Stopping a Sale
A NOTICE OF DEFAULT is the first step in the foreclosure process and must be served on you by certified mail or posted on your property according to California statute. The NOTICE OF DEFAULT is required by statute so that ninety (90) days later your lender may record a NOTICE OF TRUSTEE’S SALE which will include the sale date for your property. Many borrowers report never receiving a NOTICE OF DEFAULT and are surprised (to say the least) when they get a NOTICE OF TRUSTEE’S SALE informing them of a foreclosure sale twenty (20) days later. At this point, everyone asks: “How do I stop my foreclosure sale?”
Many clients that come to attorneys to stop their foreclosure sale have already stopped it themselves by filing one or more Chapter Seven bankruptcies which create an “automatic stay” that stops the sale temporarily. A Chapter Seven Bankruptcy discharges credit card and other debt, but does not affect secured mortgage debt and therefore is not a permanent solution to stop foreclosure. Eventually, the bankruptcy will be dismissed or discharged or the lender will petition the bankruptcy court for relief from the automatic stay which will be granted and the foreclosure will proceed.
Sometimes borrowers stop their foreclosure sale by recording a minor lien called an “Assignment of Rents” to a third party or entity that will then file bankruptcy. Some borrowers do this repeatedly before the bankruptcy trustee catches up with them, but by that time they’ve got three (3) or four (4) extra years in their property. Of course, this is fraud, and no reputable attorney will advise you to abuse the bankruptcy laws in this way. This is also only a temporary solution.
A Chapter 13 Bankruptcy is a reorganization of debt that can provide relief from a second lien if your total mortgage balance is greater than the value of your property. This is called a lien strip whereby a second mortgage is forgiven to the extent that the property is underwater (the debt is greater than the value) making the second lien unsecured. This is a back-door way of reducing your principal balance and achieving a loan modification without the help of your lender or servicer and it’s a permanent solution to stop a foreclosure sale.
Filing a lawsuit against your lender or servicer is also a permanent solution to stopping a foreclosure sale if the facts of the underlying case have sufficient merit. A good case can be one where your servicer tricked you into foreclosure by recording a NOTICE OF DEFAULT or NOTICE OF TRUSTEE’S SALE while promising loan modification or one where they accepted trial payments without modifying or breached a loan modification contract. The lenders make more money by foreclosing than they do by modifying so the tricks they use to avoid it are quite creative and under California’s new Foreclosure Reduction Act (passed January 1, 2013) these tricks now make good lawsuits.
Once a lawsuit is filed and served on your lender your attorney can write or call the Trustee and request that your sale is postponed while your case is heard. The new Foreclosure Reduction Act grants statutory damages and attorney fees to borrowers if a NOTICE OF TRUSTEE’S SALE is recorded before a borrower is allowed to apply for a loan modification or while a borrower is in review for a modification and guilty servicers will want to avoid these costs. Because of this, they will usually play it safe with an extension to grant you time to apply for a loan modification.
If the Lender decides to aggressively pursue a foreclosure sale despite the fact that a lawsuit is filed, the next step is making sure they can’t sell it to an innocent third party by recording a Lis Pendens with the county recorder. In legal terms, an innocent third party is known as a “bonafide purchaser” or “BFP” meaning someone that bought the property for value without NOTICE of the lawsuit. You make sure the purchaser has NOTICE of the lawsuit by recording a Lis Pendens, also called a Notice of Pending Action.
It’s important to have an attorney help you record your Lis Pendens and serve it on all the concerned parties so that you are in compliance with the statute which is strict as to service and filing. It is even more important than the underlying lawsuit, the pending action that allows you to record the Lis Pendens, has merit since you will have the burden of proving you have a good case when the lender tries to lift it. If your Lis Pendens is not filed, recorded, and served correctly, or if your underlying causes of action are weak, you will be ordered to expunge the Lis Pendens and might have to pay the oppositions attorney fees.
While it’s better to see an attorney sooner rather than later, it is also true that many attorneys will not tell you the hard truth. The worst part of this is the time that is wasted while you pay people to help you and don’t pay your mortgage. You should be only be listening to someone that tells you the hard truth which is that each day you aren’t paying your mortgage is a day farther away from a permanent solution.
Susan M. Murphy is a litigating attorney that sues the banks on behalf of homeowners, both in individual and mass-joinder cases.