THE FORECLOSURE PROCESS
Exceptions That Can Affect a Foreclosure Process
Federal Laws Affecting Foreclosures
While the Fourteenth
Amendment affects the validity of a debt, there are at least three other sets
of federal laws that clearly apply to foreclosure actions:
- Bankruptcy
- The Servicemembers Civil Relief Act of 2003 (SCRA)
- Temporary Restraining Order
Bankruptcy
In the
- Chapter 7 bankruptcy is an involuntary liquidation
forced by creditors.
- Chapter 11 bankruptcy is voluntary reorganization by
the borrower.
- Chapter 13 bankruptcy is where a borrower proposes a
three- to five-year repayment plan to the creditors.
Bankruptcy filing during Notice of
Default (NOD)
Should the borrower file
bankruptcy during the Notice of Default, the foreclosure is stopped. During the
bankruptcy, the following can occur:
- If borrower reinstates the loan through the bankruptcy
trustee, then the foreclosure stops.
- If the NOD has expired and the borrower does not
comply in the bankruptcy proceedings, then the bankruptcy trustee can
dismiss the case and the trustee can continue the foreclosure by setting a
90 day notice of sale.
- The lender obtains an order of relief from the stay
through the bankruptcy courts.
- If the relief from stay is
granted and the NOD has expired, then the trustee can continue the
foreclosure by issuing a 90 day notice of sale.
Bankruptcy filing during Notice of
Trustee Sale (NOTS)
If the borrower files
bankruptcy during the scheduled Notice of Trustee Sale, then the foreclosure
stops. The trustee determines if the sale is valid at the time of the original
sale or when the borrower comes out of bankruptcy; whichever comes first.
During the bankruptcy, the
following can occur:
- If the borrower files bankruptcy before or during the
publication period, then the foreclosure action is invalid.
- If there is still a default
when the borrower comes out of bankruptcy, then the trustee issues a new
90 day notice and sets a new sale date.
- If the borrower files bankruptcy after the last
publication of the Notice of Trustee Sale and before the sale date, then
the trustee can postpone the sale for up to 120 days from the original
sale date.
- If the borrower comes out of
bankruptcy prior to the postponed sale date, then the trustee can sell
the property on the postponed date.
- If the borrower files bankruptcy after the last
publication of the Notice of Trustee Sale and before the sale date, the
trustee can postpones the sale up to 120 days.
- If the bankruptcy is still
open after the 120 days, then the trustee stops the sale.
- If there is still a default
when the borrower comes out of bankruptcy, then the trustee can resume
the foreclosure and set a sale under the 45 day rule.
45 Day Rule
If the borrower comes out
of bankruptcy and the trustee has passed the 120 day allowable postponement,
then the trustee can use the 45 day rule to record the Amended Notice of
Trustee's Sale and schedule a new trustee sale within 45 days, as opposed to
starting over and filing the 90 day Notice of Trustee's Sale.
Under the 45 day Amended
Notice of Trustee Sale rule, the trustee must:
- Record the Amended Notice of Trustee
- Post the Amended Notice of Trustee
- Mail the amended Notice of Trustee Sale by both regular
and certified mail.
- Publish 30 days and 9 days before selling on the
Amended Notice of Trustee Sale.
The trustee now has a new
120 day allowable time frame that they can postpone the amended sale.
The Servicemembers Civil Relief Act
of 2003 (SCRA)
Formerly known as the Soldiers?
and Sailors? Civil Relief Act of 1940 (SSCRA), this is a federal law that
gives all military members some important rights as they enter active duty.
It covers such issues as:
- Rental agreements
- Security deposits
- Prepaid rent
- Evictions
- Installment contracts
- Credit card interest rates
- Mortgage interest rates
- Mortgage foreclosure
- Civil judicial proceedings
- Income tax payments
The SCRA protects active
duty military members and reservists or members of the National Guard starting
on the date that active duty orders are received and, in limited situations,
dependents of military members (for example, in certain eviction actions).
Lenders and other parties
adversely affected can seek relief by going to court to show that the service
member can fulfill their legal obligations despite military service. Some
provisions of the act require service members or their dependents to show that
they are unable to fulfill their legal obligation because of military service
before they can receive certain benefits.
Temporary Restraining Order (TRO)
A Temporary Restraining
Order (TRO) is granted by a Superior Court judge. It temporarily prohibits
a trustee from proceeding with a foreclosure until a trial is held or
settlement reached. A TRO is generally effective for 21 days or until a hearing
is held and the judge decides whether to grant a preliminary injunction.
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