As times have become increasingly more difficult financially for a large percentage of American’s, foreclosures have become very more common. Foreclosures occur after the owner of a home is unable to make their monthly mortgage payments. Usually within a few months the owner will receive a notice of default. This notice makes the owner aware of the fact that they are behind on payments and usually how much. If the owner continues to miss future payments they will later be provided with a notice of sale date. This is the actual date that the loan holder will auction off the home. As of right now we are seeing a very large range in the amount of time the foreclosure process takes from start to finish. We have seen some foreclosures complete in as short as 7 months, while others we have seen take years. It is at the discretion of the lender as to how quickly they want to assert their rights to foreclose on the house.
How to Stop a Foreclosure
Stopping a foreclosure is not an easy task. If you have already reached the point of foreclosure your options are generally very limited at this point. The first, and obvious, method of stopping a foreclosure is to pay the past due amount to the lender. If you are somehow able to find a way to come up with the money you owe the bank, they are usually willing to accept your payment and make your account current. However, that is a rare luxury that most people in this situation do not have.
A second option to stop foreclosure is to remain in constant contact with your lender. Sometimes banks will hold off on foreclosures if you work with them and discuss your options. They might suggest a loan modification, permanent or temporary, or perhaps changing the structure of your payments to something more affordable (i.e. interest only payments) until you get through the difficult times. The only problem with this route is many times it is hard for home owners to come up with enough money to even pay the lowered payment. If you have been laid off or are experiencing another type of difficult hardship, you might not have any extra money to make the payments regardless of how low they might be. The final problem with this route is getting the bank on-board with a modification. We have worked with clients regarding modifying loans and can tell you first hand that it is very difficult to get cooperation from the bank. Banks tend to give its customers the run around and do very little for many people who are in desperate need of their help.
The final method to stop a foreclosure is by using bankruptcy. Immediately after filing the bankruptcy the automatic stay is put in place, thus preventing the bank from foreclosing on your house. However, it is very important that you keep in mind this is a very temporary fix! This only prevents the bank from taking your house while your bankruptcy case is open. After the bankruptcy case is closed the bank can again gain the ability to foreclose on your home. Even during your bankruptcy case the bank can file for “Relief from Automatic Stay.” This would give them the ability to continue the foreclosure process even while your bankruptcy case is open. During your bankruptcy you can use that time to save money with the peace of mind that your house will not be sold from under your feet. Additionally, some banks are willing to work with home owners after a bankruptcy knowing that they no longer have as much debt and might have more disposable income to make their mortgage payments. Also banks might offer a reaffirmation agreement with terms that are better than your original loan.
Each case and lender is unique and it is impossible to predict exactly what will happen in any particular case. In order to get an idea of what you might expect you should contact The Law Offices of Daniel L. Warren today to discuss your situation with an experienced attorney.
What Does a Foreclosure Mean For Me?
A foreclosure can have many detrimental effects on a person. The first issue is on a person’s credit. A foreclosure will immediately be reported on your credit report and will remain on there for up to 7 years. Many banks are very hesitant to provide a mortgage to an individual if they have had a foreclosure in the past few years due to the fact they are concerned that chances are increased that individual might again foreclose on a new home, costing the bank thousands of dollars.
Many people think that a bankruptcy will also completely eliminate their chances of getting a new home or any credit extended to them. However, the difference with a bankruptcy is that the banks are well aware that you cannot file another bankruptcy for usually 8 years after you received your discharge. Additionally, the bank knows that you do not have many, if any at all, other debts. Those factors can make a person more appealing to the banks.
There are two other important consequences that can result from a foreclosure. Deficiency judgments, and tax consequences.
Some states, not California, allow for banks to sue a home owner for a deficiency after the sale takes place. In other words, if you own $500,000 on your house, and the bank forecloses and sells it at auction for $400,000 – the bank can sue you personally for the remaining $100,000. Once the bank has received this judgment they can use it to seize bank accounts, garnish wages, or attach liens to other property you own. Bankruptcy can wipe out the judgment, even after it has been entered with the Court, thus saving you from any garnishment, liens, or account seizures.
When a foreclosure takes place one of two things will usually happen regarding taxes. One, the bank will report the unpaid portion of the loan as a taxable cancellation of debt income. Second, you will receive a 1099-C that requires you to report the disposition from your home as a taxable capital gain. In other words, the IRS views the money you did not have to pay the bank as income your received that taxable year and therefore you must pay taxes on that amount. There are ways to approach this problem if you encounter it. One is to file the proper forms with the IRS in which you can claim insolvency if it applies. By filing for bankruptcy any claim you make to the IRS for insolvency is strengthened a great amount. This can help you save tens of thousands of dollars!
If you are facing a foreclosure, or you feel one might be around the corner, it is best that you act fast and do not wait too long to consider your options. Time is very valuable when you face a situation like foreclosure and you should not procrastinate. Contact The Law Offices of Daniel L. Warren today to discuss your options.
