Surrendering a California Home in Bankruptcy. How Much Time? Part 2 of 2.

My previous blog generally outlined the time frame of a typical foreclosure in California.  This blog provides an illustration of how that time frame works in a typical case.

The following example illustrates the typical foreclosure in California where a debtor files for bankruptcy protection and stopped making payments on January 1, 2008.  As illustrated, the foreclosure takes well over a year!

1/1/8  Debtor misses first payment.

4/1/8  Lender records the Notice of Default.

8/1/8  Lender records the Notice of Sale, Sale Date set for 9/1/8.

8/30/8  Bankruptcy Case is filed.

11/15/8  Relief of Stay is Granted.

12/15/8  Property goes to sale.

3/1/9  Debtor agrees to leave property or is evicted.

So in the above illustration, the debtor last paid 12/1/7 and did not vacate the property until 3/1/9.  The debtor saved about $5000 per month (principal, interest, taxes, insurance, HOA, etc) for a total savings of about $70,000.00, plus any “Cash for Keys.”  The debtor then can use this money towards the down payment on the purchase of a new home or for the security and rental fees of a rental, starting 3/1/9.

In other words, the debtor has now recouped the lost equity they once had or might have received if they had sold their home at the top of the market!  For example, if their home now worth $400,000, which used to be worth $600,000.00 with $500,000 owed, they would have netted around $70,000 after costs of sale, escrow fees, costs of repairs, etc in a perfect sale.  So the reality is, despite the downturn of the housing market, and $200,000 loss in this example, most homeowners can still recoup their lost equity via foreclosure and bankruptcy.

The forgoing also does not illustrate any other proceedings that may be used to defend foreclosure proceedings either.  Since most lenders are unable to prove that they are the proper party to the foreclosure in the first place, a state court action may be filed against the alleged lender for wrongful foreclosure proceedings.  Such an action may end the foreclosure all together and/or further stall the foreclosure if the lender can prove they are in fact the proper party.  Eric Fagan is one such attorney that is doing this in many cases in Southern California.

So if you live in California, dont count on packing your bags and leaving your home as soon as you miss a payment.  The reality is that foreclosure proceedings in conjunction with a bankruptcy will probably allow you to remain in your home for over a year and may provide “cash for keys” in your pocket at the end of the process.

Written by Michael. G. Doan