What to Do If You Are Facing Foreclosure in Queens or Brooklyn?
Whether or not the economy is stabilizing or once again growing, plenty of people still struggle with a home in foreclosure or threatened by foreclosure. For years, most attention has been spent on loan modifications. Bankruptcy, however, has always been, and continues to remain, a very good option for those that are struggling with debt, including mortgages. In this article, we explore some options you may have if you’re facing foreclosure in Brooklyn or Queens.
Generally, loan modifications were created and pushed by the federal government to attempt to have banks engage in a good-faith bargaining session with struggling homeowners to reassess and, hopefully, come to a revised agreement concerning the terms of mortgage that homeowners can actually maintain. In the past, lenders and servicers had to have agreed to participate in these programs and, if they did, comport with guidelines issued by the program’s administration. The federally-managed modification program has since expired. While you can still apply for a loan modification, those programs are generally bank in-house programs, and they ultimately have most all control in deciding which loans to modify, and which ones to deny.
What Is Involved in an Application for Loan Modification?
An application for loan modification generally consists of an application form, certain authorizations and disclosures, as well as documents evidencing income and potential contributions from the household. Since banks are dealing with thousands of applications, they often claim to never receive certain documents. As a consequence, documents have to be sent to processing departments over and over. These delays, as well as the time for processing, usually end up taking weeks, if not months, to complete and receive a modification or denial. Moreover, modifications often are only of the primary or first-recorded mortgage on the property. Many homeowners had taken out second and third mortgages, which may be left unaddressed in the modification process. Most importantly, there does not exist an impartial third party to oversee the modification process (unless done pursuant to a court order).
What Options Exist to Save a Home in Foreclosure?
When an application for loan modification is submitted and reviewed by the lender, they will generally review for all options that they have available. These options generally include a deed in lieu (in which you surrender the house to the bank and, in exchange, they cancel the balance of the loan), short sale (where the bank gives you permission to sell the house at less than what you owe, and cancel the rest out), or a loan modification.
Can Chapter 13 Bankruptcy Help with a Home in Foreclosure?
While the Chapter 13 bankruptcy is a very versatile tool in dealing with “normal,” unsecured debt (such as credit card debt and medical bills), it also provides significant leverage in dealing with secured creditors, such as mortgagees and auto finance companies. Bankruptcy law provides tools that allow the debtor to avoid liens on property, change interest rates on certain loans, as well as pay a pro rata share towards debt, among other things. Additionally, and often most importantly, a bankruptcy provides the automatic stay and a judge, which in the case of the underwater homeowner, may work to stay a foreclosure sale, and provide time to come up with a plan to save the home.
Specifically and here in New York, Chapter 13 bankruptcy law allows for completely unsecured liens to be avoided, or commonly referred to as “stripped off.” That is, if the value of collateral no longer supports a lien, the Bankruptcy Court may issue an order converting that lien from secured to unsecured.
Can You Get Rid of a Mortgage in Chapter 13 Bankruptcy?
While you can’t “get rid” of a mortgage in chapter 13 bankruptcy, you can reduce the amount you pay. This all depends on what you owe on the mortgage, what the property is worth, and what you end up paying in your chapter 13 plan.
As an example, take the homeowner who purchased a house in 2008 with a first mortgage of $400,000.00, and thereafter obtained a home equity loan for $100,000.00. The property is now worth $300,000.00. Since that home equity loan has no value in the collateral that would go towards satisfying it, it is completely underwater. In a Chapter 13 bankruptcy, the homeowner could ask the court to convert that claim from secured to unsecured. As a result, that debt would be converted to something similar as a credit card debt, and at the completion of the Chapter 13 case, any unpaid balance on that debt would be discharged.
There are more complexities to a Chapter 13 case that must be evaluated prior to filing. If, however, the homeowner fits into this fact pattern, they could often “wipe out” upwards of $100,000.00 in debt. By eliminating that debt, the homeowner could free up liquidity to tackle the primary mortgage without having to extend the mortgage to a new 30 or even 40 year period traditionally pursuant to a modification.
Ultimately, it takes knowledge and familiarity of available options to help make the best choice, especially when it comes to something as stressful and fragile as a foreclosure. As practical insight, I often have struggling homeowners call or come into my office asking strictly about modification. They sometimes refuse to discuss other available alternatives that may better suit them. In the case of the struggling homeowner, you should assess every possible tool available to help accomplish your goals, which often include saving that home you purchased. If you have any questions concerning foreclosures, loan modifications or chapter 13 bankruptcy to help save a home in foreclosure, feel free to contact the Law Office of Richard Kistnen, (718) 738-2324 or email [email protected]