Borrower Rights During the Foreclosure Process

According to the California Foreclosure Report, the number of foreclosure sales has almost doubled from last year. In April 2010, it was reported that foreclosure sales increased 92.3% from 2009, when lenders had voluntary moratoriums in place while awaiting the implementation of the Administration's Home Affordable Modification Program (HAMP).

The foreclosure process differs in each state, as do the various lenders' business polices. Some lenders may take up to a year before sending out a notice of default, while another lender may serve a notice of default within 90 days of nonpayment. California has enacted laws and provisions that lenders must follow prior to filing a notice of default.

Unfortunately, many homeowners do not understand the foreclosure process, or the rights afforded to them by the government. In 2008, Governor Arnold Schwarzenegger signed California SB 1137 (a.k.a. the Perata Mortgage Relief Bill) into law. The law requires lenders holding loans made between January 1, 2003 and December 31, 2007 to begin contacting homeowners at least 30 days before issuing a notice of default. On June 2, 2010, the California Supreme Court held in the case of Mabry v. Superior Court (Aurora Loan Services) G042911, that homeowners have a private cause of action to enforce statutes, such as the Perata Mortgage Relief Bill, requiring the lender to contact a defaulting borrower to explore options to avoid foreclosure.

The California Supreme Court did not hold that a foreclosure will be prevented or title will revert back to the borrower after a sale is final, should the lender not comply with a statute. The ruling in Mabry limits the right of action to obtaining a postponement of an impending foreclosure, to permit the lender to comply with statutes. Homeowners on the brink of foreclosure should understand that after late charges are assessed, the lender has to initiate contact with the homeowner to address non-payment. Thereafter, a demand or notice of breach is provided to the homeowner/borrower in writing. At that time, a lender will likely attempt to initiate a loan modification. Initial contact with the homeowner/borrower may take up to 3 months, depending on the lender.

Once the lender has made contact with the homeowner/borrower and offered options to avoid foreclosure, the lender must send via certified mail a Notice of Default providing a deadline to pay past due amounts and costs. If the loan is not brought current, or a repayment plan to bring the loan current is not worked out, then the lender may start the foreclosure process by filing a Notice of Trustee Sale. Pursuant to the Perata Mortgage Relief Bill, tenants living in the property must receive a Notice of Sale in six different languages.

Homeowners can avoid foreclosure through loan modification, repayment plans, forbearance, Deed-In-Lieu, Short Sales, or by filing a bankruptcy petition. Each of these options have varying timelines and prerequisites that must be satisfied. Moreover, some circumstances might be further complicated if there are multiple loans at issue from different lenders. An experienced attorney, foreclosure specialist, and/or CPA, should be consulted before the homeowner stops making payments, or when a homeowner is attempting to rectify his or her payment delinquency.

Anna Greenstin is an Associate with Kring & Chung, LLP's Irvine, CA office. She can be contacted at (949) 261-7700, or agreenstin@kringandchung.com .

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