The foreclosure sale is tomorrow!

You’ve decided to press the panic button. The auction of your home is scheduled for tomorrow. For the past two weeks, you’ve had strangers call you on the phone and knock on your door asking you to buy your house from you for some paltry sum. They talk to you like you’ve already lost your home. “Take this $10,000,” they say, “at least you’ll be able to walk away with that.” If you listened to me earlier and got ahead of this, maybe even when you first fell behind on your mortgage, you would not be in this predicament. But you are, and there’s no sense in dwelling on what you could have and should have done. It’s too late for that.

Here are your three options: 1) The always popular “do nothing.” 2) File an order to show cause to get a stay of the auction. 3) File bankruptcy.

You already know what’s going to happen if you choose the “do nothing” option. In the place designated by the court, usually a large courtroom at the Supreme Court in the county, a clerk and a court-appointed referee will auction your house off to the highest bidder. The bank or a third party will be the highest bidder, a closing will take place thereafter, and the new owner will evict you from your home if you haven’t left on your own.

The second option, the order to show cause, used to be the most popular option. The courts (especially those in New York City and Long Island, where I practice) used to be super borrower-friendly. Foreclosure defenses were being raised for the first time and case law was still developing. You definitely could go into court the day before the sale, get a stay for a month or two, maybe more, and try to figure out what you’re going to do next. Now, the order to show cause is played out. Judges are wise to the fact that a borrower is just trying to stay a sale and do not believe that a borrower just found out about the sale the day before the sale. Judges now have a healthy fear of being reversed on appeal for staying a sale with no good reason. There is so much borrower notification built into the foreclosure process that the courts are unwilling to prolong the process further because a borrower failed to use any of the resources presented to the borrower along the way. These days, judges routinely decline to sign orders to show cause. Borrowers are not getting their stays. Some attorneys will nonetheless advise that this is the way to go. I’ll respectfully disagree except in the rarest of situations.

Which leads me to your third and final option: bankruptcy. Your first time filing bankruptcy provides you with an automatic stay of the enforcement of any debts that you list on your bankruptcy petition, which is going to include your house and the mortgage or mortgages that you have on your home.

Everyone still manages to screw this up, though. They run to the courthouse, without an attorney, the day before the sale. They fill out a “skeletal” petition (there’s no real content in it), pay their fee, and send a copy of the confirmation of filing to the attorneys representing the bank. The attorneys are forced to cancel the sale.

Temporarily. It’s actually more of a postponement than a cancellation unless you do this right.

If you keep your skeletal petition on file, you’ll get a notice from the bankruptcy court that you have to fill out your schedules. You know, actually participate in the process. You won’t know what to do, so you’ll do what you know how to do, which is nothing. That’s how you got to this point, right? By doing nothing?

When you don’t properly complete your petition, the bankruptcy court will dismiss your case. Your bank’s attorneys have been closely following your bankruptcy case, and will know the exact moment that your case is dismissed. They will pounce back into action and reschedule the auction of your property. You could have as little as 5 weeks after the dismissal of your bankruptcy case before the new auction.

So what do you do? You file another bankruptcy, of course! You’re getting better at this now – you know where to go, how much it’s going to cost, how to properly file the petition. Most importantly, you have the notification to the bank’s attorney down pat. You do the same thing again, and the court again dismisses your case for failing to do anything in it.

By the way, if you were trying to sell your house to recoup some of your equity, you’re not allowed to sell your house while you’re in bankruptcy. You need a bankruptcy court order for that.

All right, so we’ve had two bankruptcies filed and dismissed. In another few weeks, the bank’s attorneys have another sale scheduled. You file your third bankruptcy and notify your bank’s attorney, but this time, the bank’s attorney doesn’t cancel the sale. The auction occurs! What?!

There’s a rule in the bankruptcy code about repeat filings. The second bankruptcy case that you file within the year will still have an automatic stay, but the automatic stay is lifted after 30 days unless you make a motion to continue the stay. You didn’t know that, and you didn’t care, and your bankruptcy got dismissed anyway. On the third bankruptcy filing within the same 365 days, there is no stay.

There. is. no. stay.

Now, you may be able to slip something by an unwitting bank attorney who isn’t paying attention or who has too many files to handle to keep track of these sorts of things, so they just cancel the sale again. You can’t rely on someone else’s incompetence, though. You have to do what’s best for you.

So what do you do?

Your first bankruptcy filing should have been accompanied by a request to engage in loss mitigation. This is another type of settlement conference, similar to the one that you had in state court. It’s better though because federal judges are lifetime appointees and they’ll just keep a case as long as they think or believe or aspire to come to a settlement. It’ll take so long that even if you end up getting denied for loss mitigation and the court terminates loss mitigation, you won’t have to deal with the 3-bankruptcies-in-one-year rule. You could, in theory, keep this string of bankruptcies going in perpetuity.

If you’re already on your third bankruptcy within a year, you must get an attorney. You must act more than one day before the sale is scheduled. You should really be consulting an attorney as soon as you get served with the notice of sale. At the same time as your third bankruptcy filing is done, your attorney needs to file a motion to impose the automatic stay. You have to tell the court why this third bankruptcy filing is not in bad faith. You don’t know what a bad faith bankruptcy filing is, never mind being able to explain it to a judge, so get an attorney. Your petition must be complete this time around too. That’s part of this third filing not being a bad faith filing. Then you have to work the process as it’s designed. You may be able to get yourself out of this under the right circumstances.

Jason Sackoor is a real estate attorney in Queens, New York concentrating on foreclosure and real estate litigation. You can check out his website, e-mail him, or call his office at (718) 767-3333 to set up a consultation.