Unfortunately, many homeowners simply don’t know what to do when they are in foreclosure. I get many emails asking me, “Will filing bankruptcy stop foreclosure?”
Well, yes and no!
Many homeowners will file for Chapter 13 specifically to stop their sale date. Only to find out later, that their mortgage is not included and now they may have both on their credit reports. In most cases, when you file BK, an automatic stay is granted prohibiting your creditors from attempting to collect or contact you.
However, the automatic stay and the stopping of the foreclosure is ONLY temporary.
More often than not, a creditor such as your lender can get around the automatic stay by asking the courts to remove (“lift”) the stay because it is not legally binded to the proceedings.
In many cases a homeowner will shell out $2,000-$3,000 to file an emergency BK the day before their property is to be sold at the notice of trustee sale. Often there is no equity in the home and there is no way for the borrower to come up with the full amount owed to their lender and in some cases, the homeowner is jobless.
This is a really common scenario. The banks know this and their lawyers understand this like the backs of their hands. And like clock work, shortly after you file for bankruptcy, the lender will ask for permission to proceed with the foreclosure and quite often (since it is the law), the foreclosure proceeds.
Now the person is stuck with two HUGE black marks on their credit and the are probably mentally depressed?
What you need to understand is that if you have a second mortgage then there are different rules that may apply and help you in your mission. More on that at the end of this post. But if you just have a first mortgage and you decide to file, if is is before the foreclosure sale date, a bankruptcy will stop the foreclosure sale from taking place.
However, under a Chapter 13 plan, you will be required to make regular monthly payments on your mortgage once the automatic stay is lifted. You will then be given a reasonable period of time to bring your mortgage payments up to date to save your property.
Obviously this is a temporary fix and if you have no way of paying your mortgage or it will be very difficult, then maybe this is not an option for you to choose. Bankruptcy may be the best solution for a lot of extreme financial hardships.
However, it should be used as a last resort due to its limiting protections for homeowners with a first mortgage and the long lasting consequences to your credit.
For more information on foreclosures, consult with an attorney experienced in bankruptcy law.
If you own a home with more than one mortgage, you may be able to completely remove or “avoid” the second and subsequent junior mortgages from your home and county records, thus leaving only the first original mortgage!
To qualify for this defense, the court will generally require objective evidence that the home is appraised for less than the value of the initial mortgage, which can be obtained through a county property appraisal or through a third party certified appraisal that is accepted by the court.
In an environment where home prices in most markets have fallen at least 30%-50%, many borrowers may qualify.
If the courts remove this 2nd mortgage, this is known as “stripping” the lien, “cram down” or “strip down,” which can also occur if the loan is secured by other collateral that is part of the filing or if the home is not your principal residence, or even if the payment structure on the 2nd mortgage falls heavily during the bankruptcy filing itself.
Ultimately, working with a qualified tax, real estate attorney and or experienced real estate bankruptcy lawyer will help you present your case to the Federal bankruptcy court, so it’s important to get qualified legal advice in advance of any filings.
Please read the many more blog posts below on cram downs and second mortgages!!
Would you like a free consultation with experienced mortgage bankruptcy attorneys?
If you are in the state of California, please call the Law Offices of Fransen & Molinaro at (888)756-2652 or visit their website at www.ModifyLoan.net
If you are in the state of New York, please call the The Radow Law Group, P.C. at (516) 338-7800 or visit their website at www.NewYorkLoanLaw.com
If you are in the state of Michigan, please call The Law Offices of Shannon Shaya, P.C. at (248) 789-5551 or visit their website at www.MichiganLoanModification.net
LoanWorkout.org is searching for attorneys who would like to be included on our blogs and advertisements to help homeowners with bankruptcy, loan modifications and foreclosure defense. Please contact moe at moeseo.com or call 888-516-1116 for more information.
LEGAL DISCLAIMER – The comments, posts, threads and material on this websites are NOT to be taken as legal advice and we highly recommend that anyone facing foreclosure should seek the counsel of an attorney and or an accountant. ALWAYS obtain a second and third opinion on your particular situation from a trusted source.