Record Foreclosures Hit Homeowners
Consumer Credit Newsletter
By Attorney Raymond W. Hackbarth, Jr.
Record Foreclosures Hit Homeowners
Lately, record numbers of homeowners are facing the loss of their homes to foreclosure. With competent legal assistance many homeowners are able to avoid foreclosure, bring their mortgages current and keep their homes.
Understanding Foreclosure
In most cases the foreclosure is nonjudicial. In other words, without court (judicial) supervision. Only in unusual cases, where for example, there was fraud by the borrower, does the lender proceed with judicial foreclosure - a costly and lengthy alternative. Rather, the Trustee hires a foreclosure company to begin foreclosure against the Trustor (homeowner) on behalf of the Beneficiary (lender). Foreclosure starts with the filing of a Notice of Default & Election to Sell (NOD) at the county recorder’s office and service of the NOD upon the homeowner. After three (3) months from filing of the NOD, the Trustee records the Notice of Trustee’s Sale (NOS) and begins publication of the Sale in a local newspaper. In no less than twenty-one (21) days the property is sold to the highest bidder. Usually the lender bids its note to become the new owner.
Deficiency Judgments
Most people facing foreclosure worry that they may lose everything that they own after their lender(s) forecloses on their home. After a nonjudicial foreclosure, the lender is precluded from getting a deficiency judgment from the borrower/homeowner. If, however, there are one or more junior deeds of trust which are wiped out by the foreclosure of a senior loan, then there may be additional liability to these now unsecured creditors unless the obligation in question was a purchase money loan (i.e., incurred in connection with the purchase of the subject property). Therefore, the homeowner may decide to give the home up to the lender by simply letting the foreclosure proceed while remaining in the house rent free for several months. After the foreclosure the lender must evict the foreclosed homeowner or their tenants if they still occupy the property. Homeowners facing foreclosure should consult with an experienced bankruptcy attorney as soon as possible. It may be possible to avoid undersecured junior liens against a home making a substantially over encumbered residence worth keeping after all.
Avoiding Other Obligations
Even if there is a junior lender threatening suit to collect the balance owing on that now unsecured loan, Chapter 7 Bankruptcy may avoid that and other unsecured obligations like judgments, credit card debts and old taxes. In a Chapter 7 the Debtor receives a bankruptcy discharge which prohibits the lender from pursuing its claim.
Saving Your House
If the homeowners wish to keep their home, they may qualify for a Chapter 13 Bankruptcy Plan. To qualify, the homeowner must have regular provable income. Chapter 13 debtors must have disposable income in an amount that would allow them to repay the arrears on their home loan(s) along with interest, penalties and fees over a period of three (3) to five (5) years. They must resume making their regular monthly mortgage payments from their Chapter 13 filing date and begin Chapter 13 Plan payments within 30 days.