I. Introduction - The threat of a borrower’s bankruptcy always hangs over lenders’ attempts to foreclose on real property. But until now, lenders have become accustomed to believing that once the gavel comes down, the threat of bankruptcy has been eliminated. A recent decision by the Bankruptcy Court for the Central District of California throws that belief into doubt.
In In re Gonzalez, Judge Mark S. Wallace held that a borrower’s bankruptcy petition can void a trustee’s sale even if the petition is filed after the trustee’s sale has been completed, as long as the borrower files before the execution of the trustee’s deed upon sale. The Gonzalez decision is not binding precedent on any other court, but it is a wake-up call to California lenders, foreclosure sale bidders, and trustees that a trustee’s deed should be recorded as quickly as possible after any sale, and that further legislative action may be needed to clarify California’s trustee sale statutes.
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