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I Made A Loan To A Borrower And Secured It With The Borrower’s Home. The Borrower Has Stopped Making His Loan Payments. How Long Can The Borrower Stay In The House?

Mortgage & Lending Law by Peter N. Brewer, Esq.

Dear Private Money Lender –

Presently, if you choose to start foreclosure in California, it will be at least eight months before you can actually sell the house at Trustee’s Sale. This prolonged time period is due to the California Foreclosure Prevention Act of 2009 (ABx2 7).

Pursuant to California Civil Code Section 2923.5, there is a 30 day “contact period” before you can actually record the Notice of Default.

During that time, your loan servicer (or you, if you are servicing your own loan) must contact the borrower as specified by the Code. Once you record the Notice of Default, the reinstatement period will run 90 days.

However, before you can publish your Notice of Trustee’s Sale, the Act kicks in and imposes a moratorium.

Civil Code Section 2923.52 adds 90 days to the normal reinstatement period of three months, effectively doubling the amount of time between the recording of the notice of default and the giving of the notice of sale to six months.

This moratorium does not apply to all loans—only to loans with the following conditions:

  1. the loan was recorded during the period January 1, 2003 – January 1, 2008 and is secured by residential real property;
  2. the loan is a first mortgage or deed of trust;
  3. the borrower must have occupied the property as his/her principal residence at the time the loan became delinquent; and
  4. a notice of default must have been recorded against the property.

The Act is in effect until January 2011 unless new legislation extends this duration.

This timeline of eight months minimum assumes that the borrower does not file for bankruptcy. If the borrower does file for bankruptcy, the filing of the bankruptcy petition stays all creditor action.

In other words, you must postpone your sale. The filing of the bankruptcy bars you from conducting any act to collect your debt without relief from the automatic stay.

Creditors/Lenders must seek a court Order that terminates the automatic stay as to that creditor to allow their foreclosure sale to proceed. When it is the debtor’s residence, the bankruptcy judges will require a strong evidentiary showing of prejudice or lack of equity before granting relief.

In Northern District, San Jose division, the judge may also require that the lender/creditor’s attorney attend the hearings in person to argue the motion for relief (attorney fee-saving measures such as telephonic appearances are not allowed when it is the debtor’s residence).

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