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Can You Reverse a Home Foreclosure After the Sale Date?

Reverse a ForeclosureIn California, there is a time period and process that is required before a home can be foreclosed. Most homes in California are foreclosed through a non-judicial foreclosure. In order to foreclose on a home through a non-judicial foreclosure a notice of default has to be issued and recorded with the county recorder. Once a notice of default has been recorded, there is a required 3 month waiting period before a notice of sale date can be issued. The notice of sale date must set the sale date of the home at least 21 days out from the notice of sale date. What happens if you were not able to stop the sale of the home prior to the sale date? Is there any recourse in California? There are some recent cases decisions that seem to indicate that bankruptcy judges may be willing to treat the sale of the property as void in bankrupt, if the purchaser has not recorded the deed of trust.

The issue stems from California Civil Code 1091 which states:

"An estate in real property, other than an estate at will or for a term not exceeding one year, can be transferred only by operation of law, or by an instrument in writing, subscribed by the party disposing of the same, or by his agent thereunto authorized by writing."

A transfer of an interest in property is complete under this section when the transfer occurs by operation of law or by a transfer of interest where there is a validly executed, delivered and accepted deed of trust. When a property is sold at foreclosure it is not transferred by operation of law, therefore the transfer only occurs through an instrument in writing. What happens then in the situation where there has been a foreclosure sale but the new owner has not yet accepted, delivered and executed a deed of trust.

In the case of In Re Gonzalez, the debtor filed for bankruptcy after the sale date had occurred but prior to the deed being prepared and recorded. Judge Wallace, voided the sale of the property, stating that under section 1091 of the California Civil Code, the sale required a validly accepted, delivered, and executed deed of trust. This case was heard in the Central District of California, and the judge determined that although the sale had occurred, the sale became void when the debtor filed for bankruptcy. Judge Wallace found that the borrower's bankruptcy petition can void a trustee sale even if the petition is filed after the trustee's sale is completed, as long as the borrower files prior to the execution of the trustee's deed upon sale. The post-petition issuance of a deed of trust was found to be a violation of the automatic stay. This is in contrast to other courts that have found the sale to be final and the transfer of the interest in property to occur upon the acceptance of the highest bid at the foreclosure sale.

This case also presents an interesting situation for cases involving foreclosure sales by homeowners associations. When a homeowners association foreclosure sale is conducted in California, there is a required 90 day redemption period, in which the HOA cannot record the deed of trust. I recently was involved in a case in which the debtor's home was foreclosed by the homeowners association but the deed of trust had not been accepted, delivered or executed due to the 90 day redemption period. The debtor filed for bankruptcy prior to the expiration of the redemption period. The judge in this case followed the reasoning from In Re Gonzalez and found that the sale of the property was not complete at the time of the filing of the bankruptcy case.

Although it is an uphill battle to reverse a foreclosure sale, it can be done successfully under certain circumstances. If the deed of trust has not been prepared and recorded there is a potential that the judge can find that the sale is not final and is in fact void at the time of the bankruptcy filing.

Comments

Lorrie, there are some cases that hold that the reinstatement of the Chapter 13 bankruptcy case after dismissal, reinstates the automatic stay as if it had never been removed. Your attorney needs to look at what the court's position is on this issue in your area. This may help you in having the foreclosure of your home reversed.

If your case was dismissed as a result of your attorney's negligence and that resulted in the sale of your home, then you may have a potential action against him for malpractice.
Norma could you please explain if you could what happens in a case of BK and you have done everything you as a debtor is suppose to do, however your attorney did not turn in your pay advices timely and your BK case was dismissed without my knowing it and 2 days later they auctioned my house off. Since then we went to court because the judge wanted to see why they should not punish the attorney .The BK judge fined our attorney 1500.00 but he also did what our attorney asked himn to do reluctantly. The judge went ahead and reinstated our BK case that was dismissed with the stay back in place but what does that mean for the trustee sale that had happened the week earlier. Will we be able to have that sale voided or do we need to file a new BK case. Please help before its to late. I dont trust my attorney at this point and dont ant to loose my family home. gratfully lorrie san jose california
Joon, If your bankruptcy is dismissed then they can set a new sale date very quickly and foreclose again. If the bankruptcy case is open and they have not obtained permission to lift the stay then they cannot foreclose on the property until the obtain court permission. Without the bankruptcy case there is no automatic stay and therefore no protection from the foreclosure.
Thank you for the answer, Norma.
They voided the sale and now it reverted to me. The new trustee sale date is not set, yet. Is it normal for the active bankruptcy status?
Are they going to set the new sale date if I cancel the emergency bankruptcy?
Or is there any possibility they foreclose it right away after the cancellation?
Someone said they can sell my property as soon as the emergency bankruptcy is cancelled (the bankruptcy was to stop/void the trustee sale, not intended to finish it).
I want to continue the loan mod but I want to know if they have the right to refuse and foreclose it simply because we filed bankruptcy twice (Ch13 7 month ago by my wife, and current Ch7 by me). thanks again.
I am assuming from what you are stating that you were listed on the deed of trust to the property that foreclosed. If you had filed for bankruptcy protection prior to the sale time then the automatic stay would have been in effect and the creditor with proper notice should not have moved forward with the sale of the property. Contact the mortgage company and request that they void the sale of the property since at the time of the sale the property was part of the bankruptcy estate and there was an automatic stay that prevented the foreclosure from continuing. If they will not comply voluntarily with this request then you need to file a motion in bankruptcy court to void the sale of the property and for it to revert back to you. Keep in mind that the above is based on foreclosure laws in California and that different states have different interpretations as to when a foreclosure is complete.
Hi Norma,
Thank you for the detail info about the possibility of reversing a home after foreclosure.
My name is Joon and I got a question for my home foreclosure.
On April 19, 2012 my wife filed chapter 7 to prevent the trustee sale. Since then, I hired a company to do the loan mod for me. The trustee sale date postponed month by month until Nov 29, 2012. I provided all requested docs for the loan mod until Nov 23. On Nov 27, the bank said they will not postpone the sale date any more because the requested doc was not provided in time. Now, the only way to stop the trustee sale is filing an emergency bankruptcy Chapter 7 hoping to buy more time for them to review my docs. I filed it 9:15 AM on Nov 29, 2012. But the trustee sale had been occurred at 12:00 PM on the same day. I have the proof of ch 7 filing doc with me.
The sequence of actions taken on behalf of my proper is like this.
11/22/2011 NOD
02/23/2012 NTS
04/19/2012 CH7 filed by my wife only to hold the trustee sale
The sale date had been postponed month by month until 11/29/2012.
09/25/2012 NTS recored again
11/29/2012 At 9:15 AM, This time, I filed CH7 in the hope of holding the trustee sale for a month again. But at 12:00 PM, the trustee sale happened and my property sold to a cash buyer.
So, even if I filed CH7(9AM) before the auction time (12PM), the auction proceeded with winning bidder.

Would you give me an idea what to do or what can be done in my situation?

Regards,
Joon

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