Category Archives: Foreclosure and Bankruptcy

What Happens If My House Is Foreclosed On Before Filing Bankruptcy But Recording of the Trustee’s Deed Is After I File Bankruptcy?

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If you are trying to save your house from foreclosure the best way to avoid any confusion is to file for bankruptcy as soon as possible before your trustee sale date. Once your bankruptcy case is filed there is an automatic stay in place to prevent the sale of your home. If the trustee sale still goes through, the sale will be voided as it is in violation of the automatic stay.

What happens when you filed your bankruptcy case after the trustee sale was conducted but before the trustee’s deed is recorded with the county? Pursuant to California Civil Code Section 2924h(c), “…the trustee’s sale shall be deemed final upon the acceptance of the last and highest bid, and shall be deemed perfected as of 8 a.m. on the actual date of sale if the trustee’s deed is recorded within 15 calendar days after the sale…”

The courts in California are divided over the interpretation of this issue. One court in the Northern District of California indicated that if the bankruptcy case was filed after the trustee’s sale but before the recording of the trustee’s deed, the recording of the trustee’s deed is not a violation of the automatic stay and the secured creditors can proceed, making the foreclosure final. In Re Garner, 208 B.R. 698 (Bankr. N.D. Cal. 1997). In the Garner case, Minnie Bee Garner defaulted on her mortgage and her home was foreclosed on March 11, 1997. She filed for Chapter 13 bankruptcy protection on March 12, 1997. The foreclosure sale deed was issued to the third party purchaser on March 13, 1997 and the third party purchaser recorded the deed with the county on March 18, 1997. The secured creditor’s bankruptcy attorney filed a motion for relief from stay and the court granted it and held that as long as the deed was recorded within 15 days of the sale, issuing the deed did not violate the automatic stay. Therefore, the third party purchaser’s interest in the property was not avoided by the filing of Ms. Garner’s bankruptcy case.

A more recent case in the Central District of California held differently than Garner above. In In re: Gonzalez, Case No. 6:11-BK-15665-MW (C.D. Cal. 2011), there was a foreclosure sale of Mr. Gonzalez’s property on February 22, 2011. Mr. Gonzalez filed for bankruptcy on the same day. The exact time of the final bid is uncertain but for purposes of the case the exact time and whether the foreclosure sale went through before or after Mr. Gonzalez filed for bankruptcy did not matter. The deed was recorded with the county recorder’s office on March 2, 2011. The judge in this case held that at the time the bankruptcy petition was filed Mr. Gonzalez still held title to the property because the deed was not recorded yet. The subsequent filing of the deed after the bankruptcy petition was filed violated the automatic stay and therefore the recorded deed is void. The judge goes on to say that the provision of the California Civil Code Section 2924h that deems the sale to be final as of 8 a.m. on the actual date of sale does not matter because the deed filed with the county was void, and execution of a voided deed is a void act and does not create or perfect title. Upon appeal of this decision to the District Court for the Central District of California the Bankruptcy Court judge’s ruling was reversed. Like in Garner, the recording of the deed of trust was not a violation of the automatic stay.

This is a perfect example of similar facts but different outcomes even though they are all from the state of California. Maybe legislation will resolve this issue in a future time so there is no more confusion. As of right now if you have any issues you should consult a bankruptcy lawyer. The best way to avoid this issue is to make sure your bankruptcy case is filed at least a day before your trustee sale date. So that is what happens if your house is foreclosed on before filing bankruptcy and the recording of the trustee’s deed is after you file bankruptcy.

Foreclosure Scams in Bankruptcy – How Does it Affect You?

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There always seems to be an increase in crime when the economy is not doing well.  Whether it is increase of violent crimes like muggings and burglaries or white-collar crimes like embezzlement and ponzi schemes it all hurts us  – it makes life  more difficult for more people.  This is evidenced in the recent economic downturn.  An old scam is resurfacing that may delay the foreclosures on homeowners’ properties.  There has been an increase in distressed homeowners transferring a small interest in their home to a person that has recently filed for bankruptcy.  Another variation of the crime is when the homeowner downloads a deed from the recorder’s office and photo shops fraudulent information on the deed.  The county recorder’s stamp is left on the deed.  Most of the time the lender or foreclosure trustee does not verify the information and only sees the deed with the fraudulent information.

The person filing for bankruptcy usually does not know about the transfer of interest in the home.  They probably do not even know the distressed homeowner.  The distressed homeowner probably found the information of the bankruptcy through looking at recent bankruptcy filings.  The homeowners would then send the notice of bankruptcy to the creditors about to foreclose on their home.  Once the lender or foreclosure trustee receives notice that there is a bankruptcy filed from a person that has an interest in the home the foreclosure process is momentarily stopped.  This was the intention of the distressed homeowner all along – stopping the foreclosure and not having to file for bankruptcy.

The worst part is that most of the time the distressed homeowners probably had no idea that they were doing something fraudulent.  They hire companies that guarantee that you will be able to stay in your home for a certain amount of time and the distressed homeowners pay them thousands of dollars upfront to delay the inevitable.  Before these fraudulent companies can get shut down or prosecuted they change name and move elsewhere to provide the same services to other desperate homeowners.  It is a vicious cycle where there are no winners except these fraudulent companies.

How does this affect you, the person that filed for bankruptcy and had no knowledge that someone had transferred a property interest to you?  It may look like you have committed fraud by not disclosing the home in the first place and it costs you time and money to fix something you had no idea would occur.  If a Motion for Relief from Stay is filed in your case by the lender or foreclosure trustee, courts have recommended that bankruptcy attorneys should file a response to the motion with evidence that you had no interest or knowledge in the property and the bankruptcy filer was not involved in a scheme to hinder, delay or defraud the lender.  The bankruptcy trustee and the U.S. Trustee should be notified so they can investigate the issue and prosecute the offenders.

If this occurs in your bankruptcy case and you are not represented by a bankruptcy attorney you should contact the bankruptcy trustee and U.S. Trustee regarding these matters.  If you have any questions you may also us at 877-9NEW-LIFE or 877-963-9543.