Has Your Lender Initiated a Foreclosure? Here’s What to Do

There are no specific rules for how to handle things if your home is already in foreclosure.  Lenders vary in how they handle things, and beyond this, the laws vary from state to state.  In some states, the foreclosure process may take months; in others, everything could happen within a matter of days.  This is why it is crucial to speak with a foreclosure defense attorney immediately if your lender has already placed your home in foreclosure. 

The best thing you can do is fight back.  The more you fight, the longer the foreclosure process will take—this will allow you more time to get in a better financial situation and work to keep your home. Even if the foreclosure goes through, you should continue to fight because of the redemption period.  This is a period of time in which former homeowners can buy back their property if they decide to do so.  This redemption period varies from state to state: it is 30 days in Alabama and up to 10 months in Delaware. 

The thing to keep in mind is that the foreclosure process isn’t a simple one.  There is a lot of paperwork that has to cross a lot of desks, and anything you can do to stall that paperwork between desks will help you find more time (and money!) to get your home out of foreclosure.  Speaking with an attorney early in the process will be your best bet to help you stay in your home.

What other services does Bankruptcy Law Clinic offer?

Help! I’m Falling Behind on My Mortgage… What Do I Do Now?

If you are falling behind on your mortgage, particularly in Miami, Florida, you’re in a lot of like company.  In fact, over five million homeowners across the country are in the same boat.  But the territory can certainly be frightening for many people, and you may find yourself wondering how long of a grace period you have and what is Plan A and Plan B (maybe even Plan C).

First of all—take a breath.  Many lenders provide grace periods, which is usually around 10 to 15 days after the day you were supposed to make the payment.  If you need to know the exact grace period, it should be printed somewhere on your paperwork.  If you mail your payment within this period, you likely won’t even be charged a late fee.     

30 Days

Once you reach the 30-day mark, your lender will not only have charged a late charge—they will likely be trying to call you or contact you by mail.  Don’t ignore this attempt at communication because your lender will probably offer you ways to catch up and avoid further late fees.  Also, any payment that is 30 days or more late will likely be reflected on your credit report and have an effect on your credit score.  If you don’t want the ding to happen on your good credit, you should do everything possible to make sure your payments are never more than 29 days late. 

90 days

Once you reach the 90-day late mark, your mortgage is at a high risk of foreclosure.  If you are nearing this, it might be best to seek the advice of bankruptcy attorneys who can work with you to help you keep your home.  

Working But Not Making Ends Meet? The Home Affordable Modification Program (HAMP) Might Be For You

If you are one of the thousands of Americans who has a job but is still unable to make ends meet, there may be a way to lower your monthly mortgage payments to 31% of your pre-tax gross monthly income.  For many borrowers—particularly those who find themselves in different financial circumstances than they were in when they initially applied for the mortgage—this results in a significant savings.  This program is being used right now by many distressed homeowners in  both Dade and Broward county as a way to avoid foreclosure and potential bankruptcy.  

The program is the Home Affordable Modification Program (HAMP), and is one of the many programs the government is using to attempt to help borrowers who are in over their head with high mortgages.  In fact, the program has been so successful that the government has plans to expand it in June 2012.  The current program has been available to homeowners since February of 2012. 

To be eligible for HAMP, you must:

•     Occupy the house as your primary residence

•     Have obtained your mortgage on or before January 1, 2009

•     Have a mortgage payment that is more than 31 percent of your monthly gross (pre-tax) income

•     Owe up to $729,750 on your home

•     Have a financial hardship and are either delinquent or in danger of falling behind

•     Have sufficient, documented income to support the modified payment

•     Not have been convicted within the last 10 years of felony larceny, theft, fraud or forgery, money laundering or tax evasion, in connection with a mortgage or real estate transaction

Currently, only about 30% of these loan modifications include an actual principle reduction (you used to owe 250k, the bank forgives 30k, now you only owe 220k).  The rest offer some type of temporary reduction in interest rates and/or an extension of the loan.  Why this may be attractive if you have a temporary financial hardship (your spouse is out of work for 3 months), it may not be the best long term solution.  If you have a second mortgage or a line of equity, you may have other better options.  You may want to consult with a bankruptcy attorney about your own specific situation.  Bankruptcies may enable you to reduce your monthly payments, eliminate your second mortgage and enable you to keep your home.

What are common mistakes people make when they consider filing for bankruptcy?

Divorce and Bankruptcy: Should I File For Both at the Same Time?

It’s no secret that money problems are one of the leading causes of divorce.  In fact, financial woes are often what couples state as the reason their differences became irreconcilable.  Therefore, the situation often arises that divorce and bankruptcy are considered simultaneously.  While it’s possible to file for both at the same time, it’s important to keep in mind that divorce and bankruptcy are two completely separate legal processes, and each must be handled separately. 

In fact, if you file for a bankruptcy while you are in the middle of the filing process for divorce, the divorce proceedings can actually slow down your bankruptcy.  And while the court handling the divorce will be able to make decisions regarding custody, child support, and alimony while the bankruptcy process is happening, it will have no jurisdiction over the couple’s mutual property – only the federal bankruptcy court will have control over that. 

Also, bankruptcy and divorce can be tricky when it comes to jointly owned debt.  If you are required to pay off certain debts as part of your divorce decree and your bankruptcy discharges these debts, your creditors could still go after your spouse if his or her name was on the debt.  Your spouse can then take you back to divorce court to recover the debt, which will likely be granted since it was in the original divorce decree.  Chapter 7 and Chapter 13 bankruptcy also does not discharge child support or alimony that is owed to your spouse as part of the divorce decree. 

The best thing to do is to wait until the divorce is finalized before you begin your bankruptcy process.  When you do it this way, the bankruptcy court will look at your required alimony and child support expenses, and consider these when determining your required monthly expenses.   

Can I file for divorce and bankruptcy at the same time?

The Mortgage Forgiveness Debt Relief Act and Debt Cancellation

According to IRS regulations, when debt is canceled or forgiven by a lender, the amount that has been canceled is considered income for the debtor during tax time and must be reported as income.  In light of the recent housing and foreclosure crisis, this regulation would be especially frightening for the thousands of Americans who are going through loan restructuring and modification processes, or having their mortgages canceled due to foreclosure. 

However, when the economy took a turn for the worst, and right before the housing bubble burst, Congress passed the Mortgage ForgivenessDebt Relief Act of 2007, which allowed homeowners who were already having financial trouble to avoid having to pay taxes on their forgiven or foreclosed mortgages.  In fact, according to that Act, if part or all of your mortgage debt is forgiven in any tax year from 2007 to 2012, you might be able to exclude a substantial amount of that forgiven debt from your taxable income when tax time rolls around. 

The debt that qualifies for this must have been incurred for your principle place of residence (not a vacation home), and can include debt that has been canceled through foreclosure or debt from mortgages that were reduced through restructuring or modifying the loan.

From the IRS website, here are a few additional facts about Mortgage Debt Forgiveness.

   1.  The limit is $1 million for a married person filing a separate return.

   2.  To qualify, the debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence.

   3.  Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion.

   4.  Proceeds of refinanced debt used for other purposes – for example, to pay off credit card debt – do not qualify for the exclusion.

Should I take out a loan against my 401k to avoid bankruptcy?

Should 401k Loans Be Used to Avoid Bankruptcy?

People will do just about anything to avoid bankruptcy.  However, taking out a loan against your 401k is not advisable, for multiple reasons.  First, in most chapter 7 bankruptcies that we do, our clients have their debts discharged while keeping their 401k intact.  Avoiding this legal and popular form of protection against your creditors will, in many cases, only push you further into the hole of debt. Add to that putting your retirement at risk, and you’ve compounded the problem exponentially.

Let’s say you use the 401k loan to pay off your creditors.  While you’ve managed to get the collections agencies and threats of wage garnishment off of your back, you’re still responsible for paying yourself back and restoring the funds in your 401k.  While it can certainly be argued that the interest rates of 401k loans is significantly lower than the rates on most credit cards, you should keep in mind that 401k loans must be paid back within a shorter amount of time than many other types of loans or lines of credit.  This means that your monthly payment to your 401k will likely be high. 

If for some reason you are unable to make this monthly payment, the money will be treated as income and you will likely have to pay a 10% early withdrawal penalty since it would be considered a distribution from a tax-deferred plan.  What this means is that in addition to the penalty, you’ll have to pay income taxes on the money you took out as a loan.  Also, if you are unable to continue working or change employers, you will be required to pay back the loan in full, immediately. 

Now weigh all of that against this fact: if a debtor files bankruptcy, most states’ exemptions will keep your 401k protected. This means that you’ll have some of your debt discharged while keeping your retirement money intact.  The benefits of doing this definitely outweigh the benefits of taking out a loan on your 401k to avoid bankruptcy.