Bankruptcy expert Leon Bayer answers real-life questions.
I live in California and have a question about foreclosure and property taxes.
My house is in foreclosure. I have just one mortgage, and plan to walk away before the end of this month. I want to be out before the foreclosure sale takes place. The Notice of Default was recorded on September 19, 2012.
By my count, I received via regular mail, 12 copies of the exact same Notice of Default and Election To Sell from my lender. The same day, I received 12 certified copies of the exact same letter. In all, 24 notices mailed separately, and each one is identical. Should I be scared?
I’m also really worried about the several years of property taxes I owed. On the first page of the Notice of Default is a sentence that indicates I am responsible for the taxes. I did a Chapter 7 and got a discharge earlier this year. But I am terribly worried I’ll still have to pay the property taxes after the foreclosure sale.
I’ll take each part of your question separately. Here we go.
The Property Tax Issue
If you plan to leave the house, and don’t want to reinstate the loan, you don’t have to pay the property taxes. Here’s why.
Under California law, a foreclosure sale can be held as soon as 111 days after the date that the Notice of Default (NOD) was recorded. The NOD tells you that you have 90 days to get current on your mortgage. If you don’t, the lender may cause a Notice of Trustee’s Sale, (NOS) to be recorded after the NOD has expired. The NOS may set a foreclosure sale date no sooner than 20 days after publication of the NOS. Hence, it all adds up to a minimum of 111 days. (You can learn more about foreclosure timelines here.)
If you are completely out by the end of this month, you will be fine.
You Must Pay Property Taxes If You Want to Reinstate the Loan
Even though the NOD may have expired, you still have a legal right to reinstate your loan. The law gives you additional time to reinstate your loan by paying all sums due, up until the fifth business day prior to any foreclosure sale date.
Reinstatement, as defined in the NOD, includes everything you owed up to the date the NOD was prepared, plus everything that has come due afterwards. Here is where the property tax issue enters the picture.
Your mortgage requires you to pay the property taxes. Failure to pay the taxes is a loan default, because you were required to pay them as a condition of holding ownership to the property. A property tax default justifies commencement of a foreclosure even if your normal monthly payments are current. Here’s why that is.
Under California law, property taxes constitute a priority lien on real property. If they are not paid, the state gets an automatic tax lien against your property for the amount due. That tax lien jumps over the heads of all mortgages, and takes priority.
The thing confusing you is the statement on the NOD saying that you have to pay the taxes. That is true, but only if you are going to reinstate the loan. If you are not reinstating, don’t pay the taxes.
Your lender would love to have you pay the taxes, but you don’t have to. If you don’t pay, they have to pay the taxes after the foreclosure sale, and they can’t collect it from you.
The 24 Notices of Default
You received a total of 24 separate foreclosure notices. This is nothing to be frightened of. One copy would have sufficed, but multiple copies are good. The Post Office needs the revenue.
Leon Bayer is a Los Angeles bankruptcy attorney. He is a partner at Bayer, Wishman & Leotta, a California law firm specializing in bankruptcy. The opinions and advice in this blog post are from Mr. Bayer alone, and should not be attributed to Nolo. By answering a question on this blog, Mr. Bayer does not become your lawyer.