BANKRUPTCY HELPS STOP FORECLOSURES

Its understandable that not being in a financial position to pay your mortgages, lines of credit and the like can lead to a fear of foreclosure. Maybe the lender has already made calls and the process appears to be imminent--or you are already in the process. If you are in a position to file bankruptcy, in addition to the other relief presently available, it can get you in a position to stave off the foreclosure for a significant period of time, and maybe permenantly. It will give you time to potentially refinance, renegotiate, do a short sale, or even prepare to move.

Time is everything in times of financial hardship. Under California law, the quickest a lender was able to conduct a foreclosure sale (really, in California, a sale under a deed of trust) was 4 months from the date the notice of default is served on you. A Notice of Default is a formal notice, served and posted, its not the letter from the bank.

As of July, California has added additional requirements which add 30 more days, at a minimum, and the contact must be very specific to trigger the ability to file the notice of default.

The new law can be found at California Civil Code Sections 2923.5, 2923.6, 2924.8and 2929.3, and California Code of Civil Procedure Section 1161b. The key provisions of the new law provide that:

1. A mortgagee, trustee, beneficiary or authorized agent (hereafter referred to as the "mortgagee") must wait 30 days after contact is made with the borrower, or 30 days after satisfying due diligence requirements to contact the borrower before filing a notice of default.

2. Contact must be made in person or by telephone in order to assess the borrower's financial situation and explore options for the borrower to avoid foreclosure.

3. The borrower must be advised that he has the right to request a subsequent meeting and, if requested, the subsequent meeting must occur within 14 days of the original contact. Any meeting may occur telephonically.

4. The borrower must be provided with the toll-free telephone number made available by HUD to find a HUD-certified housing counseling agency.

5. In order to satisfy the due diligence requirement, the mortgagee must first attempt to contact a borrower by sending a first-class letter that includes the toll-free telephone number made available by HUD to find a HUD-certified housing counseling agency. After that, the mortgagee must attempt to contact the borrower by telephone at the primary telephone number on file at least three times at different hours and on different days. The diligence requirement is deemed satisfied if the mortgagee determines that the borrower's primary telephone number and secondary telephone number or numbers on file, if any, have been disconnected. If the borrower does not respond within two weeks after the telephone call requirements have been satisfied, the mortgagee must send a certified letter, return receipt requested. The mortgagee must also provide a means for the borrower to contact it in a timely manner, including a toll-free telephone number that will provide access to a live representative during business hours, and post a prominent link on the homepage of its internet web site, if any, to the following information:

a. Options that may be available to borrowers who are unable to afford their mortgage payments and who wish to avoid foreclosure, and instructions to borrowers advising them on steps to take to explore those options;

b. A list of financial documents borrowers should collect and be prepared to present to the mortgagee when discussing options for avoiding foreclosure;

c. A toll-free telephone number for borrowers who wish to discuss options for avoiding foreclosure with the mortgagee; and

d. The toll-free telephone number made available by HUD to find a HUD-certified housing counseling agency.

6. A notice of default must include a declaration from the mortgagee that it has contacted the borrower, tried with due diligence to contact the borrower, or that the borrower has surrendered the security property to the mortgagee.

7. If the mortgagee has already filed a notice of default prior to July 8 and did not subsequently file a notice of rescission, then the mortgagee must, as part of the notice of sale, include a declaration that either (a) states that the borrower was contacted to assess the borrower's financial situation and to explore options for the borrower to avoid foreclosure, or (b) lists the efforts made, if any, to contact the borrower in the event that no contact was made.

Bankruptcy adds additional requirements. In a Bankruptcy, the lender cannot do anything without a Court order until the bankruptcy is over. Depending on whether you qualify or it is the best option to file a Chapter 7, 11 or 13, in bankruptcy you might be able to renegotiate your loan, or potentially strip the amount over the value and have the loan only be for the amount of the value. This means, for example, if you loan is now $500,000 but your property is only worth $350,000, in bankruptcy it is possible to make the loan only $350,000.

Lenders are scared. Maybe more than you. If you want to review your situation, don't hesitate to call or email. www.arothmanlaw.com or (310) 461-1395.