By Julia M. Wei, Esq.
Buried in the New Year’s Day bill was SEC. 202, which extended the Mortgage Debt Forgiveness Relief Act through 2013. Except, the section was cryptically called “EXTENSION OF EXCLUSION FROM GROSS INCOME OF DISCHARGE OF QUALIFIED PRINCIPAL RESIDENCE INDEBTEDNESS.” That means for homeowners who were approved for short sales or were foreclosed upon through December 31, 2013, they are still eligible for the tax relief to avoid the tax on the debt forgiveness (which is ordinarily considered income).
If you recall, the original law was passed in 2007 and intended to provide relief through the end of 2009. However, it became clear that lenders were still conducting foreclosure sales and approving short sales after 2009 and so the relief was extended by the Emergency Economic Stabilization Act of 2008 to continue through December 31, 2012.
If you're interested in reading the bill, it's here and Section 202 starts on Page 25.
With much fanfare, the Attorney General's office announced today the passage of a collection of bills intended to protect homeowners who are attempting a loan modification.
Among the key provisions, the statutes will:
-Require creditors to provide documentation to a borrower that establishes the creditor’s right to foreclose on real property prior to recording a notice of default.
-Require creditors to provide documentary evidence of ownership, the chain of title to real property, and the right to foreclose, at the time of the filing of a notice of default.
-Prohibit creditors from recording a notice of default when a timely-filed application for a loan modification or other loss mitigation measure is pending.
-Prohibit creditors from recording a notice of sale when a timely-filed application for a loan modification or other loss mitigation measure is pending.
-Prohibit creditors from recording a notice of sale while a borrower is in compliance with the terms of a trial loan modification or after another loss mitigation measure has been approved.
-Require creditors to disclose why an application for a loan modification or other loss mitigation measure has been denied.
-Require that notices of foreclosure sales be personally served, including notices of foreclosure sale postponement.
-Provide homeowners with a private right of action in instances in which the requirements set forth in the legislation are not followed.
These cluster of bills (Senate Bill 1470-74) will amend California Civil Code Section 2923.5 and 2924 (which is where the non-judicial foreclosure laws are located) and will add new sections: 2923.6, 2924.9, 2924.10, 2924.11, 2924.12, 2924.13, 2924.14, 2924.15, and 2924.16 to the Civil Code.
Perhaps the most important for consumers is that this legislation bars dual-tracking, which I have always considered to be a confusing and misleading process.
The documentation required to "prove" that a lender has the right to foreclose seems a bit nebulous to me, but there is a list of suggested documents and the new process will require a statement setting forth the facts supporting why the beneficiary (or its agent or assignee) has the right to foreclose. These parts of the statute seem unduly burdensome. It would have been easier to default to what the bankruptcy court requires in the Proof of Claim process instead, which is pretty standardized at this point.
By: Julia M. Wei, Esq.
What happens when you buy a property at a trustee's sale in California and the borrower files for bankruptcy?
FORECLOSURE INVESTMENT PROPERTY / BANKRUPTCY
Client: Do you remember that investment property I bought at a foreclosure sale?
Real Estate Attorney: I think so, was it the one you needed to fix up before you could rent it out or sell it?
Client: Yes. It was occupied and now the former borrowers have filed for bankruptcy.
Real Estate Attorney: Oh no! Are all your savings tied up in that property?
Client: Yes. Now my partner and I don't know what happens next in the bankruptcy.
Real Estate Attorney: You need to bring a motion for relief to get relief from the automatic stay. Then when you have your Order, you can go back to the state court and continue with your unlawful detainer action to get the Writ of Possession.
Client: How long does that take?
Real Estate Attorney: The motion for relief requires 14 days notice to the debtor, but some bankruptcy judges in the California Northern District have an expedited one for evictions. Until you have the order, you cannot take any acts against the debtor or it is a violation of the automatic stay.
Client: That's great! Much faster than I thought! What do I need to prove in a motion for relief?
Real Estate Attorney: You will need to give evidence that you are the new owner of record, and provide the Trustee's Deed. Ok?
Client: I can do that!
Real Estate Attorney: Wait, one thing to watch out for. The debtor may claim that it was a wrongful foreclosure sale. With all the attention in the media about "robo signing" borrowers believe the foreclosure sale was "void"
Client: Really? Does that mean that I can't get possession of the property?
Real Estate Attorney: No. But some bankruptcy judges may require a further hearing or further briefing. However, since you are the successful bidder at auction, you are the bona fide purchaser for value and California law is in your favor.
Client: Ok. So, if the debtor is not claiming any defect with the foreclosure sale, I will be able to get an order for relief to continue with the eviction, right?
Real Estate Attorney: Yes.