Get Out Of Debt

For most homeowners, bankruptcy is certainly not their first choice to save their home from foreclosure. This is for a very good reason, as the credit effects can be quite serious and its results are generally poor, at best. Many of those who file bankruptcy to get out of foreclosure find themselves right back in the foreclosure process within in months of entering bankruptcy. Putting off losing the home is obviously not the reason most homeowners file, as they will then be stuck with both a bankruptcy and a foreclosure on their credit.

Chapter 7 Bankruptcy

In any event, homeowners facing foreclosure can not include the house in a Chapter 7 bankruptcy. Chapter 7 is only for unsecured debt, such as credit cards, store cards, personal loans, and the like. The mortgage is secured by the property, so it would not be dischargeable under Chapter 7. The clause in the mortgage paperwork that keeps it from being included in a Chapter 7 case is that it states the mortgage loan is secured by the underlying collateral, the property itself. Chapter 7 does not discharge secured debt, so this combination excludes the mortgage and this type of bankruptcy from having anything to do with each other.

Chapter 7 bankruptcy may, however, serve a purpose in freeing up income that the homeowners could use to keep on top of their mortgage payment. Keeping a roof on top of their heads is much more important than financing a new television or furniture, and credit card companies who are unwilling to work with homeowners in financial trouble will have to bear the costs of their poor lending decisions. Discharging most of these types of debts can significantly free up income, which can immediately be used to pay down the arrears on the mortgage or establish a repayment plan or other workout program. Homeowners with a debt-to-income ratio too high will not qualify for these bank workout programs, so discharging some of this high-interest, unsecured debt through Chapter 7 may be a reasonable path to getting the mortgage back on track.

Chapter 13 Bankruptcy

Homeowners who want to file bankruptcy to stop foreclosure can include the house in a Chapter 13 filing, which is a reorganization of the debt with a payment plan mandated by the courts. But if the house is already too expensive, then agreeing to an expensive payment plan would not make a whole lot of sense. In Chapter 13, the mortgage payments might very well go up, because the homeowners have to pay the regular monthly mortgage, as well as a portion of the amount that they are in default. Falling behind on this type of bankruptcy almost always results in the house going back into foreclosure and sold at a county sheriff sale.

Especially if the homeowners fall behind on the Chapter 13 plan, they will be in serious danger of losing the home very quickly. Bankruptcy does not actually stop foreclosure — it only puts the process on hold and gives the owners protection under the courts to pay back what they have fallen behind. Thus, if the payments are not made as agreed, the bank will request that the courts lift the stay and allow them to proceed with the foreclosure process. And the lender will be able to proceed as if the bankruptcy never occurred, starting up right from where they left off. This can often result in a sheriff sale being scheduled very quickly, within a matter of weeks.

Filing bankruptcy to stop foreclosure is a decision that homeowners need to consider very carefully, and even potentially consult with a lawyer for approved legal advice. The only real way to get rid of the mortgage and no longer worry about the property is find some way to sell the house, give a deed in lieu of foreclosure, or have it be foreclosed on by the bank. The county sheriff sale will eliminate the mortgage liens and transfer ownership of the property. The homeowners will have to deal with a foreclosure on their credit for 7-10 years, though. There are no easy decisions during the foreclosure process, of course, but the possibility of facing foreclosure and bankruptcy on the same house should be avoided.

In the wake of Hurricanes Katrina, Rita, and Wilma in 2005, many agencies of the federal government imposed foreclosure moratoriums, including HUD, the VA, the Rural Housing Service, Fannie Mae, and Freddie Mac. New foreclosures were held off on, while foreclosures already going through the court system were postponed in an attempt to encourage servicers and lenders to work more closely with homeowners to help them save their homes. After all, a foreclosed home is good business for servicers, but an abandoned, destroyed, flood-damaged home is an opportunity to negotiate loan modifications and other solutions.

In the event of a disaster, Fannie Mae requires foreclosing servicing companies to reconsider evicting homeowners, especially if there is a lack of available housing. If the mortgage servicer and its attorneys decide not to proceed with an eviction, they may charge the former owners rent on a month-to-month basis, depending on what the borrowers can afford.

Having a full foreclosure or a bankruptcy on one’s credit report is typically fatal to new mortgage applications for the first two years after the incident.

A deed in lieu of foreclosure is viewed as just one small step below having a full foreclosure. Thus, the main benefit of the deed in lieu is to transfer the property sooner and get through the two-year period where it will be almost impossible to obtain a new mortgage.

If a mortgage is held by the federal government or insured or guaranteed by it, certain regulations determine how servicing companies should proceed with foreclosure. If these procedures are not followed, homeowners may have more defenses to foreclosure, including a full legal defense based on the servicer’s failure to offer assistance or service a loan properly.

Although many attorneys and homeowners feel that the power of sale clause used in deeds of trust in nonjudicial foreclosure states deprive homeowners of due process, courts feel differently.

They have ruled that, because the agreement is between two private parties (the bank and the borrowers), there is no due process protection. Only if there was a state actor would due process protections be granted to homeowners. Of course, banks are given a protected monopoly by the government to create money (legal tender) based on nothing (fractional reserve banking), which would usually be a state action — but this is conveniently ignored.

The following is a list of protections homeowners have if their loan is insured by the Federal Housing Administration (FHA). Lenders must meet these requirements to begin foreclosure:

1. Three monthly payments are due
2. Foreclosure is not allowed if the default is based on a missed escrow payment that is due in a lump sum
3. Notice of default must be sent to the borrowers before the second month of delinquent payments
4. Before the third payment is missed, the lender must make an effort to arrange a face-to-face meeting with the borrowers
5. In many situations, the lender must accept partial payments if the homeowners are able to make them

For mortgage insured by HUD, there are two types of special forbearance plan. The first type must include a repayment plan that lasts for at least four months after payments have been suspended for a period of time. During the period of suspended payments, homeowners may be required to make partial payments. The second type of forbearance allows for a short-term repayment plan to be combined with a partial claim or a loan modification.

A partial claim is not widely known and is rarely used by homeowners to stop foreclosure on their properties, and for good reason. Look at the list of requirements for this government assistance:

1. Have a mortgage insured by HUD
2. Be at least four months behind in payments
3. Total arrears must add up to less than twelve months of payments
4. Must be able to make full monthly payments
5. Loan modification or special forbearance will not solve the problem

With HUD loans, a partial claim may be used by homeowners who have filed for bankruptcy to stop foreclosure (either Chapter 7 or Chapter 13). However, a mortgage modification may not be used with a partial claim.

One of the reasons that HUD distorts the housing market is through its payments to homeowners and lenders for performing certain tasks related to preventing foreclosure. For instance, pre-foreclosure sales can net homeowners up to ,000; deed in lieu of foreclosure will net ,000 for borrowers. Lenders can receive 0 for each special forbearance, 0 for loan modifications, 0 for partial claims, ,000 for a pre-foreclosure sale, and 0 for a deed in lieu.

When preparing a workout application, families that have one parent at home taking care of children need to explain this to lenders who may look unfavorably on the fact that both parents are not working. Comparing costs of childcare to income from a potential job should be done to show the mortgage company that staying at home is more cost effective.

Homeowners who have been blatantly taken advantage of during the mortgage process may have a defense to foreclosure based on the unconscionable contract. There are a number of factors that can point to unconscionability in a loan, and homeowners should do their research or hire a qualified attorney to help them, but the following list of five signs to watch out for may be a starting point for borrowers.

One clear sign a loan may be unconscionable is if the borrowers have a limited awareness or understanding of the language the contract is written in, and was unable to read the documents well. This gives lenders an opportunity to include terms and conditions in the loan that unfairly burden the homeowners. Mortgage companies have an obligation to make sure the borrowers understand enough of the language in order to sign the contract and know what it means.

Lenders that knew (or should have known) that the borrowers taking out loans could not afford to pay them back may be guilty of entering into an unconscionable contract.

Many subprime loans were made using the unfounded assumption that homeowners would magically double their incomes in the space of a year. Other mortgages were made where the monthly payment was just a few dollars less than the total amount of income the borrowers received each month.

Another sign of unconscionability may be in cases where the borrowers are not represented at the closing of the mortgage transaction by an attorney, but the lenders have one that rushes the process. Combined with other factors, such as the ones listed in this article, there may be an indication of the lender attempting to rush the closing process and intimidate the homeowners.

If terms are changed in the mortgage at the last minute, and these changes negatively impact the borrowers, the loan may be unconscionable.

While most loans change many times from the qualification stage to closing, last minute changes that increase the cost of credit or place large burdens on the homeowners may indicate unconscioinability. For instance, requiring one year of interest to be paid in advance and not disclosing this condition until closing may be a sign.

Finally, if homeowners apply for a loan and receive few, if any, benefits from the transaction, it may be unconscionable. For instance, if borrowers refinance and receive a higher monthly payment but no cash out or consolidation or any other benefit, the transaction is obviously unfair. But lenders may be able to get away with this by making large promises and then eating up any funds through fees, processing charges, and other administrative costs.

The main sign of an unconscionable contract is that it contains terms that are unfair to one party. For many mortgages given to people who had no ability to pay back the loans or were based on fraudulent appraisals or forged income documents, this may be a huge issue. As well, homeowners may be able to bring this issue into court when defending a foreclosure or attempting to stop a trustee sale.

Miami”s foreclosure moratoriums have met yet another crisis. With the investigation still on, foreclosure defense attorneys and consumer advocates have alleged that in a number of foreclosure cases, process servers have filed questionable paperwork.

State examiners who are appointed for examining the foreclosure process include law firms which recently appointed robosigners to pace up the process of claims. These investigators are also viewing process servers and court documents.

The crisis mainly circles around the law firm allied individuals who have been hired for notifying the homeowners as to when their foreclosure cases shall be heard. Apparently, these individuals may have filed false documents.

As per the lawsuits filed in the court on the behalf of homeowners, some concerned individuals seem to have violated some of the guidelines of the process serving, which includes personal delivery of the paperwork and notifying homeowners about the Miami foreclosure hearing in the court.

In addition, the robo-signer which refers to signing mass foreclosure documents without any review by the loan servicers have also led to a complicated state of affairs. This mass signing puts Miami foreclosure law firms and the lenders under the line of fire.

Recent Miami foreclosure defense cases claim that property owners never receive the court”s summon and in some cases process servers never took the pains of locating them while some homeowners claim that these individuals lied to the court by filing false affidavits about the papers being delivered.

Once rare, bad service has now become a common affair in Miami foreclosure process. Speaking about false practices, Margery Golant, a foreclosure defense attorney said that while it is mandatory for the court summon to be received by an adult, it does not require to be given to the property owner himself. Since no verification is required and no documents have to be signed, opting for false practices becomes much easier.

As per the advocates defending homeowners, lenders and attorneys opted for wrong ways in order to clear the backlog of foreclosures quickly. The attorney General”s office has been constantly asking investigators about the loopholes in process serving. Four of the major law firms handling the foreclosure process have also been questioned about the fraudulent practices they engaged in.