When Do I Need To Leave My House When Filing For Bankruptcy And Foreclosure. Part 2 of 2.

04 Feb When Do I Need To Leave My House When Filing For Bankruptcy And Foreclosure. Part 2 of 2.

In my last post, we discussed that a typical foreclosure in California where a chapter 7 bankruptcy is involved, can typically can take up to a year. This article will discuss how that process may even be lengthened.Lately, there has been a trend across America, especially locally in the Southern District of California Bankruptcy Court, to require more documentation from lenders in the foreclosure process. This is primarily a result of all the buying and selling of mortgages between lenders that has taken place over the past decade.

The Bankruptcy Courts are starting to now require further documentation from the lenders to prove they actually own the note. These requirements are most commonly seen where Bankruptcy Courts are continuing “relief of stay motions” for lack of “standing.” In other words, a lender walks into Bankruptcy Court and requests permission to continue its foreclosure outside of Bankruptcy. But the problem is, since almost all real estate loans have been bought and sold many times, the lender who seeks permission from the Bankruptcy Court is not the same lender who was on the original loan document, the deed of trust and  the note.

So when the new lender seeks permission from the Bankruptcy Court to continue foreclosure, the Court is dealing with a different party than on the deed of trust and note that that party is supplying to the Court. Obviously, since they are a different party, somehow they must prove they now own the loan. Amazingly, most lenders are not providing the court with any such proof, and the Bankruptcy Court is now having concerns.

Specifically, the Court wants to see proof of new ownership via a copy of the assignment or original note now negotiated to the new lender. Attached is a recent decision by Judge Adler.


So unless the lender in the above case comes forward with a declaration containing an attachment of the assignment, the motion will be dismissed. The automatic stay then remains in effect.

Assuming the motion gets dismissed, the lender must now refile once the assignment is found, or simply wait until discharge. Since a discharge will probably come about the same time as a second relief of stay motion, in all likelihood, the lender will simply wait it out until discharge.

But now the debtor can make the same arguments to a State Court when the lender resumes their foreclosure process once the bankruptcy case is over. In fact, this very process could greatly delay the foreclosure.

In State Court, the borrower files a wrongful foreclosure action against the party attempting to foreclose. One of the primary allegations in the lawsuit is that the lender attempting to foreclose has no legal standing to do so. Since they were unable to produce the original note in bankruptcy court and an assignment, the debtor will rely upon that litigation in the State Court matter. The borrower will also file a lis pendens against the property and seek a restraining order from the court to prevent foreclosure.

During such a scenario, the foreclosure will be put on hold until the note is located. This could literally take years, or may never even happen! In Florida, there is presently a case pending with Washington Mutual that is in year 5, and in New York, another case that is in year 10. These lenders simply cant find the underlying notes or assignments!

If the note is finally found, the debtor can dismiss the suit and let the foreclosure take place. Meanwhile, he can not be sued for any mortgage payments not made due to the bankruptcy and “one action rule.” Alternatively, if the note can not be found, he may now have other causes of actions using state and federal laws against the party seeking foreclosure.

Regardless, if you have real estate and are about to file for bankruptcy protection, you should seek competent legal advice from an attorney well experienced in Bankruptcy and Real Estate Laws to maximize your time in the property for your Bankruptcy Fresh Start!

Written by Michael G. Doan

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