Your Rights and Options in Foreclosure
Nov. 30, 2021
Both state and federal initiatives during the onset of the COVID-19 pandemic allowed homeowners to delay their mortgage payments or otherwise rearrange their payment amounts or due dates. Those programs are now winding down, and property owners are pretty much back on a normal payment schedule.
Those who find it hard or impossible to meet their monthly mortgage obligations (whether they participated in any COVID relief programs or not) now face the very real possibility of default leading to foreclosure — the sale of their property to satisfy their loan obligations. Indeed, California faces a current foreclosure rate, as tabulated in September 2021, of one home for every 5,131 households.
If you’re facing foreclosure in either Los Angeles or Orange County, contact us at The Orantes Law Firm. We can review your situation with you and advise you of your legal options going forward. You may be able to resolve the situation through a loan modification, a short sale, or even bankruptcy.
What Causes Foreclosure Proceedings?
In the Great Recession, a wave of foreclosures happened because of interest rates. Many mortgages — called subprime mortgages — included what might be called low “teaser” interest rates for the first couple of years, and then the normal interest rate would kick in. Faced with a suddenly higher mortgage amount, certain borrowers simply couldn’t meet their obligations.
Though this could still happen today, mortgage underwriting standards were toughened during that crisis to prevent future occurrences of under-qualified buyers getting in over their heads.
With rates now at historic lows and inflation rising, however, it wouldn’t be unreasonable to see interest rates rise dramatically over the next few years. If you have a variable rate mortgage, your payments could rise as the federal funds rate rises.
The basic cause of mortgage trouble is the inability of the mortgage holder to make the required payments. This could be because of a loss of their job, a death in the family, a divorce, or even a disease that runs up astronomical medical expenses.
The Mortgage Process
Both federal and state statutes set up protections for homeowners and are designed to give borrowers who fall behind in payments time to come up with a cure for their loan default, which we’ll discuss in the next section.
Once you’re late on your first payment to your lender (who usually allow a 10- to 15-day grace period following the due date of the note), the bank or mortgage company can assess a late penalty.
Federal law requires the lender to contact you (or attempt to contact you) 36 days after a missed payment to discuss “loss mitigation” options, which might include modifications to your loan. Then, 45 days after the missed payment, they must do this in writing as well and also assign someone to help you with your loan issues.
Mortgage servicing rules established by the Consumer Financial Protection Bureau (CFPB) require the lender to wait 120 days from the first missed payment to file for foreclosure.
Most foreclosures in California are called “non-judicial,” which means the lender does not need to get approval from a court to proceed with selling your home. Judicial and non-judicial foreclosures are determined by language in your deed of trust. If the deed of trust contains a power-of-sale clause, the lender does not need court approval.
California law requires the lender to send you a breach letter if you are deemed to be in default and your home subject to foreclosure. After you receive your breach letter, you have three months to make up your missed payments, plus penalties, along with property tax and insurance payments. After that, at around Day 180, the lender can order the sale of your home.
The lender must send you a Notice of Trustee Sale and then must wait 20 days after you receive the notice before it can set a date for the sale. In other words, the soonest a lender can sell your home after you’ve failed to make payments is generally around 200 days.
Curing a Default & Preventing Foreclosure
Once you fall into the arrears category on your mortgage, your options start shrinking the longer you do nothing. You may want to immediately sell the property and notify the lender that that is the route you’re taking to satisfy your loan obligation. Selling your home and moving your family on a split-second’s notice may be too challenging, however.
Working with the lender on loss mitigation efforts is a good option. Perhaps you can work out a loan modification that lowers your monthly obligation or you can refinance at a lower interest rate.
During the Great Recession, when home values fell below the mortgage loan amount, a popular tool was known as the short sale. For a short sale, you must get permission from the lender to offer the home for sale at a price below what’s owed on it. This is not much of an option now that home values keep rising. In fact, a listing compiled by the website Foreclosure.com revealed only 38 short sales available throughout all of California in late 2021.
A big downside to a short sale is that the difference between what you sell the home for and what’s owed on your loan becomes taxable income. If you owe $400,000, for instance, and sell for $300,000, then you've just made $100,000 in the eyes of federal and state tax authorities.
Chapter 13 Bankruptcy
Chapter 13 of the bankruptcy code is another option to cure a default and stop a foreclosure, provided you still have a monthly income.
Under Chapter 13, you can consolidate all of your debts, including past-due amounts for your mortgage, into one obligation and then make one monthly payment for three to five years to satisfy your obligations. Generally, the consolidation will lower the total of your obligations to match your monthly disposable income.
It is important to note, however, that once you consolidate the past-due mortgage amount, you must resume your regular monthly payment on your home. You may want to work with your lender during the process to see if you can get a modification that lowers the amount due each month, even if it means extending the loan repayment period.
Rely On Our Expertise at The Orantes Law Firm
At The Orantes Law Firm, we are experienced with all forms of bankruptcy, short sales, debt consolidation, and all other options for staving off foreclosure. Losing your primary residence can be a huge shock that forces you and your family to relocate and start over again. You want to avoid that at all costs.
If foreclosure is looming, or you’re already facing a sale, contact us immediately so we can review your situation and come up with a plan to help get you the best available outcome.
Our team at The Orantes Law Firm proudly serves clients throughout the counties of Orange and Los Angeles. We have offices in Los Angeles, Woodland Hills, and Irvine. Call or email us to set up your free initial consultation.