Since the real estate bubble burst in late 2007, millions of homeowners have found themselves in hot water. Declining home prices, loss of employment, illness and rising credit card debt are just a few of those circumstances. Fortunately, legal assistance is available to address and resolve many of these situations. Let’s take a look at some examples of common scenarios and what can be done.
Example #1: Your home mortgage payments are current, but you have accumulated substantial credit card debt that is making it difficult for you to meet the mortgage payments. Chapter 7 bankruptcy may be an option for you to discharge your credit card debt. Note that there are income limits for filing Chapter 7, based on household size. Also, the amount of your home equity needs to be accurately determined and analyzed to see whether it exceeds the amount of your homestead exemption.
If your home equity is excessive, and you file for Chapter 7, the bankruptcy trustee appointed by the court to administer your case may decide to list your home for sale, and use the sale proceeds to pay your creditors and to pay himself a commission.
Example #2: You are behind in your home mortgage payments, and have a foreclosure pending against your home. Filing a Chapter 7 petition initially will stay (stop) the foreclosure.
However, your foreclosing mortgage lender is entitled to seek court approval to vacate (set aside) the stay, and would then proceed with the foreclosure. This may be a good option if you are not looking to keep your home, and you want to discharge the mortgage debt and any other debt which you may have.
Example #3: You are behind in your home mortgage payments but want to keep your home.Filing a Chapter 13 will initially stay any foreclosure pending, and if you and your attorney are able to construct an acceptable plan, you would be allowed to keep your home. Preparing a Chapter 13 plan which is confirmable by the court requires that you show that you are making sufficient income after payment of your regular mortgage payment and your allowable living expenses, to be able to pay your mortgage arrears in full over a period of three to five years. Additionally, if you have a second mortgage on your home, and the combined balance due of both mortgages exceeds the provable market value of your home, your Chapter 13 plan may propose to strip off the second mortgage as a lien on your home. Also, New Jersey bankruptcy courts have recently implemented a mediation program for your benefit.
Example #4: You do not qualify to file a particular chapter of bankruptcy, or you do not want to file bankruptcy. Your home is worth less than what you owe on your mortgage. You no longer want to keep the home, yet you are not able to sell it for a sufficient price to pay the realtor commission, mortgage payoff and other closing costs. You can request that your mortgage lender accept less than the full mortgage payoff. This is called a “short sale”. Your lender will require you to submit financial information, such as paystubs and tax returns, to determine whether it is willing to take a loss on its mortgage. If your lender agrees to the short sale, you will have a limited time to close title and remit the payoff to your lender. It is important that the document from your lender confirming the short sale state that you will have no further liability that survives the closing of title. Please note that if you have more than one mortgage, you will need to get both lenders to agree to the short sale. It is usually important that there be some funds left over for the second mortgage holder in order to have that mortgage discharged. Again, it is important to confirm with both lenders that you will be released from liability under the note or credit line agreement as a part of the short sale transaction.
Example #5: Same facts as Example #4, but your mortgage lender does not want to wait for you to arrange and complete a short sale. You can offer to give your lender a deed in lieu of foreclosure. This means that you are deeding the property back to the lender. This may not be a viable option if you have judgments against you which are liens against your home. Also, it is important that you obtain a release from liability from your lender at the time that you are providing the deed in lieu of foreclosure. Otherwise, as occurred in a recent New Jersey case, the lender may sue you for any loss that it incurs in reselling your home.
Example #6: You are behind on your mortgage payments, and your lender commences foreclosure proceedings against your home. If you have any source of funds, you can propose a reinstatement of your mortgage by paying the arrears. For example, if you are three months behind on your mortgage, you could suggest to your lender that you will cure this arrearage by paying one and one half mortgage payments per month for a period of six months. This would allow you to bring the mortgage current. This is a little easier when foreclosure has not yet been filed, and the lender’s attorney has not accrued legal fees or costs on the case.
Example #7: You may elect to contest your foreclosure. Again, an attorney who is familiar with the current issues in the mortgage lending industry will be able to review your closing documents and procedures to determine whether there are any flaws that would provide you with a defense to the foreclosure, or a claim against your lender. Development of a strong response to the foreclosure complaint can open the door to a possible loan modification. Please note that in order to obtain a loan modification, you do need to be working or have proof of other income sufficient to make meaningful monthly payments to your lender. You should be aware that the New Jersey court system offers mediation in all foreclosures of owner-occupied residences. Again, you must submit financial information to your lender through its foreclosure attorney to allow your lender to evaluate whether your mortgage can be modified so that the foreclosure can be dismissed.
There are many variations on these examples, which are intended to be some of the plain vanilla situations that a homeowner may face.
It is important that you steer clear of predators and fraudsters that tell you that they can solve everything, take an upfront payment from you and then disappear. One typical scam involves the transfer of your house to a third party, while allowing you to remain in the property for some period of time, possibly rent free, and with the promise that you will have the opportunity to buy back your home. I have not seen one of these transactions that was legitimate. Rather, the intention is to deprive you of your equity in your home, and to put you out on the street. This is commonly practiced upon senior citizens.
The above information does not constitute legal advice. It is provided for illustration purposes only. Every individual situation is fact specific. Retaining an attorney is the starting point. It is crucial that your attorney conduct a detailed interview with you at the beginning, to understand your situation and to give specific advice. It may be that some non-legal approach is warranted, such as debt consolidation, and a reputable attorney will not hesitate to tell you that as well. Please note that the provision of information on a website does not create an attorney client relationship. Kindly contact this office any time for further information and assistance with your real estate issue..
Copyright 2012 by Charles D. Whelan III, Esq.