Asian Journal- The Filipino-American Community Newspaper

Question:  I lost my job for 5 months ago, due to companywide restructuring. I have desperately tried to look for employment, but to no avail. Naturally, I am behind my mortgage payments for 3 months. I called my bank numerously but no one there seems interested in helping me out. Meanwhile, just yesterday, in the mail box, was the dreaded Notice of Default, with a “Certified Mail” tag on it. Can I save my house? I have two young kids and my wife does not work. Incidentally, I bought the house in April, 2006 for $550,000 and have two mortgages, 1st with Countrywide for $400,000 approximately and $80,000 as a second. The Countrywide mortgage is an adjustable interest rate loan with negative amortization feature. Now, my neighbor, whom I ran into yesterday, tells me that another house, foreclosed by a bank, was sold for little less than $200,000.

Answer: The California legislature enacted a new foreclosure prevention law, Senate Bill 1137, now codified as Civil Code 2924, to assist the homeowners just like you. The law became effective September 6, 2008. To foreclose a residential property, mortgagees or banks (borrowers are mortgagors) have two options: judicial foreclosure or trustee sale. Banks usually opt for the trustee sale method, because it is quicker and cheaper. The disadvantage, however, is that junior lien holders (after the primary or 1st mortgage) are “wiped out” or discharged, if the sale proceeds is less than the first mortgage amount.

The first step in a trustee sale is for the lender to record Notice of Default (“NOD”) and give the home owner 90 days to reinstate the loan by paying up the delinquent amount. Next, the lender must file and record “Notice of Trustee Sale” (“NTS”) and provide additional 20 days from the filing of  Notice to the borrower to save his house from the foreclosure sale. The new 2924 requirement mandates the lender to file Notice of Intent to Foreclose (“NIF”) before filing NOD and wait 30 days. In the meantime, lender must contact the borrower either in person or by phone, explore all options available to prevent foreclosures, analyze income and expense of the borrowers, inform the HUD foreclosure counselor’s telephone number, and advise that the borrowers have a right to a second meeting with the lender within 14 days of the first contact. Lenders must offer various options to stave off foreclosure, including but not limited to, forbearance, short sale, and loan modification. Loan modification usually means lower interest rate to lower monthly payments. Principal balance of the mortgage may be reduced or temporarily reduced to match the current market value of the property.

If the lender satisfied their duties under the new foreclosure prevention law, then they must include statements stating so, in the NOD or NTS, by way of “Due Diligence Declaration”. If they fail to do so, then the NOD or NTS is illegal and invalid. In such situations, homeowners facing foreclosure may alert the lenders as to the impropriety of the foreclosure process and demand the lender to re-engage in meaningful discussions to restructure the mortgage payments. Should the lenders persist on continuing with unlawful foreclosure process, homeowners may file suit for wrongful foreclosure and obtain a court order, or injunction to stop the foreclosure.

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