Despite what you have been hearing in the media and the government about mortgage loan modification, the reality is that lenders are usually reluctant to modify their loans. Your chances of negotiating a satisfactory loan modification increase significantly if there is litigation or bankruptcy. Your chances of obtaining a loan modification will also be greatly improved if the lender has violated the law, but most people don’t have the expertise to know if this has happened. By retaining my office, you will have an experienced attorney helping you gain negotiating leverage by finding possible violations of the law and explaining your options under the bankruptcy code. A foreclosure relief company is unqualified to provide you with any of this legal insight – and having as much knowledge and insight as possible during this difficult time will help you make a better decision for yourself and your family.
If you have already tried working with your loan servicing agent, you know that most servicing agents are understaffed and overwhelmed. The servicing companies have little incentive to aggressively pursue modifications because they typically make more money if they can collect late fees, costs and penalties from you while you are in default. Once you begin the application process for modifying your loan, it can take months to receive a rejection or a token change in the loan terms. If you have not considered a backup plan and the modification process fails, you will find yourself with very little time to act before a foreclosure becomes imminent.
The loan modification process can be complex, and it is easy for a lender or servicing agent to take advantage of you. Using an experienced lawyer to assert your rights gives you a fighting chance to achieve the results you need. The possibility of litigation or bankruptcy may increase your negotiating leverage with your lender. Lenders are forced to get their own lawyers involved in your case, not just an administrative person from the loss mitigation department.
The Role of Bankruptcy in Foreclosure Defense
Despite the passage of the creditor-friendly Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Bankruptcy remains a viable option for many debtors overwhelmed by debt. When you are facing foreclosure, bankruptcy can be used as your main strategy or as your last resort. The filing of a bankruptcy petition automatically freezes or “enjoins” the foreclosure sale in most cases and buys you some breathing room. When you file either a Chapter 13 or Chapter 7 bankruptcy, the court automatically issues an order that includes an “automatic stay.” The automatic stay directs your creditors to stop their collection activities immediately. If your home is scheduled for a foreclosure sale, the sale will be postponed while the bankruptcy is pending—typically for three to four months. However, there are 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” claiming that they are not being “adequately protected” (i.e. they are not receiving monthly payments during the case). Generally, the judge will not lift the automatic stay or allow the foreclosure if the borrower agrees to resume the regular mortgage payment for the remainder of the Chapter 7. If you are unable to keep up with your mortgage payments, however, you may not get the full three to four months automatic stay. 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 published. 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). In Michigan, a notice of foreclosure sale must be posted on the property and published once per week for four weeks in a local newspaper before the foreclosure sale may take place. The foreclosure sale can therefore take place as early as 28 days from the first publication date. If you receive notice of foreclosure sale publication, and then file for bankruptcy after one week has passed, the 28 day notice period would elapse after you’d been in bankruptcy for less than 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.
Previous bankruptcy filings. If you have had another bankruptcy dismissed within the last year, the automatic stay only lasts for 30 days. If you had two cases dismissed, there is no automatic stay in the third case. If your current case is “dismissed”, the automatic stay is terminated and the lender is free to resume the foreclosure process where they left off.
During your pending bankruptcy and the lender’s motion to lift stay, if filed, we will have the opportunity to negotiate directly with the lender’s lawyers for a loan modification. During litigation, the lender’s percentage caps on the number of loans that can be modified are lifted, giving you a much better chance at actually achieving a satisfactory modification compared to dealing with the lender’s loss mitigation employees who have little authority to significantly alter the terms of mortgages. If it is economically feasible for you to keep your home by modifying the terms of your mortgage, this will be the time when you have the best chance to achieve the modification.
If the lender still does not offer you acceptable modified terms, or you are financially unable to meet the lender’s best modification offer, it may be that you’ll have to give up your home no matter what. In that case, your chapter 7 bankruptcy will at least stall the sale, give you two or three more months to help you save some money during the process and give you a “fresh start” at the end of your case.
If you receive your bankruptcy “discharge” before your foreclosure sale, you remain the owner of your home even after the Chapter 7 discharge. You still have the option to sell your house, save it or let it go to auction. Whether you keep your home or let it go into foreclosure, your personal liability to pay the mortgage debt and any income taxes related to that debt is legally wiped out. After the Chapter 7, your mortgage lender still has the right to foreclose and try to get paid out of the proceeds of any sale of the property, but they cannot come after you or your future earnings or assets.
By working with my office if you are facing foreclosure, I can help you understand your options and utilize the bankruptcy code to your advantage. Contact me so we can come up with a plan to help you take control of your financial future.