San Diego Bankruptcy Attorney is a law firm with experience in handling all bankruptcy issues. With a significant client base in San Diego, California, our attorneys can give you a profound consultation on financial matters when you are on a path to bankruptcy, specifically on guarding your home against foreclosure. Below is information that will help you to understand bankruptcy with a specific interest in home foreclosure.
The General View of Bankruptcy
Bankruptcy is a legal term that generally means a person or a business that cannot pay their loans or mortgages with their current assets. It can also be used to indicate the legal procedure of liquidating personal or business property.
When you are filing for bankruptcy, you need to hire an attorney to take you through the process. The bankruptcy attorney will help you to understand the type of bankruptcy you are filling for, how bankruptcy can help you, what to expect during the process and any potential difficulties with your case.
Filing for bankruptcy involves two steps. The first step is to negotiate. Try to work out things with your creditors before you decide to file for bankruptcy. If you can prove to your creditors that you are struggling financially, some of them may reduce the loans. The second step is the actual bankruptcy filing. This happens if your creditors do not agree to negotiate. Here, a trustee is assigned to you to help you in negotiating with your creditors. Sometimes, though, the bankruptcy trustee can negotiate with the creditors on your behalf to give you more time to pay the loan.
There are various reasons why you can be bankrupt. Job loss is one of these reasons. When you lose your job, you are sometimes unable to cater to your needs or even pay back your debt. Consequently, your creditors may decide to take you to court. This may cause foreclosure on your property, and filling for bankruptcy will be the best option to avoid the looming home foreclosure.
Divorce may also prompt you to file for bankruptcy. Divorce occurs when you legally separate from your wife or husband. In most of the divorce cases, you may end up losing a considerable portion of your property to your spouse. Consequently, you may end up unable to pay your debt, which can make you bankrupt.
Another common cause of bankruptcy is illnesses. An illness can stop you from working or even divert all your money to cater for your medical expenses. A significant debt may follow, leading to bankruptcy.
The above causes for filing for bankruptcy may lead to home foreclosure. The good news is that you can avoid this foreclosure. But before delving on guarding your home against foreclosure, have a look at the following types of bankruptcy that can lead to foreclosure.
Types of Bankruptcy that Can Lead to Home Foreclosure
California has two types of bankruptcy. They include chapter 13 and chapter 7 bankruptcies. Under Chapter 13 bankruptcy, you are allowed to keep all your property after filing for bankruptcy depending on your assets level. During the bankruptcy process, the amount of money paid to the unsecured creditors is affected by the amount of your nonexempt property. To avoid foreclosure of your house, you have to ensure that you pay your debt in installments for the secured mortgages.
Chapter 7 bankruptcy, on the other hand, is whereby your property and assets are liquidated. The liquidation helps you to pay all your debts. A bankruptcy trustee is picked and given the mandate to sell your property to help you pay all your debts.
The difference between bankruptcies under chapter 7 and 13 is that in chapter 13, a trustee will not be hired to sell your nonexempt assets. However, you have to pay your secured creditors more if your nonexempt assets are high. On the other hand, in chapter 7 bankruptcy, a trustee is hired to sell all your nonexempt property. The money generated from the sale of your assets is then used to pay all your debts.
What is Home Foreclosure?
This is the legal process whereby a lender attempts to recover the balance of a loan from a borrower who has stopped paying the lender by forcing the sale of assets used as loan collateral. In the case of home foreclosure, the bank is given your property ownership; hence, all the money you paid for the mortgage and your home is lost.
You can only be protected against foreclosure if you file a suit against your mortgage creditor in federal or state court, and a judge issues an order to stop the foreclosure. Alternatively, your attorney may seek to reduce your mortgage payments, which reduces the burden of settling your debts.
Home foreclosure involves four steps: defaulting, issuing a notice of default, issuing a sale notice, and an auction of your home. Defaulting is the failure to pay the required loan at the right time. If this happens, the lenders may decide to offer you with a plan on how you can manage to pay the loans and avoid home foreclosure. Most creditors give homeowners a window period in which the money should be paid. A default notice is then issued if the homeowner defaults paying the loans within the given period.
After default, a recording of the same follows. This happens after the creditors have reached you and have evaluated the status of your finances. Also, you must have had an opportunity to meet them in person or contact them through a telephone. Still, the lender should give you options to prevent foreclosure before recording a default notice. Also, you can appeal for a meeting with your lenders, but you need to contact them within fourteen weeks after the initial default warning. You are also required to include your financial condition assessment while contacting them. Home foreclosure is triggered when you miss the third payment period.
The third step is the issuance of sale notice. A creditor can proceed to home foreclosure if, after ninety days, you have not come up with the money that is required to be paid. This notice will show that the lender may sell the home after twenty-one days. The creditor can send you an approved letter with return receipts that will inform you of some options that you need to explore concerning foreclosure after several unsuccessful times to reach you. They give you telephone numbers and links that will help you get more information on avoiding home foreclosure. Also, a notice of sale has to be published in the newspaper every week. This is done before the auction date. By doing this, the lender invites buyers with interest to buy your property if an auction is made. If you pay your loan before five days of the auction date, you may be allowed to reclaim your property.
The last step is the auction. Here, prospective buyers bid for your property. The highest bidder gets the home under the condition that he/she pays the required cash immediately. Consequently, you are given a three-day notice to leave the premises, failure to which the current homeowner can take an evacuation order from the court to force you out of the house.
There are several ways of knowing if you are a good prospect for home foreclosure such as:
- Lack of availability of refinancing. This means that you will not have any way of lowering your interest rates. Hence, you will be required to pay every single coin. Therefore, if you do not have the required funds, you are a good candidate for home foreclosure;
- You do not have any available loans, for example, equity home loans that will reduce your debt. This will mean that you have no financial capability to clear your loans and your lenders will settle on home foreclosure;
- If modification of the loan is not an alternative for you. Modification of loan is whereby you negotiate with the bank to spread your loan over a long period. If it is not possible and you are not in a position to pay the loan, home foreclosure would be possible;
- You have money-purchase loans. This means that that you have too many loans and you are not in a position to settle them;
- Your homes’ values are more than 25 percent less than your current mortgage. This is proof that you cannot afford to pay the loan. Hence, you become a viable candidate for home foreclosure.
Although home foreclosure is stressful to homeowners, it still has some benefits. One of the benefits of home foreclosures to bankrupt homeowners is that during the foreclosure process, they remain in their house for free. Since the process averagely takes four months, you can save substantial money if possible. Then, you can use the savings while moving out.
Another benefit of home foreclosure is that you are not made to pay any taxes of debt-forgiveness on the loan of money purchase. The reason for this being that there is nothing to forgive. This will help you save a lot of money.
Finally, in the case where the first home loan and second home loan are money-purchase loans, there will be no deficiency judgment. This signifies that the creditor’s only option is home foreclosure. Therefore, the creditor will not look for judgments against you after your house has been sold to another homeowner.
Home Foreclosure Prevention Options
Options that can help you avoid home foreclosure include refinancing, forbearance, pre-closure, loan modification, partial claim, lien stripping, and a deed in lieu of foreclosure.
Refinancing may lower payments and get you back on track. However, when using this option, you need to show the ability to make the payments. The borrower needs to be current on the home loans. The bank may also save you from home foreclosure using this option. This can be done by putting you on an interest-only home loan. This will lower the costs of the mortgage, making it easier for you to pay the loan comfortably.
Secondly, a forbearance plan occurs when the creditor sets the payment plan. It helps to ease or even to suspend payments till you are better financially. However, this is mainly done in the case where you are only facing temporary hardships. This option is beneficial since you can pay the loan at the time when you are financially capable of paying the loans.
Thirdly, a pre-closure is an option where the bank has to cooperate. This means that you sell your home for less than its original price under the directions of your bank. It helps you to avoid any deficiency judgments afterward. Although selling your home for less than its worth may appear to be a loss, it can help you to avoid foreclosure.
Fourthly, a loan modification can help to guard your home against foreclosure. Here, you negotiate with the bank to spread your loan over a long period. You can only use this option if you have not stayed for too long before you your home debt. Loan modification is beneficial because you get to pay the same loan but the payment time is added. Hence, it becomes more comfortable for you instead of bringing a financial burden.
A partial claim, also known as the second mortgage, is beneficial because it does not have any interest. You are not required to pay this second loan unless you no longer own the property or you have settled your first mortgage. You can then use this partial claim to clear off your debts, thereby preventing a possible home foreclosure.
Lien stripping is another option that you can use to guard your home against foreclosure. This is mainly used when your original loan is higher than your home worth. This may result from the depreciation of your home value. Lien stripping involves "stripping" or getting rid of your second mortgages if the bankruptcy meets the chapter 13 bankruptcy requirements.
The last option is a deed in lieu of foreclosure. This is whereby you transfer your property to your lender, who in turn, foregoes your mortgage obligation. Here, this transfer should be voluntary from both you and the lender. In return, this option strips you any personal burden for the pending mortgage.
Essential Tips to Keep in Mind When Preventing Home Foreclosure
By now, you understand the various home foreclosure prevention options available for you. While those are the most common legal options that you can utilize, other tips will supplement these options to ensure you get the desired results.
- Contact your creditor immediately if there is a problem: Lenders are usually willing to utilize other options of getting their money apart from acquiring your house. They can advise you on other options when you contact them as early as possible;
- Don't ignore any communications from your lender: Whether a lender sends you emails or makes phone calls, you should never overlook these forms of communication. For instance, you may ignore an email from your lender, only to learn later that it had information about preventing home foreclosure or it was a legal notice;
- You have mortgage rights, understand them: You can review the different laws on home foreclosure, legal timeframes, and your lender's options in case of a debt payment default. The State Government Housing Office can as well help you with the information you need to know on mortgage and house ownership;
- Review your spending habit: Safeguarding your house should be a top priority after healthcare. Thus, downsize your spending by foregoing unnecessary options such as entertainment, and use these finances to pay for your mortgage;
- Utilize your assets: You can sell assets such as a second vehicle to generate cash for your loan. Besides, you or a family member can make extra income by getting an extra job. In fact, your efforts will show your creditors that you are willing to settle your loan, which may prompt them to give you more time to pay the loan;
- Avoid scams: There are a bunch of foreclosure prevention and recovery companies that may ditch you into more losses, losing your house as well as your savings. Always be on the lookout and avoid signing documents from companies claiming that they can stop the foreclosure immediately. Instead, seek help from an attorney since they are conversant with foreclosure laws and can help you to avoid further losses.
How Can I Find an Bankruptcy Attorney Near Me?
While many firms claim to have an immediate solution if you are on the verge of losing your home, some of these promises may be unrealistic. Thus, your first option whenever you are in this situation should be to seek legal help from a bankruptcy attorney. An attorney is well-versed with all the legal aspects of bankruptcy, and can as well help in the negotiation with your lenders. At San Diego Bankruptcy Attorney, our bankruptcy attorneys understand the importance of preventing home foreclosure and are ready to assist you. Reach us today at 619-488-6168.
