Home Foreclosure And How It Works

The Pew Research Center reports that in 2008  about 2.3 million foreclosures were filed in the United States. In the same year, the number of bankruptcies increased to 1.06 million, a big jump from the 801,840 bankruptcies filed in 2007. During the same time, one of the biggest lending companies -Lehman Brothers- was undergoing a Chapter 11 bankruptcy with assets worth over 600 billion. Ever since the recession in the United States, corporate giants that have filed for bankruptcy including the Washington Mutual and Tribune Group have shocked the U.S economy. The market crash resulted in a spike in bankruptcy filings due to home foreclosure. A home foreclosure is something that a homeowner never wants to come across. Fortunately, the harsh economic conditions of the recession were addressed with changes in foreclosure laws that provide the lender with ways to prevent a foreclosure.

When a homeowner receives news of a foreclosure there are a number of things that a homeowner can do to. If the homeowner has no intent in keeping the home, he or she may choose to do nothing. A homeowner that does not have the ability to pay for their home, may allow a foreclosure to occur with no objection. If your financial situation prevents you from addressing a foreclosure, then you may not want to contact an attorney. An attorney can help individuals fight a foreclosure, but if you wish to give up the house there is no reason to fight the cause. However, if you have been forcefully removed from your home or the locks to your home have been changed before your home is bought, then you may require the attention of an attorney. In this situation, an attorney can help get you back into your property so that you may retrieve your belongings.

In another instance, a homeowner may choose to fight the foreclosure by establishing a payment modification program with their loan provider. To address the United States mortgage crisis between 2007 to 2009, the government mandated the Making Home Affordable (MHA) program that aimed to reduce the number of foreclosures. Homeowners and loan providers could find relief in a loan modification program that allows the debtor to modify the provisions of their contract. If the homeowner has the capacity to pay their mortgage, but they are living paycheck to paycheck or they have undergone a change in earning potentials, they may modify their mortgage payment program.

Homeowners can speak to their mortgage loan provider about modifying a payment program that helps address any late payments. Negotiating through a loan modification will allow the homeowner to formally request a lower monthly payment. However, loan modifications may not always be honored especially if the homeowner is unable to satisfy late payments.

Debtors who are undergoing a bankruptcy may also prevent a foreclosure through automatic stay protection. Homeowners who are filing a Chapter 13 may establish a payment program to include their mortgage. Debtors that are on time on their payments may include any future payments on their loans as part of their Chapter 13 payment program. In addition, the homeowner may pay mortgage arrears through a repayment program that is adjusted to their earning potentials. If you have the capacity to pay a mortgage you may want to consider a Chapter 13 bankruptcy. A bankruptcy will prevent a foreclosure and will buy you some time to deal with your debts. Through a Chapter 13 bankruptcy, the debtor will be protected by automatic stay laws that prevent debt collection including foreclosure giving the debtor time to sort out their finances. Through a Chapter 13 bankruptcy, you may be able to create a debt settlement program that allows you to pay any late fees over a three to five-year payment program. If you wish to save your home while receiving bankruptcy protection, your best option would be to discuss a Chapter 13 with a bankruptcy attorney.

On the other hand, a Chapter 7 is appropriate if you face foreclosure and you wish to relief some debt. If you know that you are heading towards a bankruptcy and you understand that you cannot keep up with mortgage payments, a Chapter 7 will allow you to live in your home until you settle your bankruptcy.

When you file a Chapter 7, your property is liquidated which means that the earnings of your estate will be used to pay off your creditors. In some states, if the property is sold for lower than the amount of your mortgage loan, you may be required to pay the deficiency. The deficiency is calculated by finding the difference between the earnings of the sold property and the mortgage loan. For instance, if your property was auctioned at $400,000 and your mortgage loan including fees amounts to $500,000, you may be required to pay the difference ($100,000).

If you are a homeowner that is considering a bankruptcy, you are advised to consult with an attorney before you submit any paperwork to the bankruptcy court. Homeowners have much to risk when they file a bankruptcy, speaking with an attorney will allow you to make a sound decision before you file a bankruptcy. Homeowners filing a Chapter 7 may be able to keep more than they think. To have a clear depiction of your case, you are encouraged to speak with a local bankruptcy attorney.  

Do I have rights as a homeowner facing foreclosure?

When a homeowner is facing foreclosure there are a number of regulations that guide the procedure. The Homeowner Bill of Rights took into effect in California on January 1, 2013, and mandated certain protections for homeowners facing foreclosure. Under the California Homeowner Bill of Rights, homeowners have the following protections:

  • Restriction on dual track foreclosure: homeowners that have entered a loan modification with their loan provider are protected from foreclosure. Like with automatic stay in bankruptcy, a loan modification offers homeowners protection from their mortgage loan providers. As long as the homeowner is negotiating and sticking to their loan modification program, the mortgage loan providers cannot pursue a foreclosure procedure. However, if you fail to abide by your agreement or fail to produce a program that works given your financial situation, your only option may be let go of the property.
  • Guaranteed single point of contact: prior to this law a homeowner had to notify and work with different individuals involved in the foreclosure. This law allows owners to have one point of contact which can facilitate the collection of paperwork and other facts of your case and provide the decision on your loan modification application.
  • Documents must be verified: mortgage services are required to file verified documents. Filing unverified documents can result in penalties that can range up to $7,500.
  • Tenants have the right to receive notice of an eviction at least 90 days before an eviction proceeding. Mortgage loan providers will be required to adhere to any fixed leases that may allow a tenant to live in the property after the sale of the property.

Homeowners have certain rights outlined in the Homeowners Bill of Rights. If there is a violation of the foreclosure procedure or there has been a mistake on the behalf of the lending party, you will want to speak with an attorney. Violation of procedures may help eliminate certain charges and can result in a loan modification. In other cases, if your homeowner rights are violated you may claim damages.

What is non-judicial and judicial foreclosure?

Judicial Foreclosure: Depending on your state,  a mortgage loan may be required to file a bankruptcy through a lawsuit. A judicial foreclosure occurs when the mortgage servicers file a lawsuit in the courts. If you are in states like Illinois, Indiana, Kansas, Kentucky, Louisiana, Maine Maryland, Massachusetts, mortgage services may not proceed with a foreclosure without going through a lawsuit. A lawsuit allows the debtor to defend themselves in a courtroom from foreclosure usually resulting in a loan modification with their mortgage provider. In addition, the homeowner will have the “right of redemption” which allows the homeowner to buy his or her property back after it has been auctioned. Judicial foreclosures are rarely pursued due to their costly nature and especially when mortgage servicers have the option to pursue a non-judicial foreclosure.

In addition, a mortgage loan provider may pursue a judicial foreclosure to establish a deficiency. A deficiency is established by finding the difference between the earnings of the property at auction and the amount that is owed on the mortgage loan. A mortgage loan provider that has provided a second mortgage loan may pursue payment for the new loan.

Non-Judicial Foreclosure: A non-judicial foreclosure occurs more frequently than judicial foreclosures. In most cases, a non-judicial foreclosure is more cost and time effective so if mortgage loan servicers have this option, they will usually pursue a non-judicial foreclosure. If you are facing a non-judicial foreclosure your right to maintain your property is honored if you enter a loan modification program. However, if your property is auctioned, you may not be required to pay a deficiency. In most states, lenders that enter a non-judicial foreclosure, give up the right to collect a deficiency.

Homeowners and Bankruptcy

Homeowners that are facing a foreclosure may prevent having their property from being auctioned when filing for bankruptcy. When a debtor files a Chapter 7 bankruptcy the foreclosure and eviction procedure cease until the completion of the bankruptcy. When a debtor files a Chapter 13 bankruptcy the foreclosure and evictions procedures are also brought into a halt. The difference is that if a homeowner files a Chapter 13 they will be capable of keeping their property unlike a Chapter 7 which results in the liquidation of their properties.

As mentioned earlier, a mortgage program can be included in a Chapter 13 payment program which can include any late payments that a homeowner may owe. The Chapter 13 payment program allows debtors to maintain their program and pay their mortgage with a payment program that works around their earning and paying potentials.

In addition, Chapter 13 allows debtors to strip their property of second or third mortgages. A lien strip can be processed when the first mortgage loan is worth more than the property. Homeowners can turn their second mortgage into unsecured credit if the value of their home is more than their first mortgage loan. For instance, if your current home is worth $400,000 and your first mortgage loan is $450,000, then you may strip a second mortgage that is under the value of the property.  If your property devalued and you owe more than your property is worth, you may want to speak with an attorney about stripping a second mortgage.

What is the process of a foreclosure?

There is a certain procedure that occurs when mortgage loan providers want to proceed with a foreclosure. The California Courts provide the following;

  • First, a mortgage loan provider must contact the homeowners to discuss ways in which the loan can be modified. The loan provider must wait at least 30 days to continue with a foreclosure after contacting the homeowner. In addition, the homeowner is capable of requesting another meeting to discuss ways to avoid foreclosure.
  • Second, the loan provider must send out a Notice of Default if the homeowner fails to work out a plan. The mortgage loan provider may send out a Notice of Default after thirty days after calling you the first time about the foreclosure.  
  • Third, the loan provider must serve a Notice of Sale at least 90 days after the Notice of Default
  • Fourth, the property cannot be auctioned until 21 days after the homeowner receives Notice of Sale

To learn more about foreclosure and of ways that may help you retain your property, you will want to speak with a local attorney. Foreclosure laws differ from state to state meaning that the procedure and certain rights are different in every state. If you are a homeowner in the state of California, you are encouraged to speak with the Bankruptcy Attorney at 424-285-5525.