In California, a non-judicial foreclosure process takes the following form: Lender starts the process by recording a Notice of Default, which gives a homeowner until 5 days before the date set for the sale of the property in which to pay all past due payments plus costs and expenses.
No sale date may be set until three months from the date of the Notice of Default. Three months after the date of recordation of the Notice of Default, a Notice of Trustee’s Sale will then be recorded, which sets a sale date 21 days afterwards.
Homeowners who are trying to and professionals who are helping homeowners to accomplish a Short Sale or Loan Modification after their lenders have already commenced foreclosure process are facing a real time constrain – how to complete the Short Sale or Loan Modification before the date set for the Trustee Sale. Since a short sale will take several months and a loan modification even longer, it is not certain whether it can be done before the Trustee’s Sale date. Homeowners cannot rely on the mercy of lenders to “stop the clock” running just because there is a Short Sale or Loan Modification pending. In fact, lenders usually are taking a two prong approach - to process the Short Sale or Loan Modification and to continue with the foreclosure at the same time. Lenders will determine, usually at the last minute, whether to continue the Trustee’s Sale. This approach is leaving homeowners and their agents in a rather difficult situation.
Many people mistakenly believe that as long as Loan Modification or Short Sale is in progress, lenders will stop or continue the foreclosure. This cannot be assumed as lenders or their servicers do not want to and cannot afford to lose more time if the Loan Modification or Short Sale does not go through. When lenders do continue a sale, many people also believe that lenders will give homeowners a notice of new sale date each time they continue the Trustee Sale. This is again a misconception as lenders do not require by law to give homeowners additional notice to continue a sale date. Many homeowners find out the hard way after their homes are already lost, not understanding why their lenders did not inform them of the new sale date.
What can a homeowner do in a situation like this, not knowing whether the lender will continue a trustee sale pending a Short Sale or Loan Modification?
It is time to talk to an attorney who specializes in the area of debt relief. Your attorney will analyze your financial situation carefully to come up with a correct recommendation. Chapter 13 bankruptcy may be an option. Chapter 13 filing stays the foreclosure and allows homeowners to come up with a plan to pay off the arrearages. Loan Modification and Short Sale can continue in a chapter 13 bankruptcy as long as the attorney authorizes the lender to contact homeowners directly to continue with the process. When the Loan Modification documentation is ready or when Short Sale escrow is closing, it will be subject to the approval of the bankruptcy court. Chapter 7 may also be an option; however, lender can file a Motion for Relief from Automatic Stay, granting of which by the court will allow lender to continue with the foreclosure process.