Foreclosure by Power of Sale

Foreclosure by power of sale may be preferable

California allows foreclosure by the power of sale which is generally a more expedient way of foreclosing on a property, when compared with foreclosure by judicial sale. Foreclosure by power of sale involves the sale of the mortgaged property by the mortgage holder (usually a bank or other lender), rather than a sale supervised by the court. As it reduces the time spent in selling a foreclosed property considerably, foreclosure by power of sale may be preferable.

The majority of states allow foreclosure by power of sale. After the sale, proceeds go first to the mortgage holder. If there is any money left over, it will go to those who are holding liens on the property and then to the borrowers. Foreclosure by the power of sale accomplishes the same thing as a judicial sale.

When a “power-of-sale” clause is included in a deed of trust or mortgage, the borrower pre-authorizes the sale of the property to pay off the balance on a loan if the borrower defaults (fails to make the loan payment when due).

The power given to sell the property is generally given to the trustee who acts on behalf of the beneficiary (lender) by recording and sending Notice of Default and Notice of Sale.

However, there are some legal questions associated with this method of foreclosure.

Foreclosure when the mortgage holder is a government entity

Some state “power of sale” laws have resulted in questions of constitutionality. It has been argued in several cases that foreclosure by power of sale legislation fails to comply with the notice and hearing requirements of the Fourteenth Amendment of the U. S. Constitution. Courts have consistently rejected this theory when it comes to private foreclosure actions when there is no public official conducting the foreclosure sale. With no public official present, there is no state action necessary to invoke the terms of the Fourteenth Amendment.

However, there have been rulings indicating that if the mortgage holder is a government entity or if a public official conducts the foreclosure sale, the Fourteenth Amendment might be invoked and stricter notice requirements might apply. The case law on this issue is so far unsettled.

DiJulio Law Group
https://www.dijuliolawgroup.com

The Mechanic’s Lien: A Contractor’s Way To Secure Payment

Placement of a Lien by an Unpaid Contractor

An unpaid contractor may place a mechanics lien or “hold” against your property as a way to collect for work performed. Subcontractors, laborers, or material suppliers, may also may place liens which are then recorded with the county recorder’s office. The use of a lien is a typical means used by contractors and subcontractors alike as a way to secure payment for labor performed or materials furnished. Liens allows for foreclosure action, forcing the sale of the property when they have not been paid.

Contractors may view construction liens as a more advantageous alternate to litigation when cost and the time involved are considered. Also, the fact that the lien attaches to the interest of the owner of the property, and the priority afforded to properly filed construction liens over prior mortgages or other encumbrances may be an advantage. The question of lien priority is dependent on several factors and is best addressed by a qualified real estate attorney.

A property may be the subject of a lien when the prime contractor or “direct contractor” has not paid subcontractors, laborers, or suppliers. Legally, the homeowner is ultimately responsible for payment – even if they already have paid the direct contractor.

A lien can result in a variety of problems

If the homeowner doesn’t pay the lien foreclosure may result. A court proceeding that employs judicial foreclosure sales (similar a to mortgage foreclosure) is how mechanic’s liens are enforced. The court must determine whether the requirements of the law have been met and, if so, the priority of the mechanic’s lien being foreclosed relative to the other liens or encumbrances on the title. Once that is determined, the court will order the property sold and the proceeds of the sale applied to the liens in the order of their priority.

You may have difficulty selling your home if there is a lien against it. Buyers often won’t buy the property unless the title is clear, meaning it has no liens. A contractor with a lien has the right to have your property sold in order to pay off the lien via a foreclosure sale. More commonly, instead of forcing a foreclosure sale, a contractor will wait until the property is sold.

This is because in many cases a mortgage was placed on the property before the contractor’s lien and so the mortgage must be paid off before any other liens are paid. If the contractor forecloses on the lien, they have to keep up the payments on the mortgage or lose the property.

In some instances a homeowner may sell the property and use part of the proceeds to pay off the lien.

DiJulio Law Group

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FORECLOSURE DELAYED UNTIL THE “BANKS” GIVE RIGHTS TO HOMEONWERS

Under the New California Homeowners Bill of Rights the State of California has found that it is essential to mitigate the negative effects on the economy and the housing by modifying the foreclosure process to ensure that borrowers who may qualify for a foreclosure alternative are considered for, and have a meaningful opportunity to obtain, available loss mitigation options. And that avoiding foreclosure, where possible, will help stabilize the state’s housing market and avoid the substantial, corresponding negative effects of foreclosures on families, communities, and the state and local economy.

The California Homeowners Bill of Rights prohibits notice of default (the first step in a foreclosure ) until 30 days after the mortgage servicer has:

Sent a first-class letter to the homeowner that includes the toll-free telephone number made available by HUD to find a HUD-certified housing counseling agency.

Attempt to contact the borrower by telephone at least three times at different hours and on different days.

Sent a certified letter, within two weeks after the telephone call requirements

Provided a means for the borrower to contact it in a timely manner, including a toll-free telephone number that will provide access to a live representative during business hours.

Posted a prominent link on the homepage of its Internet Web site containing the

following information:

Options that may be available to borrowers who are unable to afford their mortgage payments and who wish to avoid foreclosure, and

instructions to borrowers advising them on steps to take to explore those options,

A list of financial documents borrowers should collect and be prepared to present to the mortgage servicer when discussing options for avoiding foreclosure,

A toll-free telephone number for borrowers who wish to discuss options for avoiding foreclosure with their mortgage servicer, and

The toll-free telephone number made available by HUD to find a HUD-certified housing counseling agency.

This means the “bank” must give the homeowner a single point of contact with a live person, notice of the options to refi, and a list of documents needed to apply for a refi.

The new Bill of Rights also gives the homeowner the right to designate a lawyer or other representative to help in the loan modification and the foreclosure prevention process. My estimate is that this process will extend the time for a foreclosure to 9- 12 months from the date the “bank” decides to start the foreclosure process and give a fair opportunity for borrowers to refi or otherwise avoid foreclosure.

By David DiJulio:

For more informantion contact : DiJulioLawGroup.com

SHORT SALE BONANZA

During the next few months, short sales will sky rocket. Short Sales are sales of upside down houses for the market value. To make the short sale work the first and second mortgage holders must write down the loans to equal the true market value of the house. Since the first has first call on the funds, the second write down a much large percentage of its loan, often 80-90%. Seconds have been resistant to do so, in hopes that the First would foreclose because under current law, if the First forecloses and makes the Second worthless, the Second the right waive the deed of trust and sue on the note- for the full amount of the second loan.

However, under an amendment of CA Code of Civil Procedure 580, the second cannot get a deficiency judgment in any event on any loan, refinance, or other credit transaction that is used to refinance a purchase money loan, as defined, or subsequent refinances of a purchase money loan.

The law seems to limit these rules to new loans but I believe that holders of Seconds will be fearful that the law will be extended by the courts to all loans. If that happens the Second becomes worthless. I think that this threat will induce the seconds to take what they can get in a short sale.

For more information contact David DiJuliomailto:rdj@dijuliolaw.com or a broker that specializes in short sales.

DiJulio Law Group: Los Angeles real estate attorneys with more than 35 years of experience. Call 888-519-1613 or emal rdj@dijuliolaw.com.

DiJulio Law Group

SECOND MORTGAGES CAN NO LONGER SUE AFTER FORECLOSURE ON THE FIRST

The California Legislature has amended the rules for seconds suing after a foreclosure suit. Under current law, after foreclosure sale by the first, the second can sue for the note unless it was part of the purchase price. But starting January 1, 2013 the rules will be changed to prevent the seconds from suing on refinances too.

The law provides that no deficiency judgment shall lie in any event on any loan, refinance, or other credit transaction that is used to refinance a purchase money loan, as defined, or subsequent refinances of a purchase money loan

However there is an exception for refinances that had a cash out or a HELOC where additional funds were withdrawn,

These provisions would apply to a loan, refinance, or other credit transaction used to refinance a purchase money loan which is executed on or after January 1, 2013.

For more information contact rdd@dijuliolaw.com or go to DiJulio Law Group

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