As the mortgage meltdown continues with no end in site, more and more people facing foreclosure are also being forced into the option of bankruptcy too. It has become apparent that many homeowners who couldn’t make their mortgage payments have been tapping into their lines of credits and credit cards to get the cash that they need. Once the lines of credit and credit cards are maxed out, inevitably, these people find themselves in an even bigger financial fiasco. In one recent poll, credit card debts are at an all-time high and, if this disposition goes on, our firm predicts that bankruptcy filings will continue to rise as they have over the last three years since the new bankruptcy laws were passed.
Lately, we’ve been seeing a lot of homeowners who are contemplating bankruptcy but are also attempting to recieve a loan modification with their mortgage company because they have a foreclosure in the process. In fact, we work with several attorneys who furnish loan modifications. The loan modification lawyers tell me the lenders are amping up their foreclosure efforts and denying more loan modifications due to debt to income ratios. What this means is that if you owe a lot in other debts (such as credit cards, personal loans, etc.) besides your mortgage, the bank may believe that even although your mortgage payments are less after a loan modification in in place, it would still be difficult or inconceivable for you to keep your home because you have other outstanding debts that must be paid (and a lot of people in foreclosure are also behind on all their other debts so these debts are showing up as collection accounts on their credit report). In other words, the bank may be telling you that given your current debt load, you simply cannot afford to keep your home, and they would rather cut their losses and foreclose on your home because they are left with no other option. Bear in mind that banks hate foreclosing on any property but will do so as a last resort.
Because of the massive number of foreclosures that the banks are presently coping with, I find that a lot of mortgage companies are slow these days in initiating the foreclosure process even when the borrower is already several months delinquent. even so, in California, once a Notice of Default is filed against the property, the 90-day statutory period commences to run and the clock time starts ticking. Unless the foreclosure is stopped, by filing bankruptcy, or other legal means, the lender only needs to give 21 days’ notice (by sending the borrower another document called “Notice of Trustee Sale”) after the 90-day period in setting a sale date for the property being foreclosed on. Filing bankruptcy, Chapter 7 or Chapter 13, will immediately stop the sale from going forward, and the bank will need court permission to continue with the process if mortgage payments are not being made. An experienced and knowledgeable bankruptcy attorney can explain to you how Chapter 7 or Chapter 13 may help you save your property or at least postpone the foreclosure sale so that you can look at all other possible options. In Chapter 13, it is also possible to “strip down” or remove your 2nd mortgage if the current market value is below the amount of the 1st mortgage.
Eliminating (or at least consolidating) your debts may improve your debt-income ratio and this may be what your mortgage company would like to see when considering your application for a loan modification. Of course, this is just one of the factors that they take into account when evaluating your financial data. Just as important are your ability to show regular and stable employment as well as an assurance to the lender that whatever caused the financial hardship to start with is now behind you so that you can afford your new mortgage payment once your loan is modified.
If you are in foreclosure and are tired of the run-around from the lender or just need help understanding your options then you should speak to a bankruptcy lawyer. The California real estate market is the “perfect storm” for homeowners to experience a principal decrease through bankruptcy. A bankruptcy attorney can help people see if they qualify for a principal reduction through bankruptcy chapter 13 with motions like (11 U.S.C. ‘ 522(a)) to strip a lien. Making any errors when it comes to filing bankruptcy can be very costly, so be heedful when selecting a bankruptcy attorney for a chapter 13. If you want help and have bankruptcy questions go to www.BankruptcyAttorneyinCalifornia.com.
