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.