Treating Default to Prevent Property foreclosure After a Sale Through Bankruptcy

By MyVine | June 12, 2011

The Bankruptcy Code gives homeowners facing foreclosure the right to cure the default at any time up until the foreclosure sale method is done. The key word here is “process,” and state law determines what the method is for a valid auction or sheriff sale. Until this has been finished, homeowners who file bankruptcy can use the federal laws for one more opportunity to save their home and cure the default.

The Bankruptcy Code itself doesn’t even decide when a house is considered “sold” for the purposes of a valid foreclosure sale. This indicates that state foreclosure laws probably will be used in circumstances where borrowers attempt to pay off a loan through bankruptcy, even soon after a sheriff sale. An additional aspect that works in favor of homeowners is that quite a few states require an auction to be confirmed just before it’s valid.

This means that homeowners who file bankruptcy have rights throughout the foreclosure process that are safeguarded at least through the sale of the property. These rights may possibly be guaranteed for even longer than that, depending on how the confirmation process of the auction works after the house has been sold by the courts. If there had been a bankruptcy, the lender may possibly not just be able to sell the house and take it over right away.

Redemption rights might extend the rights of the borrowers even longer. In states which have a redemption period, the borrowers are given a set time period in which to cure the default even soon after the house has been auctioned at a trustee sale. However for those homeowners in states where a redemption period is not available, filing for bankruptcy could create a pseudo-redemption period through the right to cure.

On the other hand, rulings by state courts on this problem might figure out how long this extra right to cure lasts. Some courts have ruled that the foreclosure sale method is finished once the gavel falls at the auction. In these instances, declaring bankruptcy won’t extend the time to cure the default for any substantial period of time. Once the auction has been conducted, the sale procedure is complete, as well as the right to cure has expired

Other courts, even so, have ruled that the sale procedure isn’t completed until the suitable company or government agent has executed a transfer deed immediately after the sale, the purchase price of the auction has been paid in full, as well as the sale has been confirmed by the court. In these states, homeowners might have the ability to declare bankruptcy and have the property listed as a part of the bankruptcy estate and turned over to the trustee.

If this occurs, the lender and local government won’t have the ability to proceed with any other collection activities or actions to transfer the property. The automatic stay is in effect, the homeowners have an interest within the home, as well as the property is now a part of the bankruptcy proceedings. If the sale is confirmed or the deed transferred immediately after the filing, it might be turned around at a later date as a violation of the stay.

Filing bankruptcy in cases like this may possibly result in homeowners having many additional months to cure the default. While the automatic stay is in effect, the lender, new owner, or nearby government can perform no action to confirm the sale or remove the borrowers from the home. Even if a Chapter 13 is filed, the owners will probably be able to cure the default through a repayment plan — even though their home was sold at auction.

You can find a whole list of issues with declaring bankruptcy to quit foreclosure, but for homeowners whose financial situations have recovered and who can cure their default, it may possibly be a decent remedy. Even right after a sheriff sale, borrowers may well have the ability to submit a plan that allows them to save the home. Often, just declaring bankruptcy is enough to set aside a sale and give the owners more time and one more chance.

Topics: Buying Tips, Financing, Foreclosures, General, Investing, Selling Tips | Comments Off

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