Using Chapter 13 Bankruptcy to Save Your Home After a Foreclosure Sale: A Game-Changing Law for California Homeowners

The foreclosure process in California has long been viewed as final once the auction hammer drops, leaving homeowners with few options to recover their property after a foreclosure sale. However, changes in California foreclosure law in 2021 have introduced new opportunities for homeowners, especially when combined with a Chapter 13 bankruptcy filing.

Under California Civil Code (CC) 2924m, there is now a window of opportunity following a foreclosure auction where the sale is not final, giving certain parties—such as eligible tenants or nonprofit organizations—a chance to submit a higher bid or give notice of intent to bid. More importantly for bankruptcy attorneys and homeowners, this law means that a bankruptcy filing after the foreclosure auction but before the sale is finalized may allow the homeowner to keep their property.

Let’s break down how this new law works and how a Chapter 13 bankruptcy can be used to save a home even after foreclosure.

The Change in California Foreclosure Law: CC 2924m

Historically, a foreclosure sale in California was final as soon as the highest bid was accepted at a public auction. Once the auction was completed, the trustee’s deed could be recorded, and the property officially transferred to the new owner, leaving little recourse for the homeowner. However, California Civil Code 2924m, which became effective in 2021, has fundamentally changed the finality of foreclosure sales.

Under CC 2924m, the sale is no longer automatically final when the auction closes unless the winning bidder is a prospective owner-occupant who files the required affidavit within 48 hours. If the winning bidder is not a prospective owner-occupant, the following timelines apply:

1.  15-Day Window :

   • If the winning bidder is not an owner-occupant, there is a 15-day window during which eligible parties (such as tenant buyers, nonprofit organizations, or public entities) can submit a matching or higher bid.

2. 45-Day Total Window:

   • After the initial 15 days, an additional 30-day period opens, during which eligible bidders (such as nonprofits or public entities) can overbid the highest auction bid. If any eligible bidder submits a higher bid during this time, they become the new owner of the property.

Importantly, the foreclosure sale is not considered “final” until the 45-day window has expired, and the trustee’s deed has been recorded. This delay in finality creates a significant opportunity for homeowners facing foreclosure.

Using Chapter 13 Bankruptcy During the Window

With the enactment of CC 2924m, a Chapter 13 bankruptcy filing during the 15- to 45-day period between the foreclosure auction and the recording of the trustee’s deed can potentially save a homeowner’s property.

A Chapter 13 bankruptcy filing triggers an automatic stay under federal bankruptcy law, which halts all collection efforts and legal proceedings, including foreclosure. As demonstrated in the recent case In re Hager, No. 22-12056-B-13 (Bankr. E.D. Cal. June 26, 2023), a homeowner can file Chapter 13 after the foreclosure sale but before the deed is recorded, making the property part of the bankruptcy estate.

In the Hager case, the homeowner filed Chapter 13 bankruptcy 21 days after the foreclosure sale, while the 45-day statutory window was still open. The court ruled that the foreclosure sale violated the automatic stay and was therefore void. The sale could not be finalized because the trustee’s deed was recorded after the bankruptcy filing, which meant the homeowner retained ownership of the property.

Bankruptcy Opportunities Under the New Law

The Hager decision has created a powerful tool for homeowners facing foreclosure. By filing a Chapter 13 bankruptcy during the post-auction window, homeowners may have the chance to:

• Halt the foreclosure process.
• Include the mortgage arrears in their Chapter 13 repayment plan.
• Potentially avoid losing their home, even after the auction has already taken place.

What Homeowners Need to Know: Key Conditions

To take advantage of this strategy, certain conditions must be met:

1. The Winning Bidder Must Not Be a Prospective Owner-Occupant:

   • If the winning bidder at the foreclosure auction is a prospective owner-occupant, who submits an affidavit as required under CC 2924m(c)(1), the sale may still be finalized quickly. In this case, a Chapter 13 filing may not be effective.

2. Timely Action is Crucial:

   • The Chapter 13 bankruptcy must be filed before the trustee’s deed is recorded. The 15- to 45-day window offers an opportunity, but it requires swift action. A bankruptcy attorney should be consulted immediately to determine the best course of action.

3. Eligible Bidders and Notices:

   • If eligible tenant-buyers or nonprofit organizations file notices of intent to bid, the window can be extended up to 45 days. Homeowners and their attorneys need to track this information, which is posted online by foreclosure trustees under CC 2924m(d).

Conclusion: A New Tool to Save Your Home

The new changes to California’s foreclosure law offer hope to homeowners even after a foreclosure sale has taken place. By understanding the timelines and leveraging a Chapter 13 bankruptcy filing during the statutory window, homeowners may be able to halt the foreclosure process and save their homes.

If you are facing foreclosure or have already been subject to a foreclosure sale, it’s essential to act quickly. Contact the Vokshori Law Group today to explore your options, including the possibility of filing for Chapter 13 bankruptcy, and take advantage of this new legal tool that could save your home.

For more information or to schedule a consultation, call us at (855) 855-2608 or visit www.VokLaw.com.