This is the third section of our look at living through foreclosure. In this segment we will consider the use of a Chapter 13 Bankruptcy filing to stop foreclosure.

While many readers may realize that bankruptcy laws changed in October, 2005, what they may not realize is the negligible effect of the law changes on most debtors. Using a Chapter 13 filing to stop a foreclosure can have several beneficial aspects. First, a Chapter 13 filing immediately terminates the advancement of the foreclosure proceeding. Under §362 of the Bankruptcy Code an “automatic stay” is imposed which prohibits the lender (and almost all other creditors) from attempting to collect on debts. By stopping the foreclosure early in the process, a Chapter 13 can save the home, and perhaps decrease the foreclosure costs (attorney fees, etc.) incurred by the bank and then passed on to the borrower. Unlike a forbearance agreement, a Chapter 13 filing can protect the home without the cooperation of the lender. Finally, repaying the arrearage on the mortgage in a Chapter 13 will normally give the homeowner between 3 to 5 years. This breaks the arrearage in the smaller pieces, as opposed to the larger lump sums often required in reaffirmation agreements.

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This is the second edition of our look at living through foreclosure. In this segment we will consider negotiating with the homeowner’s lender as a means to stopping a foreclosure. Lenders are in the “lending business,” and seldom wish to venture into acquiring real estate (that is, completing foreclosures) if avoidable. Occasionally a “forbearance agreement” will be offered which will allow the arrearage on the mortgage and foreclosure costs to be re-paid to the lender. After completion of the forebearance agreement terms, normal monthly payments can resume.

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Foreclosure rates are reaching an all time high. That is what the statisticians, and even the local newspapers, have recently been telling us. What options does a homeowner have after a foreclosure is begun? We will look at some of this issue over the next few weeks. Before turning to consider possible solutions, let us consider the problems caused by foreclosures.

Many homeowners assume that, after missing one or a few payments, all they need to do is catch up on the missed payments. Almost all mortgages contain what is known as an “acceleration clause.” What this means is that, once a loan is in default, usually by the homeowner missing a payment by 30 days or more, not just the missed payment is due, but the entire remaining balance of the mortgage. Unless the lender agrees to forego this “acceleration” of the principal balance, avoiding foreclosure could require that the mortgage balance be paid in full. In addition to the problem of acceleration, many fail to realize the danger posed by the foreclosure related expenses which accrue after the start of the foreclosure. These include the banks court fees and other expense, along with its attorney fees. Even assuming no extra attorney fees have been incurred, the trustee’s fee (which goes to the attorney) in a foreclosure is typically five percent (5%) of the loan balance. On a $100,000 mortgage, these fees could easily equal or exceed $6,000.00 for the foreclosure-even before it is completed. Even if the lender agrees to defer the acceleration, it will expect these costs to be repaid along with the arrearage. Even if paid, the record of the foreclosure will appear on one’s credit report for years to come.

Retaining one’s home after the initiation of the foreclosure is certainly possible-depending on the homeowners financial situation. If you or someone you know is threatened by a foreclosure, our office may be able to help. We are a federally designated Debt Relief Agency under the United States Bankruptcy Laws. We assist people with finding solutions to their debt problems, including, where appropriate, assisting them with the filing of petitions for relief under the United States Bankruptcy Code. If you believe you may need to consider a Bankruptcy, please call to set an appointment. Our initial consultation is free, and in many cases our fees can be paid through the Chapter 13 plan.

-Brian P. Hayes