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Foreclosure Mediation: An Inexpensive Tool to Keep Homeowners in their Home

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With nearly 3 million homes lost to foreclosure and an expected additional 10 million homes in the near future, what is a troubled homeowner to do?

In February 2012, the National Consumer Law Center published its fourth report on foreclosure mediation .

They found that:

  • Foreclosure mediation programs and conferences provide substantial community benefits at little or no cost. Mediation fees average from none to less than $1,000. Yet, investors lost an average $145,000 per home foreclosure in 2008, and foreclosures just in California have resulted in nearly $500 billion in aggregate costs.

 

  • Effective mediation programs do not prolong foreclosures.

 

  • Foreclosure mediation programs should connect borrowers with housing counselors. Borrowers who receive housing counseling are much more likely to avoid foreclosure, and obtain affordable as well as sustainable loan modifications.

 

  • Not all foreclosure mediation programs are equal. All states should adopt foreclosure mediation programs with enforceable standards and robust outreach as permanent features of state foreclosure laws as quickly as possible.

 

  • Mediation programs must ensure that the FHFA’s new servicing guidelines do not lead to unnecessary foreclosures.

 

  • Strong foreclosure mediation programs can work hand-in-hand with other tools to rebuild the nation’s broken mortgage market and should be used to maximize HAMP modifications. The modified loans’ default rate over 1 year dropped from 56.2% in 2008 to 25.7% in 2010. HAMP loan modifications were the most sustainable of all with a 17.3% (2011) redefault rate after 1 year.

 

  • Policymakers can use mediation programs to help preserve minority homeownership; gains made over the last decade are vanishing.

 

Borrowers in mediation must receive accurate information about an increasingly unaffordable rental market. Renters, especially those who are low-income, are more than twice as likely as homeowners to spend more than 50% of income for housing. Mediation programs should refer all homeowners to housing counselors to evaluate the costs of renting before giving up on saving a home.

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“Automatic” Protection from Your Creditors

Many bankruptcy attorney ads say: “Stop garnishments.” “Stop foreclosures.” “Stop repossessions.” So bankruptcy stops all those bad things. But is it as good as it sounds? How does it really work?

 

In my last blog I said that in keeping with getting a fresh start for the new year, I’d get down to basics.  There’s nothing more basic than getting immediate protection for you, your paycheck, your home, and your possessions. You get this protection the minute a bankruptcy is filed for you, either a “straight” Chapter 7 case or an “adjustment of debts” Chapter 13 one. Other than some very rare exceptions, all efforts by creditors against you or your property must come to an immediate stop. You’ll hear this referred to as the “automatic stay.”

“Stay” is just a legal word for “stop” or “freeze.” “Automatic” means that this “stay” goes into effect simultaneously with the filing of your bankruptcy petition. That filing itself, by virtue of the federal Bankruptcy Code, “operates as a stay” of virtually all creditors’ actions to pursue a debt or grab collateral. It doesn’t take a judge signing an order or even any further action by you or your attorney to impose the stay.

But although the automatic stay is instantaneous, practically speaking the creditors need to know about the filing of your case so that they can abide by the stay. Assuming your creditors are all listed in your schedules of creditors, they should all get informed by the bankruptcy court within about a week or so after your case is filed, without any additional action by either you or your attorney. If you are not anticipating any action against you by any of your creditors sooner than that, usually letting them all be informed by the court is appropriate. But if do expect some quick creditor action, be sure to talk with your attorney about it so you’re both on the same page about informing that creditor.

But what if a creditor unexpectedly takes some action in the days after your bankruptcy is filed but before it finds out about it? The automatic stay is so powerful that if this does happen, the creditor must undo whatever action it took against you, even if it did not know about your bankruptcy filing. So if after your bankruptcy is filed, a creditor, for example, files a lawsuit against you or turns its earlier lawsuit into a judgment, that lawsuit must be dismissed or the judgment must be set aside.

In my next blog I’ll tell you about how long this automatic stay protection lasts. If you can’t wait until that blog, give me a call or set up an appointment to see me. I’ll tell you all about it personally.

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Final Reasons to Get Legal Advice Before Deciding to Sell Your Home

Bankruptcy gives you a wide range of tools that can help you keep your home or sell it on your own schedule. Many of these tools provide surprising advantages for you. Especially when it comes to your home, know your options before you make decisions.

This is the last of a series of three blogs covering ten reasons why you should get advice from a bankruptcy attorney before selling your home. Here are the final four of those reasons.

1.  Want to Pay off Ex-Spouse: After going through a divorce, you are often required to sell the marital home to pay off your ex-spouse. In most circumstances, debts that you owe from a divorce are not written off by a bankruptcy. But sometimes they are. And even with debts that are not written off, bankruptcy can affect the timing of payment or favor you in other ways. Divorce is often such a traumatic process. Even if during the divorce you received advice about how a possible future bankruptcy filing would affect the terms of your divorce, understandably you may not remember that advice. And frankly, many divorce attorneys do not understand bankruptcy enough to give thorough advice about it. You do not want to base decisions about your home without advice about your options, or, often worse, with incomplete advice. So now, before you sell your home to pay off your ex-spouse, get that advice, from a competent bankruptcy attorney.

2.  Need to Pay off Property Taxes, Homeowners’ Association Dues: Creditors with the strongest rights against you and your home include your county or similar governmental entity which collects your property taxes, and your homeowners’ association. So you may feel powerless in dealing with them if you fall behind on paying them, especially if they are threatening to foreclose on your home. Bankruptcy can give you a leg up on fighting them, and so find out about this before you are pushed into selling your home to pay them off.

3.  Selling to Avoid a Foreclosure: You’ve likely heard that the filing of a bankruptcy stops a foreclosure. And you probably know that Chapter 7 and Chapter 13 each deal with foreclosures differently. The truth is that every homeowner who is facing a foreclosure has a unique set of circumstances, and requires and deserves an individual analysis. Bankruptcy gives you many different combinations for addressing the issues you’re facing. Only by being informed about and thoroughly understanding those options can you make the right choices about whether and when to sell your home, and how all these fit into your whole financial picture.

4.  Can’t Afford an Attorney: If you’re selling your home because you believe it’s the best way to deal with your debts, and you can’t afford to pay an attorney to get legal advice about that decision, consider the following. A decision about your home is likely about your biggest asset and your biggest debts. I assume you agree that if you could get solid, practical advice about that, you would do so. Since I do not charge for my initial consultation, I can give you that advice. Let me help you create the best possible game plan for dealing with your home.

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Choosing the Right Medicine for Saving Your Home through Bankruptcy

Both Chapter 7 and Chapter 13 stop a foreclosure of your home. One or the other COULD be better for you, but which one is it?

Many considerations come into play in deciding whether a Chapter 7 or 13 is better medicine for you.  I could list literally dozens of possible ones. Focusing here just on factors involved in saving your house, there are still lots of advantages and disadvantages to each one. The answer turns on your unique circumstances. Lawyers are sometimes given a bad time for seemingly answering every question with “it depends.” But when it comes to your home and your financial well-being, the fact is that what you want and deserve are what is best for you in your unique circumstances. You don’t want a cookie-cutter answer but rather one that does in fact “depend” on your individual facts and on your personal financial goals.

Let’s assume that after looking at all the other aspects of your financial life, the choice between the two Chapters comes down to how that choice impacts on your house. And let’s also assume that this is a house in distress, where a foreclosure is already scheduled or is just around the corner.

In one sentence, the key difference between Chapter 7 and Chapter 13 is that the first one generally buys you a relatively short time while the second one buys you a much longer time.

So that leaves as the main question whether—in your unique situation—a Chapter 7 would buy you enough time, or if you instead need the much stronger medicine of Chapter 13.

Chapter 13 deservedly has the reputation of being the home-saving chapter of bankruptcy. But every day of the week Chapter 7 bankruptcies are filed which save people’s homes. If you have a sale pending on your house but you’ve run out of time with a scheduled foreclosure; if you have some money coming to cure the arrearage but again have run out of time; if you are very close to getting a mortgage modification approved or are more likely get it approved after discharging you debts in bankruptcy; or if you’ve decided to surrender the house but need a little more time to get into another home—these are possible circumstances where Chapter 7 could well buy you enough time to do what you need to do for your home.

Admittedly, these are relatively rare situations. The much more common one is that you had lost some income or had emergency expenses, making it impossible to keep up the home mortgage payments. And then you regained that income, but maybe not all of it, and now you owe a whole lot in missed payments, late charges and other fees. No way can you catch up all that in just a few months. Chapter 13 can give you as much as five years to do so. Chapter 13 can also buy you much more time to sell your home, such as to get to a better selling season, or even maybe to allow a kid to finish high school. Chapter 13 can also be much better at dealing with other house-related debts, such as property taxes, second mortgages, and income tax liens. As I said, these choices depend on your unique set of circumstances.

You can build a nice gingerbread house out of cookie-cutters. But when it comes to your home, and you and your family’s well being, get the advice of an experienced attorney. Nothing gives me more satisfaction than helping save a family home. Let me help you make the very best choices about yours.

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Stopping the Foreclosure of Your Home Temporarily and Permanently through Bankruptcy

Both Chapter 7 and Chapter 13 can help you save your home. Which one is better for YOU?

You have almost for sure heard that the filing of a bankruptcy stops a foreclosure. You may have also heard that Chapter 13—the repayment version of bankruptcy—can be a good tool for saving your home in the long run. Both of these are true, but are only the beginning of the story. This blog today tells you more about stopping a foreclosure. My next blog will get into longer term solutions.

The “automatic stay” is the part of the federal bankruptcy law which immediately blocks a foreclosure from happening. The very act of filing your bankruptcy case “operates as a stay,” as a court order stopping “any act to… enforce [any lien] against any property of the debtor…  .”

But what if your bankruptcy case is filed and the mortgage lender or its agent can’t be reached in time so that the foreclosure sale still occurs? Or if there’s some miscommunication between the lender and its agent or attorney, with the same result? Or if the lender just goes ahead and forecloses anyway?

As long as your bankruptcy is in fact filed at the bankruptcy court BEFORE the foreclosure event, then that foreclosure is not legally valid, whether it occurred by mistake or intentionally. (This filing “at the bankruptcy court” is usually actually done electronically from my office, with a date and time-stamped record proving when the court filing took place.)

IF a foreclosure happens by mistake after the filing of your bankruptcy, lenders are usually very cooperative in legally undoing the foreclosure and its documentation. If your lender would fail to undo such a foreclosure after becoming aware of your bankruptcy filing, it would be in ongoing violation of the automatic stay, exposing itself to significant financial penalties. That would be rare.

Does it matter whether your bankruptcy case is a Chapter 7 or Chapter 13 one for purposes of the automatic stay?

No, the automatic stay is the same under both Chapters, and would have the same immediate effect.

On the other hand, how long the protection of the automatic stay lasts can definitely depend on which Chapter you file. That’s because even though you get the same automatic stay, the other tools each Chapter gives you for protecting your home are very different. So your mortgage lender may very well react quite differently depending on the Chapter you file, as well as on what you propose to do about your home and your mortgage within that Chapter. I’ll write about those options  in my next blog.

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Buying Just Enough Time for Your Home with a Chapter 7 Straight Bankruptcy

What if you are under threat of foreclosure, don’t want to keep your house, but just need a little more time to find another place to live? Or if you just need to finish a pending sale before the scheduled foreclosure happens?

Or maybe you don’t want or need the extra benefits of Chapter 13. Or you just want to put it all behind you in a few months instead of going through a 3-to-5 year Chapter 13 Plan. A Chapter 7 “straight” bankruptcy may give you just the right amount of help.

A Chapter 7 case:

1. Stops a pending foreclosure sale, at least temporarily. Depending on your situation, and the aggressiveness of the mortgage lender, it may buy you an extra few weeks or an extra few months. Chapter 7 does give you much less control over the situation than a Chapter 13, but the extra time it gives you may be enough in your particular situation.

2. It temporarily stops not just foreclosures by your mortgage company, but also by other creditors. This includes foreclosures for unpaid property taxes, homeowner assessments, or judgment lien creditors.

3. Prevents, at least briefly, most kinds of liens from attaching to your house, such as income tax liens, or judgment liens by creditors who have sued you and have not yet gotten a judgment.

So if you have a pending sale of a house which has less equity than your allowed homestead exemption, and need to buy enough time to close the sale before the foreclosure or before a new lien eats into your equity, and need to file some kind of bankruptcy to deal with your debts, filing Chapter 7 may be your best option. Or if you have resigned to losing your house but need to postpone the foreclosure to give you time to save money for rental and moving costs, again Chapter 7 could well be the best tool for you.

Because the amount of time a Chapter 7 will gain for you depends a great deal on the facts of your case, the anticipated actions of your creditors, and sometimes the behavior of your Chapter 7 trustee, be sure to discuss this thoroughly with your bankruptcy attorney. Find out if the comparatively modest help a straight bankruptcy provides is enough help for you.

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