There has been several articles in the press recently, that suggests we are about to experience a new wave of foreclosures this spring. Banks usually, try to avoid dumping their entire foreclosure portfolio at once, to prevent prices dropping so low, that it encourages even more people to default. Who wants to service a mortgage on a property that is significantly upside down?
Personally, I think we are in a longer real estate recession than many realize. A few years ago, many home buyers took advantage of low start rates, hoping their property would appreciate faster than the rise in adjustable loan rates. Unfortunately, this didn’t happen for those on the tail end of the real estate boom. Many of them, unable to qualify for the new HARP2 refinancing, choose to let their properties foreclose, rather than service loans higher than the home is worth.
So what happens when you stop paying your mortgage? After a few months in arrears, the mortgage lender starts a foreclosure process. Foreclosure is a legal procedure that involves mortgaged properties. If a homeowner defaults on his or her mortgage, by either failing to make mortgage payments or failing to follow other terms of the mortgage document, foreclosure may be the result. Usually there is a forced sale of the property at public auction; The home owner loses title, and in most cases, it is the mortgage lender who takes possession. The lender will subsequently lists the property for sale through a local real estate broker. The homeowner will face eviction.
Bankruptcy is a legal procedure that begins when an individual cannot meet all their financial obligations, and chooses to avail themselves of the protection of the bankruptcy court.
For those in foreclosure, a chapter 13 bankruptcy repayment plan may be the answer. You will still have to make your regular mortgage payments on time, but arrears can be amortized over several years. It is a solution for those struggling with both mortgage payments and unsecured debt like credit cards, because the bankruptcy can discharge the unsecured debt, and give you a chance to use that money to save your home.
Of course, that is only a good solution if the property is financially worth saving. For those with a second mortgage that is in essence, unsecured by the current real value of the property, the bankruptcy court can choose to consider this an unsecured debt, and discharge it similarly to credit card debt. That in turn improves the loan to value position on the property.
The U.S. Courts’ publication Bankruptcy Basics refers to a Chapter 13 bankruptcy as “an adjustment of debts of an individual with regular income” where the debtor works with the bankruptcy court to develop a repayment plan for the debtor to follow over the next three to five years. Upon completion of the repayment plan, the bankruptcy court will discharge any remaining eligible debts.
A Chapter 13 bankruptcy filing can stall or derail foreclosure proceedings. That’s because of bankruptcy’s “automatic stay” provisions that force creditors to the sidelines while the bankruptcy court sorts things out. The lender can petition the court to allow it to continue with the foreclosure, depending on where you are in the foreclosure process, but it should buy you some time.
The following, is from page 24 of the U.S. Courts’ publication Bankruptcy Basics:
By virtue of the automatic stay, an individual debtor faced with a threatened foreclosure of the mortgage on his or her principal residence can prevent an immediate foreclosure by filing a chapter 13 petition. Chapter 13 then affords the debtor a right to cure defaults on long-term home mortgage debts by bringing the payments current over a reasonable period of time. The debtor is permitted to cure a default with respect to a lien on the debtor’s principal residence up until the completion of a foreclosure sale under state law. 11 U.S.C § 1322(c).
Clearly, you should hire a bankruptcy attorney to guide you through this complex process. That’s why the Law Offices of Paul M. Allen is here to help you consider the advantages of a re-structuring, through the flexibility of a Chapter 13 plan.
For a free consultation, call the law offices of Paul M. Allen today.
1-877-35-NOPAY (1-877-356-6729) Glendale & Cerritos.
(This article is for information purposes only, and does not necessary reflect the company’s opinions and views on general issues. We make no warranty, prediction nor representation, nor do we assume any legal liability for the completeness of any information and its effect on any case. Each case is different and results depend on the facts of each case. Consult with and retain counsel of your own choice if you need legal advice.)