It is well known that a bankruptcy filing will stop a foreclosure, as long as a foreclosure sale has not taken place. However, many debtors wonder if their lender can come back after the bankruptcy case is closed and initiate foreclosure proceedings once again. This article will explain the answer to this question.
Indeed, the automatic stay imposed through a bankruptcy filing buys a debtor time in which to review and reorganize all of their debts. No collection efforts may take place while the stay is in effect, and that includes foreclosure proceedings. However, a lender may petition the court to have the stay lifted so that it may reinstate a foreclosure where it left off in order to take the property back.
In order to lift the stay, the lender must show that the debtor has no equity in the collateral securing the loan (i.e. the home), and that the home owner is not current on the mortgage payments.
Nevertheless, the lender may wait until the bankruptcy case is closed to start (or continue) foreclosure proceedings. If a debtor falls behind on payments after a bankruptcy is concluded, a lender may initiate foreclosure proceedings on the property.
The type of loan also plays a part in whether a homeowner can lose a property to post-bankruptcy foreclosure. For example, a lender can still foreclose on a junior mortgage (such as a HELOC or second mortgage) that was discharged in a Chapter 7 bankruptcy, since only the obligation to pay the debt (and not the lien) was extinguished. However, the bank cannot foreclose on property where a lien (along with the mortgage) was stripped through a Chapter 13 proceeding.
If a lender is seeks to foreclose on the property outside of a bankruptcy, the lender must adhere to the formal legal procedures governing foreclosures in California. This is especially important given the new bill recently signed into law by Governor Jerry Brown.
Among many changes to the process, lenders may no longer follow a practice called "dual tracking." Essentially, a bank may no longer negotiate with homeowners to modify their mortgage payments while simultaneously pursuing foreclosure. Scores of homeowners were wrongfully evicted from their homes while negotiating modifications in good faith, only to learn that the bank had initiated foreclosure proceedings.
If you have questions about whether a bankruptcy would be appropriate to save your home from foreclosure, an experienced attorney can advise you.