In other words, the buyer at the foreclosure sale must be a creditor of the homeowner on the date the bankruptcy case is filed.
As a practical matter, this requirement limits the ability to avoid a foreclose sale as a preference to cases where the mortgage lender is the successful bidder at the sale. A foreclosure sale that results in the property being sold to a third party can not be reversed in bankruptcy as a preference because the third party is almost never a pre-existing creditor of the homeowner.
It is very common for the foreclosing lender to make a credit bid for some or all of the debt owed to it. The requirement that the foreclosure sale result in a transfer of the property back to the lender will be met in the overwhelming majority of Texas foreclosure sales. At least 90 percent of all houses sold at a Texas foreclosure sale are deeded back to the lender that conducted the sale rather than being sold to a third party. This requirement will be automatically met in almost all residential home foreclosure sales.
In most foreclosure situations, the home serves as collateral to secure repayment of a loan obtained to buy the house. Although not common, a lender or other creditor can attempt to foreclose due to non-monetary defaults such as: i a failure to maintain insurance, ii a failure to pay property taxes, or iii deed restriction violations.
Almost all mortgage loan documents require the property owner to pay taxes and keep the property insured, and permit the lender to foreclose if the homeowner defaults on these non-monetary obligations.
A foreclosure sale conducted due to these types of defaults can not be reversed as a preference because the foreclosure sale was not based on a failure to pay an antecedent debt. There is no escrow account to collect a monthly reserve for the insurance or property taxes.
The loan documents contain a standard clause requiring Homeowner to pay property taxes when due and keep the house insured. Homeowner fails to buy insurance or pay property taxes. Homeowner was current on all mortgage payments on the foreclosure sale date. Lender buys the house at the sale.
Homeowner files for bankruptcy and attempts to void the foreclosure sale as a preference. The fourth requirement to establish a voidable preference is that the homeowner was insolvent when the foreclosure sale was conducted. The property owner is presumed to be insolvent at all times within the 90 days before the bankruptcy is filed.
The lender or other creditor will have the burden to prove that the homeowner is not insolvent. The insolvency test will be easily satisfied in most situations unless the homeowner owns a business or other valuable non-exempt legally seizable assets. The bankruptcy code definition of insolvency specifically excludes all exempt assets assets legally protected from seizure.
It is very unusual for a property owner to have non-exempt assets that exceed the amount of his debts when the debts include loans collateralized by exempt assets such as houses and cars. Example 2: Homeowner has the following debts and property on the date Lender forecloses on his house for failing to pay the mortgage debt:. Counted Amnt. Total Assets. The fifth requirement to establish an unlawful preference is that the bankruptcy case must be filed within 90 days after foreclosure sale date.
A homeowner will not be able to reverse the sale as a preference if he waits to file a bankruptcy case for more than 90 days after the foreclosure sale date. The sixth element of proof required to void a foreclosure sale as a preference is the most important. The homeowner must establish that the sale back to the creditor will enable the foreclosing creditor to receive more value for the house than it would receive if the property was sold by a trustee in a hypothetical Chapter 7 bankruptcy case.
A chapter 7 trustee is permitted to sell property in a relaxed, unforced sale, at fair market value. Therefore, this requirement essentially means that the foreclosure sale can be avoided as a preference if the payoff balance owed to the foreclosing creditor is less than the fair market value of the house on the foreclosure sale date.
A foreclosing lender except for a small private company or an individual will never bid more at a foreclosure sale than the payoff balance due on the loan. Therefore, put another way, a foreclosure can be reversed as a preference only if the homeowner has some equity in the property — only if the market value of the house is more than the payoff balance due on the first mortgage loan.
This final consideration is whether the property has been sold to a bona fide purchaser. A foreclosure sale can not be voided a as a preference if the foreclosing lender sells the house to a bona fie purchaser after the foreclosure sale but before the bankruptcy case is filed.
In this situation, a bona fide purchaser would be a third party, without knowledge that the transfer could be avoided as a preference who pays value for the home.
The preference claim is not completely defeated if the foreclosed property is sold to a bona fide purchaser. The homeowner can still recover damages from the foreclosing creditor measured by the difference between the payoff balance due on the loan owed to the foreclosing creditor and the fair market value of the foreclosed home.
However, the original homeowner would not be able to recover the house from the bona fide purchaser the third party that bought the house from the foreclosing creditor. Your credit report also will likely reflect the foreclosure.
The fact that a foreclosure will take place even after a home has been surrendered is where the similarities end between surrender and foreclosure. Surrendering a home in bankruptcy extinguishes your liability on the loan.
Your lender cannot come after you personally for what once was a full recourse loan. By contrast, in a foreclosure setting, your lender will take your home and sell it to the highest bidder. If the sale price is enough to satisfy the outstanding balance owed on the mortgage, you will not owe money after foreclosure be careful as some loan documents call for borrowers to pay lender attorney fees associated with the foreclosure.
If your home sells for less than what is owed on the mortgage, you will owe the difference. In some cases, post-foreclosure, your lender will sue for the shortfall in an attempt to establish a deficiency judgment.
Once judgment has been entered, your lender can then attempt to come after your non-exempt assets in satisfaction of the debt. A foreclosure will stay on your credit report for seven years. Mortgage lenders take foreclosure records seriously, and some credit counselors believe a foreclosure on your credit report looks even worse than a bankruptcy.
A foreclosure or short sale will typically reduce your credit score between 85 and points, while a bankruptcy may knock it down between points. However, bankruptcy can begin to look attractive depending on the accumulation of debt. Missed payments alone can drop a credit score 75 points. Whether you choose not to fight a foreclosure or you file for bankruptcy is up to you.
Our member attorneys have hundreds of years of combined experience. Contact us today for a free bankruptcy evaluation to determine if bankruptcy may be right for you. For more information about bankruptcy and foreclosure, check out our recent blog posts:. Under a chapter 13 plan, the amount you owe in past due mortgage payments will be broken up and paid to the bank in manageable monthly amounts. While your case is pending your lender is prohibited by law from foreclosing on your home.
Be aware that while chapter 13 bankruptcy can give you time to catch up on your mortgage, you will have to continue making normal monthly mortgage payments if you wish to stay in your home and permanently avoid foreclosure. Your email address will not be published.
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