Foreclosure and Bankruptcy
As a VBA you will find that there will be a good percentage of your clients who will be behind in their mortgage payments and facing foreclosure, filing bankruptcy can often benefit your clients. In many cases, filing Chapter 7 bankruptcy can delay the foreclosure by a number of months. Many people are able to save their home by filing a Chapter 13 bankruptcy.
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What is Foreclosure?
Foreclosure normally begins after a homeowner gets behind on mortgage payments. The lender begins the legal process of selling the home at auction in order to get payment for the loan. The process involves several steps, starting with notification to the homeowner.
This doesn’t happen overnight. A lender usually won’t begin the foreclosure process until you are the home owner is several payments behind, often three or four. That gives you time to try some alternate measures, a short sale, a loan forbearance, or a deed in lieu of foreclosure.
If you’ve already tried and failed with these measures, it’s now a good time to consider bankruptcy as a possibility for avoiding or stalling foreclosure. Here are some ways that filing for bankruptcy can help the client. Taken from training at 713training.com
The Automatic Stay: Delaying Foreclosure
When you file either a Chapter 7 or Chapter 13 bankruptcy, the court automatically issues an order (called the order for relief) that includes a wonderful thing known as the “automatic stay.” The automatic stay makes your creditors to cease their collection activities immediately, no excuses. If your home is scheduled for a foreclosure sale, the sale will be legally postponed while the bankruptcy is pending–typically for three to four months. However, there are two exceptions to this general rule.
Motion to lift the stay. If the lender obtains the bankruptcy court’s permission to proceed with the sale (by filing a “motion to lift the stay”), you may not get the full three to four months. But even then, the bankruptcy will typically postpone the sale by at least two months, or even more if the lender is slow in pursuing the motion to lift the automatic stay.
Foreclosure notice already filed. Unfortunately, bankruptcy’s automatic stay won’t stop the clock on the advance notice that most states require before a foreclosure sale can be held (or a motion to lift the stay can be filed). For example, before selling a home in California , a lender has to give the owner at least three months’ notice. If you receive a three-month notice of default, and then file for bankruptcy after two months have passed, the three-month period would elapse after you’d been in bankruptcy for only one month. At that time the lender could file a motion to lift the stay and ask the court for permission to schedule the foreclosure sale.
How Chapter 13 Bankruptcy Can Help
Many people will do whatever they can to stay in their home for the indefinite future. If that describes you, and you’re behind on your mortgage payments with no feasible way to get current, the only way to keep your home is to file a Chapter 13 bankruptcy.
How Chapter 13 works. Chapter 13 bankruptcy lets you pay off the “arrearage” (late unpaid payments) over the length of a repayment plan you propose either a three or five year plan But you’ll need enough income to at least meet your current mortgage payment at the same time you’re paying off the arrearage. Assuming you make all the required payments up to the end of the repayment plan, you’ll avoid foreclosure and keep your home.
2nd and 3rd mortgage payments. Chapter 13 may also help you eliminate the payments on your second or third mortgage. That’s because, if your first mortgage is secured by the entire value of your home (which is possible if the home has dropped in value), you may no longer have any equity with which to secure the later mortgages. That allows the Chapter 13 court to “strip off” the second and third mortgages and re-categorize them as unsecured debts –which, under Chapter 13, takes last priority and often does not have to be paid back at all.
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-The 713 Training Team