Should I File for Bankruptcy?
Is the endless barrage of calls that you receive from your creditors driving you to drink? Are your on the verge of losing your car or home? Are you about to lose your mind because of the stress of being under a mountain of debt that is suffocating you. Thankfully, the New Jersey Bankruptcy Center is here to help you and to get you back on your feet. How much would your life change if you could get some breathing room from your creditors. Your creditors don’t want to give you any type of break at all. They don’t want you to get the fresh start that is provided by the Bankruptcy Code. The last thing that your creditors want to do is to help you. The debt collectors who are calling you 24/7 couldn’t care less about whether you have lost your job or have gotten sick. They are like terminators and they have one goal and that is to make you pay your debts.
Well, I want to help you, and I understand fully how scared and uncertain you are feeling right now. I know that you feel very embarrassed about considering filing for bankruptcy. However, I am here to inform you that the majority of people who file for bankruptcy are just like you. They are good hardworking people who have lost their job, gotten divorced, or who were just careless with their spending. They are hardworking people who just want to provide for their families and to keep a roof over their head. They are not trying to beat the system by not paying their bills. On the contrary, they want to pay their bills, but they find themselves in a series of events that is simply too overwhelming.
If you read this website, it is important to emphasize that you have options if you are in massive debt. One of these options is to file for bankruptcy. Contrary to what you may have heard you can still file for bankruptcy. Thousands of New Jersey’ites are filing every day. Moreover, close to one million Americans filed for bankruptcy in 2009.
Do Not Feel Guilty
Bankruptcy is about starting over fresh. It is about getting back in control of your financial future. Don’t feel any shame for considering bankruptcy. In today’s economy many people from all walks of life are in your situation. I have had clients who were making $150,000 plus last year and who used to live in very expensive homes. In a blink of an eye these same clients are down to collecting their last unemployment checks, and they don’t know where there next dollar is going to come from. Hard times can hit anyone, any time, and anywhere. In the modern world we have many young people who are in their early twenties who start out in life with $25,000 in debt (thanks to MasterCard/Visa/American Express) because of so called ”free” credit cards. Who gives an such young kids $5,000 credit lines? The credit card companies certainly do!
Mr. Sliwinski, Esq. has handled almost two thousand bankruptcy since 1991. He has not once ever had a client who advised him that he regretted filing for bankruptcy.
Bankruptcy Is Not Your Fault
Take control and feel no shame about filing for bankruptcy. Filing for bankruptcy is not your fault. You can’t control the terrible economy, your job situation, your health, or that terrible divorce that has ruined your life. We live in a consumer society. The entire society has been brainwashed to charge away like a drunken sailor. However, you can now take back control of your life by contacting the New Jersey Bankruptcy Center. Stop the harassment! Stop the 10 to 20 calls a day that you receive from the obnoxious debt collectors! Stop the endless collection letters that change color ever month! Personally, I would get sick of receiving red colored letters every day.
The Credit Card/Debt Trap
The credit card companies have been begging you to charge up at 23% (some 24.99%) for many years. How many “account balance” transfer offers have your received? How many new extensions of credit have you received? Here’s the trap, after you have established a decent payment history with a credit card company, they up the credit limit. “Congratulations,” they say. Now that you have more credit of course you spend it. They will keep upping that credit limit until you can barely make the minimum payment. Now they own you. Now you must make the minimum payment on your MasterCard or Visa and you will be paying that debt for the next 35 years or more.
Don’t feel any shame about taking back control of your life. The only thing the credit card companies have to fear is the United States Bankruptcy Code and bankruptcy lawyers. That is why they lobbied Congress and spent more than twenty five million to get the bankruptcy laws changed to protect them protect.
Credit Card Debt Management and Consolidation Services
Credit card counseling and debt management services - I don’t buy it. Countless clients have come to my office after using a debt management company. Most have advised me that these companies are scam artists. Many clients have come to me and they have asked me to try to get back their money from the credit counseling companies. Many clients have also advised me that the credit counseling company charged them more than a lawyer would have, and that they received no benefits by using the consumer credit counselor.
Please be further advised that if you break your contract with a credit counseling company, then you will lose all the benefits that you have gained - penalties and interest all gets put back. They are right there on your credit report as Credit Counseling Company. A negative mark that tells creditors that you are a bad credit risk. Consumer bankruptcy attorneys are about empowering you and letting you live again in peace. Stop hiding. Don’t you want to be able to answer your phone again, without fearing that it could be another collection call?
Obtaining Credit After Filing for Bankruptcy
Are you concerned about the state of their credit after filing bankruptcy? It is a hard cold fact that a bankruptcy discharge will appear on your credit report for 10 years following a discharge. This does not mean that you will not get a credit card, buy a home, or car for 10 years. Far from it, creditors want you to borrow. Shortly after your bankruptcy discharge, it is almost a certainty that you will receive a credit card offer. You will get credit following your bankruptcy.
Once a person files bankruptcy then they will have more disposable income. Therefore, many credit card companies, and car dealership will provide a debtor credit after they file. The reason why a debtor can restore their credit after they file is because; 1) The person no longer has a large debt load after the filing; 2) The person now has an ability to repay any new debts because their disposable income has been “freed up” and 3) the person can can’t declare bankruptcy a chapter 7 again for eight years. Further, the probability of a consumer declaring bankruptcy a second time in their lifetime is very low.
Consumer Bankruptcy - Chapter 7 or Chapter 13?
The choice of the chapter depends on many factors individual to your situation, and is one of the most important reasons to get good legal advice before filing. Which chapter is best depends on the nature of your debt and the nature and value of your assets.
Chapter 7
Chapter 7 is the most common type of bankruptcy. Here, the debtor receives a discharge of most his unsecured debts only within several months of the filing the case. If the debtor’s income appears high enough to permit some repayment of debt, then the trustee or the court may move to dismiss the case for “substantial abuse.” The underlying theory is that to permit someone with the ability to repay to file chapter 7 and avoid repayment abuses the bankruptcy system. This is termed “substantial abuse” - a catch phrase with the U.S. Congress.
If your debt is mixed business and consumer then it is important to know what the legal form of the business is. A sole proprietorship is treated for bankruptcy purposes as just one kind of asset of the individual who owns them; thus the owner of a troubled business must file an individual bankruptcy, including all of his assets and liabilities, personal and business, to obtain bankruptcy court protection.
Chapter 13
Chapter 13 is frequently a better choice if you have debts that are not dischargeable in chapter 7; if you are in default on mortgages or car payments; if you have more property than can be exempted from creditors in a chapter 7; or if you owe taxes or other debts that are not dischargeable in chapter 7.
To be eligible for chapter 13, you must have regular income and debts below a certain level.
Debtors choose to file a repayment plan under Chapter 13 when:
- They owe debts not dischargeable in chapter 7 (such as taxes, child support, fraud judgments).
- They have liens that are larger than the value of the assets securing the debt.
- They have years of unfiled taxes.
- They are behind on car or house payments.
- Their assets are worth more than the available exemptions.
1. I am now in massive of debt. What will happen if I simply ignore the credit card companies and hope that they go away?
If you learn one lesson from reading my website it is that if you blow off your financial problems then they will only get worse. Financial problems are like an infection and if they they go untreated they can kill you, ruin your marriage, and/or get you fired. If you are way behind on your bills, then you are going to be going to be charged interest and late fees that will make you feel sick. Moreover, if you blow off your bills then your phone will start ringing off the hook, and it will explode from receiving all of the collection calls. The debt collectors really only have limited power and that is to harass you. Debt collectors can’t seize your bank account, they can’t garnish your wages, and they can’t file a lawsuit against you.
All a debt collector can do to you is to call you morning, noon and night. Debt collectors will call you at your home and at job. They will call your cell phone if they have it. They will call you as early as 8:00 a.m. and as late at 9:00 p.m. If you gave personal references when you applied for your loan or credit card they may even call your references. The only way a debt collector can make you pay is to harass or embarrass you into paying. They believe that they can harass you into paying. Sometimes this method works, but most of the time it does not. Unfortunately, no matter how many times a debt collector calls, a pot of gold is not going to magically appear in your bank account to help you pay your bills. No matter how many times they call you, it is not going to get you a better job, cure your illness or medical condition, bring your spouse back to life, or solve your marital problems. In summary, your creditors simply don’t care why you can’t pay their bill. The creditors are like terminators and all they care about it getting their money. Once you are far behind on your credit card payments, then you will start receiving red colored letters and nasty calls from collection agencies. The collection agencies also charge high fees that will get passed onto you. Consequently, your debt to VISA, MasterCard, American Express and to Discover will only get even higher if it goes into collection. Not only will you be charged interest but you will be charged for collection fees as well.
If the debt collector is unsuccessful in getting you to pay the debt, then either the collection agency or the bank who issued the credit card to you will then sue you. Unfortunately, it is very difficult for a debtor to successfully defend against a collection lawsuit. Most judges simply rubber stamp motions for summary judgment and enter a judgment against the debt. Moreover, if you lose the lawsuit or if fail to respond, then a judgment will be entered against you for the amount of the debt, interest, attorney’s fees and court costs. Once a judgment is entered against you, then your creditor can garnish your paycheck, seize bank account, place a lien on your home, and ruin your credit report. It is important to emphasize that during this entire time, interest will continue to accrue until you pay off the judgment in full.
If you default on a mortgage, then the bank will eventually foreclose on your home. If you should default on an auto loan, then the finance company can send the repo man to snatch your vehicle. Get the picture, dealing with life while in massive debt is miserable. Moreover, the longer that you are in debt, the more miserable the complications will become. Your credit report is ruined. Your paycheck will be garnished. Your bank account could be seized by creditors. Your home could be foreclosed. You may be denied a promotion or “shot down” for a new job because your credit report is the pits. In summary, the longer you delay filing, then the longer you will have to live this life of misery. Bankruptcy is perfectly legal and it is a beginning and not an end!
2. Should I try to use debt counseling services instead of filing for bankruptcy?
In an effort to avoid dealing with creditors and collection agencies, many debtors try to use credit counseling instead of filing for bankruptcy. Credit counseling companies try to negotiate with the credit card companies to reduce your debt, to lower your interest rates, and to reduce your monthly payments. In summary, your credit card debts will be consolidated, and you will then be required to make one payment to the credit counseling company. Thereafter, the credit counseling company will then distribute your monthly payments to your creditors.
The major problem with these companies is that very often fail to pay your creditors from your monthly payment. Many credit counseling companies also charge very high rates, and your payments are first applied to their bill. Only after the credit counselors are paid off in full then your payments will be applied toward your credit card debts. Moreover, credit counselors very often sell client accounts to other companies, and because of poor record keeping, many debtors don’t get the proper credit for all their payments. I have had countless clients who come into my office and advise me that credit counseling was a total scam and a waste. It is important to emphasize that in the majority of the cases, your payments won’t be applied to your credit card debts only until the credit counseling company is fully paid off for their thousands of dollars of fees. The internet adds that praise the benefits of credit counseling are not accurate and they are misleading. The only tried and true method to obtain legitimate debt relief is to file bankruptcy. It is not that difficult to repair your credit after your file for bankruptcy. Therefore, you should really think twice before you embark on a very lengthy repayment plan with a credit counseling company.
3. What is so dangerous about using payday loans and auto title loans?
It is not uncommon for debtors who are struggling to pay their bills to obtain a payday loan. At a first glance these type of loans may seem like a quick and easy solution to solve your current financial problems. However, payday loans have extremely high interest rates and very short payment terms. These types of loans are not a viable or realistic option for most desperate debtors who are “in debt up to their eyeballs.” Generally, payday loans are due within 14 to 30 days and they carry interest rates of 15%. This may not sound that onerous at first. However, if you borrow $300 and if you must repay the loan in 14 days, then the annual percentage rate calculates to almost 1,200%.
Auto title loans are just as miserable as payday loans. These loans usually mature in thirty days and can have interest rates as high as 500% or more. Most title loans also have a rollover option that allows you to extend the term of the loan for another thirty days. The extension of auto loans is how most people get themselves into deep financial trouble. Unless you pay the loan off at the end of the first thirty-day term, any future payments that you make will only be applied only to interest until you are able to pay the loan in full. If you fail to repay the loan, then the lender can repossess the car and sell it to recover the amount of the loan plus any interest and fees. In summary, it is critically important that you take immediate action as soon as you realize that you are in sinking like quicksand from financial trouble. If you simply ignore your problems then they will only get worse and you could soon face a foreclosure, a repossession, or a wage garnishment.
1. I am in so deep in debt that I feel like jumping off a bridge. What can filing for bankruptcy do for me?
Bankruptcy is designed to give financially overwhelmed debtors fresh start. However, many people are embarrassed and humiliated at even the thought of filing for bankruptcy. Everyone wants to pay their bills. However, if there is a choice between paying for your rent or paying your VISA bill, then you have no choice. You can’t live in the woods or in your neighbor’s garage. My bankruptcy clients are not dishonest people who are looking for the quick and easy way out. They are hard-working people who are living in the hardest times since the great depression. They are looking for some relief from the miseries of life. It is embarrassing your boss sees that your paycheck is now being garnished. It is mortifying to open up the newspaper and see that your home is listed in the classified and listed for a Sheriff sale. It is downright humiliating to see strangers drive past your home and then try to inspect it so that they can buy it at a Sheriff’s sale. Finally, it can cause you major headaches if your creditor zaps a bank levy on your checking account and seven of your checks then bounce. The nightmares never end when you are living like a gerbil on a treadmill on the never-ending cycle of debt.
Bankruptcy is not a fun experience at all! Of all my hundreds of clients, not one of them enjoyed the bankruptcy filing process. In fact many of my clients cry in my office and they feel shameful about filing. Most people earnestly believe that they have a moral obligation to repay their debts. Most hard working New Jersey’ites honestly believe that since they borrowed the money they should repay the money. Because of these beliefs, many people have a very difficult time coming to terms with even the thought of filing bankruptcy.
However, I am here to advise you that filing for bankruptcy is perfectly legal. Therefore, until it becomes illegal to file for bankruptcy, there is absolutely no reason not to file if you are living on the brink of a financial disaster. You deserve the fresh start that bankruptcy offers. You deserve the peace of mind and relief from the endless barrage of phone calls from your creditors. You deserve to know that you’ll be able to feed and clothe your children and keep a roof over their heads while you get your financial life back in shape.
2. What are the basic requirements for a person to be permitted to file for bankruptcy?
Pursuant to the Bankruptcy Code, a chapter 7 case allows debtors who qualify to discharge most of their unsecured debt. Prior to October, 2005, it was much easier for a debtor to file chapter 7. The BAPCPA now requires anyone seeking to file a chapter 7 to satisfy a certain threshold called the means test. The means test requires any prospective debtors to have an annual income of less than the state median income for a family of the equivalent size. The U.S. Census Bureau maintains a list of the median incomes for each state.
If a prospective debtor’s annual income is more than the median income for a family of the same size in his state, then there is a presumption that he can afford to pay at least a portion of what he owes to his unsecured creditors. Therefore, before he can file a chapter 7 case, he must demonstrate to the court that his monthly expenses for housing, transportation, utilities, etc. are within the national and local standards as determined by the IRS and that once he pays those expenses, he has nothing left to pay into a chapter 13 plan. If he can’t satisfy this second requirement of the means test, then the debtor will have to pay at least $100 per month into a chapter 13 plan for five years.
Does this legal process sounds complicated? Yes, the means test certainly is complicated. The bottom line is that you have to speak to an experienced bankruptcy lawyer to determine if you can qualify for a chapter 7 or 13. The main goal of the BAPCPA is to push debtors into a chapter 13 if they can afford to repay some of their debt. However, the legal process to determine which debtors can repay a portion of their debt is a very complicated process. Moreover, the answer to this question can only be answered with the assistance of a qualified bankruptcy lawyer who is “in the know” about how the system works.
3. What is a chapter 13 bankruptcy?
Chapter 13 bankruptcy is a debt consolidation plan that allows a debtor to restructure his debt and pay it over a three to five year period. In some cases, debtors who have planned on filing chapter 7 are forced to file a chapter 13 because they cannot satisfy the means test that is required of chapter 7 debtors.
To file a chapter 13 case, a debtor must have enough income, after paying all monthly expenses, to pay into the chapter 13 plan. These funds that are then paid into the plan and are used by the trustee to pay the administrative costs of the case, the debtor’s attorney’s fees, priority claims such as taxes and child support, secured claims such as mortgage arrears and auto loans, and unsecured claims such as credit cards and medical bills.
To determine how much a debtor can afford to pay into the chapter 13 plan, the bankruptcy attorney reviews the debtor’s income from all sources and subtracts the debtor’s monthly expenses from his net monthly income to arrive at his net monthly disposable income. The bankruptcy code requires that 100% percent of a debtor’s net monthly disposable income must be paid into the chapter 13 plan. If a married debtor is filing bankruptcy without his spouse, then his spouse’s income and expenses must also be considered to formulate the chapter 13 plan.
Once the court approves or confirms the debtor’s chapter 13 plan, the debtor must continue to make his plan payments and to comply with the other terms of the plan. If the debtor’s financial circumstances should change, then he should notify his bankruptcy attorney immediately so that he can advise him, and to file any motions that may be necessary to protect his interests.
1. How does a typical person get into massive credit card debt?
There are many different roads in life that can cause a person to file for bankruptcy. For some people it is the loss of a job, the death of a spouse, the illness of a spouse or a child, or a divorce. Meanwhile, for other people it is poor money management and spending money like a drunken sailor. I just cringe when I prepare bankruptcies for clients and I see Burger King meals and other frivolous fast food places charged. Unfortunately, you wind up paying twice as much for the lousy burger if you use a credit card.
Most people initially incur credit card debt with the good faith intention of repaying for it. However, when life throws curve balls at you then paying your credit card bills can often seem like climbing Mount Everest. When people find themselves trapped in the never ending New Jersey rat race, they often begin using their credit cards to pay for their groceries, utility bills, or to pay for their other credit card bills. After most New Jersey’ites pay off their quarterly property taxes they have little if any disposable money to live on. I often see that many people take out a second mortgage or a home equity line of credit just to pay off their credit cards and for other unsecured debt. Converting unsecured debt into mortgage debt is often a disaster because if you don’t pay off your credit bills you can still keep your home. A credit card company can’t take your home away from you. However, if you convert credit card debt into mortgage debt, then you can lose your home if you default. Does this type of madness sound familiar to you? Unfortunately, for most people these are only short-term solutions. In my experience many people use their home equity line of credit to pay off credit card debt. Sadly once the credit card debts are paid off, many misinformed debtors start to charge up those same credit cards only within a few months time. In closing all these debtors have accomplished is to rack up additional debt for themselves. Unfortunately, this is more debt that most people can simply afford to pay.
2. Who is responsible for the financial mess that many consumers now find themselves in?
The credit card companies and mortgage companies are largely responsible for the financial crisis that many consumers now find themselves in. Most credit card companies charge outrageous interest rates, late fees, and over-the-limit fees. The different types of fees that credit card companies charge is never ending. The credit card companies are now even charging fees if you don’t use your credit card. Moreover, many credit card companies punish their customers by raising interest rates if a debtor makes a few late payments. Some credit card companies will even raise the interest rates if the customer makes a late payment on a credit card from another bank. The cold hard reality is that many people simply can’t get out of credit card debt, and they are trapped in this mess forever.
Many other people are in financial trouble because of the predatory loans that they have obtained over the past five to ten years or so. I can’t tell you how many clients I have represented who have maxed out their home equity with second mortgages. It is really easy to spend the money that you borrow from a home equity line of credit. The banks give the consumer a check book to use their equity line of credit. Consequently, many people do not even realize that they were spending money when they used these checks. Nonetheless, paying back this second mortgage is harder than ever in these hard economic times. Most people can barely make their payments on their first mortgage.
In summary, most people want to pay their bills, but due to unforeseen circumstances, such as the loss of a job, the death of a spouse, or unexpected medical expenses, this becomes an impossible task. Bankruptcy is one of the major stresses that can happen in your life along with filing for divorce, suffering from a major illness, the death of a loved one, and/or loss of a job. I have never represented a client who enjoyed filing for bankruptcy. It can be demoralizing and embarrassing! However, the decision to file for bankruptcy is really a simple choice of survival in this day and age.
3. What are the major indicators that I should consider when deciding whether to file for bankruptcy?
There is no set formula or computer program to determine if you should file for bankruptcy. Each decision is a personal decision and should only be made with the consultation of an experienced bankruptcy lawyer. However, there are some clear cut indicators that may convince you to file:
a. Do you live paycheck to paycheck?
b. Do you routinely pay your bills late?
c. Are you constantly juggling bills to keep creditors off your back?
d. Do you routinely overdraw your checking account?
e. Do you have more than three credit cards?
f. Are all of your credit cards maxed out?
g. Are you paying late fees and/or over-the-limit fees on all or most of your credit cards?
h. Do all of your credit cards have double-digit interest rates?
i. Are you at least one month behind on your mortgage payment?
j. Are you at least one month behind on your car payment?
k. Do you now or have you within the past three months obtained a title loan or a payday loan?
l. Are you using your credit cards to pay for necessities like groceries, prescriptions, and gasoline?
m. Are you dipping into your savings or retirement accounts to pay bills?
n. In the past three months, have you borrowed money from family or friends to pay your bills?
o. Do you know exactly how much you owe on all your bills?
p. Do you make only the minimum payment on your credit cards each month?
q. Are you receiving telephone calls or letters from collection agencies?
r. If you own a home, are you in pre-foreclosure?
s. Have you recently had a vehicle repossessed?
t. Is your auto finance company threatening to repossess your car?
u. Are you upside down in your auto loan?
v. Have you been denied credit, insurance, employment, or a security clearance because of poor credit?
If you have answered yes to any of these questions, then it is time that you take control of your life and to file. Filing for bankruptcy can help you stop worrying about paying for all of your debts. Moreover, you can finally be able to afford to put food on your table, buy your much needed medication, pump gas into your car, heat your home this winter and not freeze to death, and buy Christmas gifts this year. Bankruptcy can help you get your life back! Bankruptcy can get those nasty bill collectors to stop calling you. It is time for you to get the fresh start that you deserve! I have handled approximately two thousand bankruptcy cases in my career. I have never had one client call me to complain that he or she regretted filing.
4. How can bankruptcy help me regain control of my life?
One of the major benefits of filing bankruptcy is psychological. Many of my clients inform me that filing for bankruptcy is very similar to the feeling/rush of getting out of jail. Many of my clients come into my office shaking like a nervous wreck. Filing for bankruptcy allows you to regain control of your life once again. If you are behind on your bills and if you have creditors are calling you 24/7 then you have no control over your life. How can you possibly perform adequately at your job if the credit card companies and the bill collectors are leaving nasty messages for you all day at work. It doesn’t stop here, once you get home from work the creditors will often leave about ten more messages for you. Consequently, you then start fighting with your husband and wife. Is this the American dream? I don’t think so, instead it is the American nightmare! The bottom line is that life in the United States is not as great as it used to be. Everything is so expensive, companies will fire you in a second, and you have to worry if your 401K plan will disappear if there is another Wall Street Meltdown. I may be nostalgic but I long for the 70’s and 80’s when times were simpler. Back in these days, when there was less credit cards around, and Americans simply spent less and lived more modestly.
The stress of constantly being trapped in massive debt is also one of the major causes of divorce. Filing for bankruptcy will let you sleep again at night without waking up and turning around and around. Filing for bankruptcy will also enable you to have a clear mind and permit you to focus better on your job and on your family.
5. Can bankruptcy stop the annoying calls from creditors and bill collectors?
Yes, one of the major benefits of filing for bankruptcy is that it will stop collection calls cold. How embarrassing is it to receive receive collection calls at work or at dinner with your kids each night. It is certainly demoralizing to watch your kids check the caller ID before answering the phone because they know mom does not want to talk to creditors? Thankfully, bankruptcy stops the endless harassment from your creditors. When you file for bankruptcy the automatic stay immediately goes into effect. The automatic stay prevents creditors from taking any collection efforts against you and this includes telephone calls, letters, lawsuits, garnishments, foreclosure, and repossession. Filing for bankruptcy is like a nuclear weapon against your creditors and it will immediately stop all of their harassing ways.
Wednesday, April 28th, 2010 | FAQ'S | No Comments
Many web surfers are living through very tough financial times and they have no choice but to file for bankruptcy. Bankruptcy is embarassing but so is losing your girlfriend to another guy, so is getting fat, so is saying something stupid to your boss. Get the point, you have to deal with embarassment sometime in your life. A chapter 13 will remain on a person’s credit report for 7 years. However, the time the clock doesn’t start ticking until the chapter 13 repayment plan has been fully completed. Meanwhile, a chapter 7 filing will stay on your credit report for 10 years.
By far one of the most frequent questions that I receive at any initial bankruptcy consultation is how long does it will take for person to rebuild his credit after filing for bankruptcy? The answer to this question depends on many factors. The first major factor is what is the income of the debtor. If a debtor earns a nice salary then it will be much easier for him to rebuild his credit. The second major factor is how does the debtor pay his bills after he has filed. To help improve your credit score it is always advisable for a person to obtain a secured card and to pay it in full each month. You will have to deposit cash up to the amount of your credit line and you will have to pay a yearly fee (usually about $30), but it will appear on credit reports just like any card. If you have a secured credit card this will show to the credit world that you can responsibly use credit cards. Thereafter, your credit score should improve dramactically.
In about a year or two you will probably be able to apply for non-secured credit cards as your credit score inches back up. Typically, if you use this proven method then your credit score will go back to 650 to 680 within about three years. As the negative history (past late payments and written off accounts) starts to drop off completely your credit score will rebound even more.
The credit bureaus primarily review your last three to five years of credit history. Therefore, you can obtain a decent credit score after three years as long as you show to potential lenders that you can be an on time payer. It is important that you check your credit report on an annual basis to check for any errors. After you file for bankruptcy you should also make certain that all of the debts that were listed on your bankruptcy are listed as so on your credit report. Unfortuantely, many creditors still tend to continue to report bad debt even if it was discharged in a bankruptcy. In summary, if your credit card debt was wiped off then you must take steps to have these debts marked as discharged on your credit report. Most marks on your credit report for bad credit card debt will be removed from your credit report in 7 years.
If you have a foreclosure on your credit report then it will be much harder to obtain a new mortgage. A foreclosure mark on your credit report generally will be removed in 7 years. If you should decide that you want to purchase a new home before the foreclosure mark is removed, then you should talk with mortgage broker(s) before you even start to look for a home. A savvy mortgage broker can help you find a deal that you can live with. Generally, the mortgage rates after a bankruptcy are around 8% to 10%. However, if you have paid your mortgage payment on time, then you should be able to refinance for a lower rate in two years.
Finally, it may also be somewhat of a challence to obtain a new car loan. However, this still is not an impossible task. Typically, the interest rates for car loans after a bankruptcy run from 10% to 18%. The interests rates could be lower if the borrower finds a co-signer. The downside of having such high interests rates is that it generally takes several more years to pay off the car loan.
The bankruptcy statistics in America are getting higher each year. Even the passage of the Bankruptcy Reform Act of 2005 could not slow the high rates of filing for bankruptcy. Following is a list of the most common causes of bankruptcy.
1. Medical Bills
Medical bills are a major cause of many bankruptcies. I had one case wherein one of my debtors had a stroke and he had $950,000 of medical bills. He could not afford to pay for these bills. How could a person possibly recover from such a serious medical condition by dealing with such outrageous debt. Severe injuries or serious diseases can easily result in hundreds of thousands of dollars of medical bills. These medical bills can quickly wipe out your life savings, retirement accounts, college education funds and your home equity. Once these assets have been wiped out, then the desperate debtor is forced to rack up thousands of dollars of medical bills. The debtor has no choice but to rack up these high medical bills or he will become even sicker or possibly could die.
2. Loss of a Job
Whether due to a layoff, termination or resignation, the loss of income from a job can be equally disastrous. Only a few of the lucky unemployed Americans are fortunate to receive severance packages. Unfortunately, most of the unemployed sadly find their pink slips on their desks or lockers and they receive very little notice. Most debtors have no emergency fund to live on and they are forced live on credit cards. This is no way to live and it is a recipe for disaster. If you use your credit card to pay for McDonalds and for your everyday living expenses it will sooner or late cause many once responsible people to file for bankruptcy. The interest rates on credit cards rack up balances much more quickly than the average American can pay off the card. Furthermore, the loss of health insurance coverage and the cost of paying for COBRA insurance also makes the life of the unemployed even more miserable. Many debtors who are who are not able to find a decent job for a long period period of time are simply not able to recover financially.
3. The Overuse of Credit Cards and Home Equity Loans
Many debtors simply can’t control their lavish and careless spending habits. You can’t live like a rap star if you only earn $50,000 per year. Credit card bills, taking out home equity lines of credit, car loans and student loan payments can eventually spiral out of control and ruin your finances. Many debtors can’t keep up with all of these debts, and they are not even able to make the minimum payment on their credit cards. For many debtors they feel like they are a gerbil on a treadmill, and they eventually can’t keep running forever. It is important to note that most debt-consolidation plans also fail for many reasons. Most debt consolidation plans only delay a debtor from eventually filing for bankruptcy.
4. Divorce/Separation
The big divorce also frequently creates a financial disaster for both spouses. Legal fees can be substantial in a contested divorce case. Moreover, many separated couples who were used to living on two incomes are in for quite a financial shock when they try to make their bills by living only on one paycheck. Additionally, high child support and alimony payments often force a payor spouse to file for bankruptcy.
5. Unexpected Expenses
The loss of your home or your personal property caused by theft or casualty, such as floods, storms, or a storm for which the owner is not insured can force some people into bankruptcy. Thousands of Americans who lived in the the Gulf Coast states were forced to file after Hurricane Katrina. Many homeowners are unaware that they must take out separate insurance coverage for certain events such as floods. Those who do not have insurance coverage for this type of casualty can face the loss of not only their homes but most or all of their personal possessions as well. Not only must they then pay to replace these items, but they must also find a way to pay for food and shelter to try to “eke out a living.”
1. I am losing my home in foreclosure. What can I do to try to save my house?
The possibility of losing your home because you can’t make the mortgage payments can be terrifying. Perhaps you’re having trouble making ends meet because you or a family member lost a job, or you’re having other financial problems. Or maybe you’re one of the many consumers who took out a mortgage that had a fixed rate for the first two or three years and then had an adjustable rate – and you want to know what your payments will be and whether you’ll be able to make them.
Regardless of the reason for your mortgage anxiety, there are many avenues you can take to save your home, and to avoid foreclosure scams.
2. Why is it important to know your mortgage?
Do you know what kind of mortgage you have? Do you know whether your payments are going to increase? If you can’t tell by reading the mortgage documents you received at settlement, contact your loan servicer and ask. A loan servicer is responsible for collecting your monthly loan payments and crediting your account.
Here are some examples of types of mortgages:
Hybrid Adjustable Rate Mortgages (ARMs): Mortgages that have fixed payments for a few years, and then turn into adjustable loans. Some are called 2/28 or 3/27 hybrid ARMs: the first number refers to the years the loan has a fixed rate and the second number refers to the years the loan has an adjustable rate. Others are 5/1 or 3/1 hybrid ARMs: the first number refers to the years the loan has a fixed rate, and the second number refers to how often the rate changes. In a 3/1 hybrid ARM, for example, the interest rate is fixed for three years, then adjusts every year thereafter.
ARMs: Mortgages that have adjustable rates from the start, which means your payments change over time.
Fixed Rate Mortgages: Mortgages where the rate is fixed for the life of the loan; the only change in your payment would result from changes in your taxes and insurance if you have an escrow account with your loan servicer.
If you have a hybrid ARM or an ARM and the payments will increase – and you have trouble making the increased payments – find out if you can refinance to a fixed-rate loan. Review your contract first, checking for prepayment penalties. Many ARMs carry prepayment penalties that force borrowers to come up with thousands of dollars if they decide to refinance within the first few years of the loan. If you’re planning to sell soon after your adjustment, refinancing may not be worth the cost. But if you’re planning to stay in your home for a while, a fixed-rate mortgage might be the way to go. Online calculators can help you determine your costs and payments.
3. What should I do if I am behind on my mortgage payments?
If you are having trouble making your payments, contact your loan servicer to discuss your options as early as you can. The longer you wait to call, the fewer options you will have.
Many loan servicers are expanding the options available to borrowers – it’s worth calling your servicer even if your request has been turned down before. Servicers are getting lots of calls: Be patient, and be persistent if you don’t reach your servicer on the first try.
You may qualify for a loan modification under the Making Home Affordable Modification Program (HAMP) if:
* your home is your primary residence;
* you owe less than $729,750 on your first mortgage;
* you got your mortgage before January 1, 2009;
* your payment on your first mortgage (including principal, interest, taxes, insurance and homeowner’s association dues, if applicable) is more than 31 percent of your current gross income; and
* you can’t afford your mortgage payment because of a financial hardship, like a job loss or medical bills.
If you meet these qualifications, contact your servicer. You will need to provide documentation that may include:
* information about the monthly gross (before tax) income of your household, including recent pay stubs.
* your most recent income tax return.
* information about your savings and other assets.
* your monthly mortgage statement.
* information about any second mortgage or home equity line of credit on your home.
* account balances and minimum monthly payments due on your credit cards.
* account balances and monthly payments on your other debts, like student loans or car loans.
* a completed Hardship Affidavit describing the circumstances responsible for the decrease in your income or the increase in your expenses.
4. How can I avoid defaulting on my mortgage and losing my home in foreclosure?
If you have fallen behind on your payments, consider discussing the following foreclosure prevention options with your loan servicer:
Reinstatement: You pay the loan servicer the entire past-due amount, plus any late fees or penalties, by a date you both agree to. This option may be appropriate if your problem paying your mortgage is temporary.
Repayment plan: Your servicer gives you a fixed amount of time to repay the amount you are behind by adding a portion of what is past due to your regular payment. This option may be appropriate if you’ve missed a small number of payments.
Forbearance: Your mortgage payments are reduced or suspended for a period you and your servicer agree to. At the end of that time, you resume making your regular payments as well as a lump sum payment or additional partial payments for a number of months to bring the loan current. Forbearance may be an option if your income is reduced temporarily (for example, you are on disability leave from a job, and you expect to go back to your full time position shortly). Forbearance isn’t going to help you if you’re in a home you can’t afford.
Loan modification: You and your loan servicer agree to permanently change one or more of the terms of the mortgage contract to make your payments more manageable for you. Modifications may include reducing the interest rate, extending the term of the loan, or adding missed payments to the loan balance. A modification also may involve reducing the amount of money you owe on your primary residence by forgiving, or cancelling, a portion of the mortgage debt. Under the Mortgage Forgiveness Debt Relief Act of 2007, the forgiven debt may be excluded from income when calculating the federal taxes you owe, but it still must be reported on your federal tax return. For more information, see www.irs.gov. A loan modification may be necessary if you are facing a long-term reduction in your income or increased payments on an ARM.
Before you ask for forbearance or a loan modification, be prepared to show that you are making a good-faith effort to pay your mortgage. For example, if you can show that you’ve reduced other expenses, your loan servicer may be more likely to negotiate with you.
Selling your home: Depending on the real estate market in your area, selling your home may provide the funds you need to pay off your current mortgage debt in full.
Bankruptcy: Personal bankruptcy generally is considered the debt management option of last resort because the results are long-lasting and far-reaching. A bankruptcy stays on your credit report for 10 years, and can make it difficult to get credit, buy another home, get life insurance, or sometimes, get a job. Still, it is a legal procedure that can offer a fresh start for people who can’t satisfy their debts.
If you and your loan servicer cannot agree on a repayment plan or other remedy, you may want to investigate filing Chapter 13 bankruptcy. If you have a regular income, Chapter 13 may allow you to keep property, like a mortgaged house or car, that you might otherwise lose. In Chapter 13, the court approves a repayment plan that allows you to use your future income toward payment of your debts during a three-to-five-year period, rather than surrender the property. After you have made all the payments under the plan, you receive a discharge of certain debts.
To learn more about Chapter 13, visit www.usdoj.gov/ust; it’s the website of the U.S. Trustee Program, the organization within the U.S. Department of Justice that oversees bankruptcy cases and trustees.
5. What type of information should I have readily available to me before I contact my loan servicer?
Before you have any conversation with your loan servicer, prepare. Record your income and expenses, and calculate the equity in your home. To calculate the equity, estimate the market value less the balance of your first and any second mortgage or home equity loan. Then, write down the answers to the following questions:
* What happened to make you miss your mortgage payment(s)? Do you have any documents to back up your explanation for falling behind? How have you tried to resolve the problem?
* Is your problem temporary, long-term, or permanent? What changes in your situation do you see in the short term, and in the long term? What other financial issues may be stopping you from getting back on track with your mortgage?
* What would you like to see happen? Do you want to keep the home? What type of payment arrangement would be feasible for you?
6. I am now dealing with the bank to try to save my home. What should I do throughout the foreclosure prevention process?
* Keep notes of all your communications with the servicer, including date and time of contact, the nature of the contact (face-to-face, by phone, email, fax or postal mail), the name of the representative, and the outcome.
* Follow up any oral requests you make with a letter to the servicer. Send your letter by certified mail, “return receipt requested,” so you can document what the servicer received. Keep copies of your letter and any enclosures.
* Meet all deadlines the servicer gives you.
* Stay in your home during the process, since you may not qualify for certain types of assistance if you move out. Renting your home will change it from a primary residence to an investment property. Most likely, it will disqualify you for any additional “workout” assistance from the servicer. If you choose this route, be sure the rental income is enough to help you get and keep your loan current.
7. What type of housing and credit counseling is available to me to help me contest the foreclosure of my home?
You don’t have to go through the foreclosure prevention process alone. A counselor with a housing counseling agency can assess your situation, answer your questions, go over your options, prioritize your debts, and help you prepare for discussions with your loan servicer. Housing counseling services usually are free or low cost.
While some agencies limit their counseling services to homeowners with FHA mortgages, many others offer free help to any homeowner who is having trouble making mortgage payments. Call the local office of the U.S. Department of Housing and Urban Development (www.hud.gov) or the housing authority in your state, city, or county for help in finding a legitimate housing counseling agency nearby. Or consider contacting the Homeownership Preservation Foundation (HPF) at 888-995-HOPE or www.hopenow.com. HPF is a nonprofit organization that partners with mortgage companies, local governments, and other organizations to help consumers get loan modifications and prevent foreclosures.
When choosing a counselor, beware of anyone charging large up-front fees or guaranteeing you a loan modification or other solution to stop foreclosure. They shouldn’t be charging you high fees or making any guarantees. Take your business elsewhere.
8. I simply can’t save my home. What other types of options do I have available to me?
Not every situation can be resolved through your loan servicer’s foreclosure prevention programs. If you’re not able to keep your home, or if you don’t want to keep it, consider:
A. Selling Your House: Your servicers might postpone foreclosure proceedings if you have a pending sales contract or if you put your home on the market. This approach works if proceeds from the sale can pay off the entire loan balance plus the expenses connected to selling the home (for example, real estate agent fees). Such a sale would allow you to avoid late and legal fees and damage to your credit rating, and protect your equity in the property.
B. Short Sale: Your servicers may allow you to sell the home yourself before it forecloses on the property, agreeing to forgive any shortfall between the sale price and the mortgage balance. This approach avoids a damaging foreclosure entry on your credit report. Under the Mortgage Forgiveness Debt Relief Act of 2007, the forgiven debt on your primary residence may be excluded from income when calculating the federal taxes you owe, but it still must be reported on your federal tax return. For more information, see www.irs.gov, and consider consulting a financial advisor, accountant, or attorney.
C. Deed in Lieu of Foreclosure: You voluntarily transfer your property title to the servicers (with the servicer’s agreement) in exchange for cancellation of the remainder of your debt. Though you lose the home, a deed in lieu of foreclosure can be less damaging to your credit than a foreclosure. You will lose any equity in the property, although under the Mortgage Forgiveness Debt Relief Act of 2007, the forgiven debt on your primary residence may be excluded from income when calculating the federal taxes you owe. However, it still must be reported on your federal tax return. For more information, see www.irs.gov. A deed in lieu of foreclosure may not be an option for you if other loans or obligations are secured by your home.
9. What types of scams should I be aware of during the foreclosure process?
Scam artists follow the headlines, and know there are homeowners falling behind in their mortgage payments or at risk for foreclosure. Their pitches may sound like a way for you to get out from under, but their intentions are as far from honorable as they can be. They mean to take your money. Among the predatory scams that have been reported are:
A. The foreclosure prevention specialist: The “specialist” really is a phony counselor who charges high fees in exchange for making a few phone calls or completing some paperwork that a homeowner could easily do for himself. None of the actions results in saving the home. This scam gives homeowners a false sense of hope, delays them from seeking qualified help, and exposes their personal financial information to a fraudster.
Some of these companies even use names with the word HOPE or HOPE NOW in them to confuse borrowers who are looking for assistance from the free 888-995-HOPE hotline.
B. The lease/buy back: Homeowners are deceived into signing over the deed to their home to a scam artist who tells them they will be able to remain in the house as a renter and eventually buy it back. Usually, the terms of this scheme are so demanding that the buy-back becomes impossible, the homeowner gets evicted, and the “rescuer” walks off with most or all of the equity.
C. The bait-and-switch: Homeowners think they are signing documents to bring the mortgage current. Instead, they are signing over the deed to their home. Homeowners usually don’t know they’ve been scammed until they get an eviction notice.
Monday, February 15th, 2010 | FAQ'S | No Comments
1. I have just been served with a lawsuit. I am being sued by one of my credit card companies that I owe approximately $10,000. What should I do now?
If you are served with a collection lawsuit, and if you believe you have a defense to the case, then you should file an answer to the case. You are legally required to file an answer with the clerk within 35 days from the date when you received the complaint. If you do not file a written answer within the 35-day time period, then the court could enter a default judgment against you. You are also required to pay a filing fee when you file your answer. It is important to emphasize that before a judgment can be entered against you, New Jersey law requires that the creditor must verify proof of the debt. The creditor must either submit affidavits and copies of any credit card bills to establish that the veracity of the debt. Credit card debt is constantly brought and sold. Therefore, if you have legal counsel then he may be able to object to the creditor’s proofs when they are submitted at any proof hearing. At the very least, these objections may provide a debtor with some meritorious legal arguments to use in any settlement negotiations.
2. If one of my creditors obtains a judgment against me, what can they do against me?
If one of your creditors obtains a judgment against you, then the Sheriff or a Constable may be able to levy or seize your checking and savings accounts or to garnish your wages. In a wage garnishment a creditor simply obtains a court order that permits it to deduct approximately 10% from your wages. The garnishment may not legally exceed 10% of your gross salary. Additionally, any monies may not be withheld if disposable weekly earnings are less than $154.50 per week or $309.00 every two weeks. If a debtor has more than one creditor who has obtained a wage execution order they will be applied in turn. A debtor can only be garnished by one judgment creditor at a time.
In some default cases the court will set the case down for a proof hearing. In these cases, the court may not be able to enter a judgment without some type of testimony from the creditor as to the nature of the debt, and the amount due and owing. At the proof hearing the creditor will submit proofs to the court to establish the debt and how much is still outstanding. However, in the majority of book accounts or credit card cases, the judgment will simply be entered on the papers. The creditor will simply submit detailed legal paperwork to the court that verifies the debt.
3. Does filing for bankruptcy stop a wage garnishment and/or bank levy?
Yes, one of the best advantages of filing for bankruptcy are that it will stop a wage garnishment and a bank levy. When a person files for bankruptcy it automatically stays (stops) any and all collection activity against a debtor. The main purpose of the bankruptcy is that it gives a debtor some breathing room, and it also gives him a fresh start. Moreover, many debtors are absolutely petrified at the prospect of having their paycheck garnishment. Many of my clients advise me that they would get fired if their employer had to garnish their paycheck. Many debtors also will have their bank account frozen or levied by their creditors. This can be an ultimate disaster! Many debtors live pay check to pay check. If their bank account is levied, then their rent payment is lost. A bankruptcy will stop a bank levy. However, in my experience it normally takes four to five weeks before a bank will release a levied bank account back to a debtor. The Constable freezes and levies bank accounts in massive numbers. If your lawyer sends a bankruptcy notice to a Constable to release a levied account, unfortunately they do not take efforts immediately to release his levy. It normally takes four to five weeks to have the monies released from a levied bank account. Therefore, a distressed debtor should not wait until the last minute to file for bankruptcy.
BASIC FORECLOSURE FAQ’S
1. What is a foreclosure case?
Foreclosure is the legal process where a court orders the sale of a home when the homeowner doesn’t pay the mortgage. Right now thousands of New Jersey homeowners are having tremendous difficulty making their mortgage payments. It is important for you to know that the lender can’t take your house automatically if you have missed mortgage payments. The lender must take you to court where you have several options to try to save your home. It is important for you to be aware that in many cases a mortgage foreclosure can be prevented. Don’t give up hope if the bank has filed for foreclosure. You can file for bankruptcy, pursue a loan modification, or participate in the foreclosure mediation program.
2. How are mortgage liens treated in New Jersey?
A mortgage is simply an agreement wherein a lender uses a house as collateral for a debt. If a homeowner does not pay his mortgage, then a lender can try to force the sale of the home so that it can be sold to satisfy the debt. After a homeowner signs a mortgage, the original mortgage is then recorded with the County Clerk in the county wherein the house is located.
3. What is a note?
When you sign your mortgage, you also sign a document called a note. The mortgage note is just like an IOU. The note spells out the amount of money you have borrowed and the terms for repayment, such as the interest rate and length of the loan. A loan default occurs when a borrower fails to do what the mortgage note requires. For example, a homeowner who misses a mortgage payment is in default. It is important to identify and understand the terms of your mortgage note. The principal is the total loan amount borrowed and it is the face value of the note. The interest rate is the amount that a borrower pays the lender for the use of the money, expressed as a percentage.
4. How are mortgages foreclosed upon in New Jersey?
In New Jersey the bank must file a foreclosure case with the court. Once the bank obtains a foreclosure judgment then the property will eventually be sold at a public sheriff sale. The court that has jurisdiction over a foreclosure is the Superior Court of New Jersey, Civil Division, General Equity. During the foreclosure process the bank must also file a legal form called a lis pendens. A lis pendens is a recorded document that provides to the public notice that the property is being foreclosed upon. Therefore, the homeowner can’t sell the home to avoid the foreclosure if a lis pendens if filed. The foreclosure unit of the Superior Court handles all foreclosures.
5. What are the legal documents used to effectuate a New Jersey mortgage?
There are two documents that must be executed to create a valid and binding mortgage. These legal documents are known as the mortgage and a promissory note. The mortgage is always filed in the County Clerk’s Office. The promissory note is not filed with the clerk.
6. How long does it take to foreclose upon a home in New Jersey?
In most cases it generally takes 250 days to one full year for an uncontested foreclosure to be processed. This time fluctuates significantly. The two major factors that effect this time line. The first factor is how busy the local county court is wherein the foreclosure case is filed. The second factor is how fast the bank’s lawyer pushes the case. It is important to emphasize that the foreclosure process can be delayed if the borrower contests the foreclosure case, requests adjournments of the sheriffs’ sale, or files for a bankruptcy.
Generally, New Jersey has one of the longest wait times for foreclosures. There are many ways that a defendant can extend a foreclosure case. A defendant has 35 days to answer a foreclosure case. Once a default is entered then the bank must wait another 45 days before entering a final judgment for foreclosure. Thereafter, the bank must file for a writ of execution to be issued and delivered to the sheriff to effectuate the foreclosure sale process. The defaulting borrower must be given at least 10 days notice before the foreclosure sale can take place.
7. Does a borrower has a legal right of redemption in New Jersey?
New Jersey has a statutory right of redemption. This means that the borrower or the party whose property has been foreclosed has a legal right to reclaim that property. The borrower must make a payment in full of the sum of the unpaid loan plus costs to the bank. It must be emphasized that there is a strict time limit of only ten days to exercise a right of redemption after the foreclosure sale.
8. I have recently lost my house at a sheriff’s sale. However, my home sold for $50,000 less than the amount of the mortgage that I owe to the bank. Can the bank still sue me for the balance of the original loan?
Yes, in New Jersey the banks or mortgagee is still entitled to sue a homeowner for any balance that is still due on the mortgage after a sheriff sale. Nonetheless, in my experience deficiency lawsuits are rarely filed. A deficiency judgment can be obtained when the home that is sold at a sheriff sale for less than the mortgage amount. This means that the borrower still owes the bank for the difference between what the home sold for at the sheriff’s sale and the amount of the original mortgage.
Thankfully, New Jersey however has a Fair Market Credit Doctrine that is codified under N.J.S.A. 2A:50-3. This law protects a homeowner against low or minimal bids which may give the lender a windfall in the event of a deficiency lawsuit. Under this doctrine the defaulting borrower is given credit for the fair market value of the property regardless of what type of bid was made at the sheriff’s sale. This doctrine is also considered to be an affirmative defense. The borrower must raise this defense in any deficiency lawsuit. Finally, there is a strict time window for the lender to file this type of lawsuit. Any deficiency lawsuit must be filed within three months of the sheriff’s sale.
WAYS TO AVOID FORECLOSURE
9. What are the best ways to avoid a foreclosure case?
Many foreclosures can be prevented by calling your mortgage company and by asking to speak to someone in the Loss Mitigation Department. You could inquire about a loan workout solutions, such as, a repayment plan, loan modification agreement, forbearance agreement, a loan assumption, deed-in-lieu of foreclosure or short sale. The sooner you ask for help then the easier it will be for you to formulate a plan to save your home. In today’s world it seems that half of New Jersey’s residents are facing the grim prospect of losing their home. Thankfully, in past few years there has been an explosion of foreclosure workouts that enable a distressed homeowner to try to save his home.
Foreclosure mediation is the hottest new option for a homeowner who is faced with foreclosure. The State of New Jersey has recently established a court-run foreclosure mediation program. Foreclosure mediation simply gives the homeowner an opportunity to try to negotiate a repayment plan with the lender. A mediator also tries to assist the bank and the homeowner to try to work out a foreclosure alternative. The person appointed by the court is called a mediator. Under New Jersey’s foreclosure mediation program, mediation does not stop the foreclosure case from marching on. If the mediation is successful, and if the parties ultimately reach an agreement, they may agree to stop the foreclosure. In summary foreclosure mediation helps a tremendous amount of New Jersey’ites save their precious homes. There are not many caves in New Jersey. Therefore, you should make every effort to save your home.
Nonetheless, foreclosure mediation can’t save the world. If a homeowner does not have any cash flow, or if he simply can’t afford to pay the mortgage and the taxes, then mediation will only stall the inevitable. The inevitable reality is that the homeowner will ultimately have to sell his home or lose at the sheriff’s sale. Finally, it is important to emphasize that merely because you are participating in the foreclosure mediation program, this even does not alone stop the foreclosure case. There has to be a court order or a written agreement to stop the foreclosure case. Unless you have a court order or an agreement then the foreclosure process will still continue, and you could still lose your home. In many cases a bankruptcy can also help you save your home.
GETTING STARTED
10. I was just served with a foreclosure complaint. What should I do now to try to save my home?
First, take a deep breath and don’t panic. There are several steps that you may take to try to save your home.
A. Obtain records and mark down important deadlines
People get very scared when they are served with a foreclosure complaint. Many of my clients have advised me that they simply throw away or ignore foreclosure complaints. This is a major mistake. You should always open up your mail and read it thoroughly. If you blow off your foreclosure court papers, then you could lose your home, and you won’t even have a chance to try to save your home. If you receive a foreclosure complaint then you should immediately either consider filing for a chapter 13, or enroll in the foreclosure mediation program.
Additionally, you should call your lender’s customer relations line and request an application for a loan modification. All of these options take considerably time and preparation. You should not wait until the last minute to explore these alternatives. In summary, don’t ignore a foreclosure complaint and any other pleadings. Additionally, you should also always mark down any of the deadlines in the legal papers that you receive from the lender. These deadlines have important consequences. Don’t expect that your foreclosure case will disappear or fade away.
B. Obtain a copy of your mortgage documents
If you are faced with a foreclosure then you should also retrieve your mortgage documents. At a house closing a homeowner signs many legal documents so that he can obtain a loan. At the closing you were given a copy of your loan documents. If you can’t find these documents then you should write your bank and obtain a copy of them. You will need to give a copy of these documents to your lawyer if you want to pursue foreclosure mediation, a loan modification, or even bankruptcy.
C. Other documents related to the mortgage
If you are trying to stop your foreclosure then it will also help your case if you have the following documents:
* Your mortgage statements
* Proof of payment such as canceled checks, money order stubs, and credit card statements
* Proof of homeowners’ insurance
* Proof of property tax payments
11. I was just contacted by this company that advised me for $3,000 they could save my home. Are these companies legit?
There is a tremendous amount of foreclosure scams in New Jersey. When people are faced with losing their home, they often become gullible to the countless amount of scoundrels in the world. When you are in a foreclosure case, you will receive a ton of junk mail. Moreover, when you are in a foreclosure case the court records are public and companies use lists of foreclosure filings to mail information about their services to people in foreclosure. Most of these companies that contact you to try to help you save your home is completely bogus. They are just trying to rip you off. I have heard of countless stories wherein desperate people have blow thousands of dollars to companies who gave them false promises that they could save their homes. You should avoid these companies like the plague.
These companies have various ways as to how they can scam you. A common scam is where you are told to transfer the deed to your property to someone else temporarily and then buy your house back in a year or two when your credit improves. This is called a sale leaseback deal. If you fall for this scam then it is very unlikely that you will ever get back the deed to your property. Moreover, it is very likely that the new owner will eventually try to evict you so the new owner can sell the house for a profit. Under no circumstances should you fall for the sale leaseback scam. Finally, another common scam is you are asked to pay a fee to have your mortgage renegotiated. You are told that for a fee, a company will renegotiate your mortgage with your lender. I have never heard of a case wherein one of these companies has been able to be successful renegotiate a distressed mortgage.
12. Why is important to evaluate your finances in foreclosure defense case?
A. Find out how much your house is worth
In any foreclosure bailout scenario it is critically important to have some realistic information as to how much your home is worth. You can find out by obtaining either a market analysis or an appraisal. This step will help you determine if you have any equity in your home. Moreover, if you know the market value of your home, then you will be able to make a more informed decision. If you have no equity in your home then it might make no sense to try to save it via a loan modification, bankruptcy, etc. In many cases the homeowner may actually owe more money on the home that what the house is worth. In scenarios such as this, the best decision may be to abandon the home, and lose it in foreclosure.
B. Analyze your budget
You should sit down with your spouse or partner and review your pay and bills. You should then make the hard decision whether you can afford to keep your home. If you paychecks don’t cover your monthly bills then you will either have get a better job, get a raise, or rent out a room in your home. Alternatively, you might just have to downsize and sell your home.
C. Save your money
If your lender will not accept your mortgage payments, then it is very important that you save all of the money that you would have spent on your monthly mortgage payment. You will need these savings to effectuate and loan modification or forbearance agreement with your lender. If you are not paying your mortgage, then it is essential that you must salt away these missed mortgage payments.
D. Write out your story
If you choose to seek a forbearance agreement or a loan modification that you will be eventually required to provide grounds of hardship to the lender. Therefore, you should write out your own personal story of what happened to you and why your mortgage went into the tank. Your lawyer will need this hardship memorandum to present it to the lender. Moreover, the bank rep who is reviewing your loan modification will also need to review your hardship memorandum.
E. Review and understand your mortgage
Finally, it is important for you to review your mortgage. You should pull out your closing package and review the following documents;
* The mortgage
* The mortgage note
* Any riders to the note
* The Truth in Lending disclosure statement
* The itemization of the amount financed
* All copies of the notice of right to cancel (if any)
After your review all of your mortgage documents and your interest rates, then you should have a discussion with your lawyer and the bank’s representative to discuss your options.
THE FORECLOSURE PROCESS
13. What is the pre-foreclosure process?
A. You default on your loan
If you miss one mortgage payment then you are considered to be in default. Usually if you miss two or three payments, then the lender will contact you via a letter. The letter will warn you that a pre-notice of intent to foreclose will be sent out if you do not catch up on your payments.
B. The lender sends you a Notice of Intention to Foreclose
If you don’t catch up on payments then the next step is that the lender will send you a notice of intent to foreclose. The lender will not send out this letter until you miss at least three mortgage payments. The New Jersey Fair Foreclosure Act requires the lender to send this notice to you. The law also requires certain information must be included in the notice. The lender must send you this notice at least 30 days before the lender files a complaint. If you can cure the default and make up the missed mortgage payments, then the lender must accept your payment and cannot charge you attorneys’ fees at this point.
14. Where is a foreclosure complaint filed?
All foreclosure complaints are filed with the Clerk of the Superior Court, located Richard Hughes Justice Complex, P.O. Box 971, 25 Market St., Trenton, New Jersey 08625. Even though the complaint is filed in Trenton, the complaint’s caption states venue to be the county where the property is located. Any and all court pleadings must be filed in Trenton, until and when the case is transferred to a county court. If the foreclosure case is contested, then the case will be transferred to the county court. Thereafter, any additional pleadings must filed with the General Equity judge in the county of venue.
15. What should you do if you are served with a foreclosure complaint?
You should immediately get legal help as soon as possible! You generally only have 35 days to respond to the complaint. If you look at the summons, which often is the first page of the papers that you received from the lender’s attorney, then you will notice that it demands that you answer the complaint within 35 days after you receive the summons and complaint.
16. What is an answer?
An answer is the document filed by the debtor/property owner (defendant) which contains the response to each of the statements made by the plaintiff. The answer must also contain the reasons or circumstances why the defendant is or is not responsible for any loss claimed by the lender (plaintiff). Answers should give notice to the court and to the other parties, in short and plain terms, why the relief requested in the complaint is opposed. An answer must respond to each numbered paragraph in the complaint and admits the statement, denies the statement or states that the party is without knowledge or information sufficient to form a belief as to the truth of the statement (allegation). In foreclosure case a response that the defendant is without sufficient knowledge or information is not a denial. Answers may also assert affirmative defenses. Affirmative defenses are specific and separate statements of facts asserted to prevent the relief requested in the complaint.
17. How should I prepare a written answer to a foreclosure complaint?
The answer tells the court in short and simple terms whether you admit or deny the statements made by the lender-plaintiff in the complaint and sets forth every defense you may have to the lender-plaintiff’s claims. You must respond to each numbered paragraph in the complaint and either admit the allegation, deny the allegation, or state that you are without knowledge or information sufficient to form a belief as to the truth of the allegation. Whenever you deny something in the complaint, you should also state briefly your reason why you are denying it or any part of it. If you have defenses, you should list the facts that explain your action or inaction. You may state as many separate defenses as you have and provide any reasons you have why the plaintiff should not get the relief requested. Sign and date the answer. Nonetheless, it is important to emphasize that an allegation in a foreclosure answer that a party is without knowledge or information does not have the effect of a denial and such a response is viewed as non-contesting.
18. Where should an answer to a foreclosure case be filed?
You should file, deliver or mail the original and one copy of your answer to the Clerk of the Superior Court, Hughes Justice Complex, P.O. Box 971, 25 Market Street, Trenton, New Jersey 08625 along with the filing fee. If you mail the papers, then it is recommended that you use certified mail, return receipt requested. Enclose a stamped self-addressed envelope so the file-stamped copy can be returned to you. Keep your file-stamped copy in a safe place because it is your proof that you filed your answer in the place and on the date indicated in the file stamp. A foreclosure case information statement (FCIS) must accompany all complaints and answers. After you have prepared your answer, you must mail a copy to the attorney who filed the foreclosure complaint against you.
19. What is the difference between a contesting and non-contesting answers?
The Office of Foreclosure in Trenton receives and processes all of the foreclosure complaints, answers and other pleadings. The Office of Foreclosure reviews every filed answer. The Office of Foreclosure sends contesting answers to judges for case management. A contesting answer challenges the lender-plaintiff’s right to foreclose. Meanwhile, a non-contesting answer does not dispute the right to foreclosure or a lien holder’s priority. All non-contesting answers remain with the Office of Foreclosure for administrative processing.
20. What happens if a defendant fails to file an answer?
If you do not answer the foreclosure complaint in writing then you are admitting the claims of the foreclosure complaint. Thereafter, the lender-plaintiff can seek entry of a default against you. Finally, the lender-plaintiff can seek a default judgment. A foreclosure judgment orders either the sale of a home to satisfy a debt or it awards title to the property to the plaintiff. A foreclosure judgment is not a money judgment that can be collected by wage garnishments or by executions against personal property. However, the lender may seek to recover any deficiency which remains following a foreclosure sale in a separate lawsuit that is filed in the Law Division. In a foreclosure on a residential mortgage, the damages are very limited. The lender can only recover damages that are limited to the difference between the mortgage debt and the fair market value of the property.
21. What is the time frame to finalize a foreclosure case?
New Jersey is a judicial foreclosure state meaning that foreclosures are processed through the courts. It normally takes between 250 days to one full year to process a foreclosure. Once the lender obtains a judgment of foreclosure then the county sheriff must then advertise the foreclosure sale once per week for four consecutive weeks in a local newspaper.
22. What are the fees charged in a foreclosure case?
The fee for filing a foreclosure complaint is $200. The fee for filing a foreclosure answer is $135. Any notice of motion is charged a $30 filing fee.
23. What will be the case management of a contested foreclosure case?
Once you have filed your answer (and the Office of Foreclosure marks it as a contesting answer), then you will get other papers from the lender’s attorney and notices from the court. In many case the lender’s attorney will file a motion to strike the answer or for summary judgment. The vast majority of foreclosure cases never go to trial. Most are decided by way of summary judgment.
24. What is the foreclosure process once a case is transferred in the Superior Court system?
After the case is transferred to a Superior Court judge in the county where the property is located, you must get ready to have a trial. The lender will try to convince the court either by a motion or at a trial that it has the right to foreclose on the property. You must convince the court that the lender does not have the right to foreclose on the property for the reasons you described in your answer.
Only in very rare cases will you have a trial. Instead, the lender will file for a motion for summary judgment. A motion for summary judgment is a special kind of motion. In a motion for summary judgment, the lender asks the court to decide the case in its favor without a trial or any further legal proceedings. Many times, the lender will file a motion for summary judgment as soon as you file an answer. To win a summary judgment motion, the lender must show the court that:
The lender and homeowner agree to all of the important facts that would affect the judge’s decision in the case, and the law is completely on the lender’s side.
25. How can a borrower respond to a motion for summary judgment?
The defendant/homeowner must file and serve a written response to the motion for summary judgment. If the homeowner does not file and serve a written response to the motion for summary judgment, then the lender will win automatically whether the lender is right or wrong.
26. How do the courts normally rule on summary judgment motions?
To decide a summary judgment motion, the court looks at the lender’s motion and your response to decide whether or not you have any legal defenses to foreclosure. After the court receives the papers, the court may also decide to hold a hearing before making a decision. If the court decides that you do not have legal defenses to foreclosure, then the court will usually decide the summary judgment in favor of the lender. This means that the lender now has the right to proceed to foreclose on your property. If the court decides that the defendant homeowner does have legal defenses to foreclosure, then the court will probably decide the motion in your favor and deny summary judgment to the lender. In short if a homeowner successfully defends against a motion for summary judgment, then he will now have a full-blown trial.
27. I have a foreclosure trial scheduled in May of next year. What steps do I have to take to prepare for trial?
If you are entitled to a foreclosure trial then it is critical that you conduct full discovery. Discovery is another activity that takes place before the trial. Discovery is the process by which the parties the plaintiff and defendant use several types of tools to ask for facts, documents, and other information before the trial takes place. In a foreclosure case, each may ask the other to provide information that may help prove or disprove the right to foreclose.
The judge assigned to the case may write a letter to the parties setting up a case management conference (CMC). A CMC is a meeting that will include you or your attorney, the judge, and the lender’s attorney. The main purpose of the CMC is to set up a time schedule with deadlines for discovery. The court may also schedule a trial date at the case management conference. The CMC is not an official hearing in the courtroom. No one will be sworn in, and the judge will not make any decisions about whether the lender may foreclose. At the meeting, the judge may ask some questions to get an idea of the issues involved in your case. The judge will also explore whether settlement is possible. At a trial, the lender must prove it has the right to foreclose. Then you must prove that the lender should not be permitted to foreclose because of the defenses you have raised.
28. How will a foreclosure case proceed if I don’t answer it?
If you miss the deadline to file an answer, or file a non-contesting answer, the lender will probably file papers with the court asking the court to enter a default.
29. I have failed to answer my lender’s complaint for foreclosure. However, I honestly believe that I have a good faith defense to the case. What can I do to stop the foreclosure?
New Jersey Court Rule 4:43-3 allows you to file a written request with the court asking the court to cancel/undo the default and to give you another chance to file an Answer. You must show good cause in order for the Court to give you a second chance to file an Answer. The case of O’Conner v. Abraham Altus, 67 N.J. 106, 129 (1975) is an example of a case where a court set aside a default for good cause. Good cause usually means that you have a defense to the mortgage foreclosure.
30. What will happen I don’t contest the lender’s request for an entry of default?
If you do not respond to the lender’s request for entry of default, then the lender may go forward and ask the court to enter a final judgment in the lender’s favor. The lender does this by making a motion for entry of final judgment. However, before the lender may file this motion, the lender must give you notice and one final chance to cure the default. This notice is called the Lender’s Notice of Motion for Entry of Final Judgment. This notice must be sent fourteen days before the lender asks for the court to enter final judgment. The lender must send you a notice in the form of a letter advising you of this information.
31. How should I respond to the plaintiff’s request for a final judgment?
If you believe that you might be able to cure and pay back your mortgage arrears, then you should respond with a Good Faith Statement within 10 days of receiving the lender’s notice. You will have 45 days from the date of receiving the letter notice to cure the default. You should end your response by certified or registered mail, return receipt requested. If you intend to file for bankruptcy, then it is a good idea to file before any type of default judgment is entered against you.
32. What will the lender do next if a borrower does not make an offer to cure?
If you are unable to cure, then the lender will file a motion to the court to enter a final judgment. This is the court’s judgment that the lender is entitled to foreclose on the property. It sets forth the amount of money that the lender is entitled to receive when the property is sold at a sheriff’s sale. At this point, if you disagree with the amount of the judgment, then you have 10 days to file an objection to the lender’s motion. This objection may alter the amount of the foreclosure judgment, but it will not prevent the foreclosure. After the court has entered a final judgment in favor of the lender, then you still have one last chance to undo the judgment. You can try to reopen the case and file an answer, and perhaps prevent foreclosure. New Jersey Court Rule 4:50-1 permits you to file a motion with the court to vacate the judgment.
33. What is the sheriff’s sale process?
If the court grants the lender a final foreclosure judgment, then the court will also issue a writ of execution. The writ of execution will order the County Sheriff to sell your house to the highest bidder at a public auction. You will receive a notice that informs you when your house will be scheduled to be auctioned. A notice also will then be posted in a newspaper.
34. What can I do to stop a sheriff’s sale?
If your home is scheduled for a sheriff’s sale, then you may apply to the County Sheriff in person for two two-week delays of this sale. These delays are called adjournments or stays. You must pay a fee to the sheriff’s office for this stay. You should be prepared to pay a fee of under $50 by cash or money order. You do not have to prove good cause or appear before a judge to get these stays.
You may also apply for a stay at the Superior Court, Chancery Division, in the county where the property is located. The courts often will grant a stay to allow you to participate in the court’s mortgage mediation program. However, courts rarely grant stays for any other reason, except in very compelling circumstances, such as to allow a homeowner to complete a sale or refinance of the property that is in progress. These stays are temporary, and it will not give you an opportunity to have any of your defenses heard by a judge. They only give you the opportunity to try to complete some other plan.
35. Can I get my home back after the sheriff’s sale?
After the auction, you will have ten days to redeem or to get back your home. During this period of time, you can save the property by completing a refinance or you can sell the property. A bankruptcy filed after sheriff’s sale extends the period of time in which you can redeem the property, but you will not be able to raise your defenses in bankruptcy court at this time.
If the lender wins the court case, then the Sheriff will sell the property. The money from the sheriff’s sale is paid to the lender to make up for the homeowner’s failure to pay. If the house sells for more than the amount of the mortgage, then the homeowner is entitled to the difference. If the house sells for less than the amount of the mortgage, then the lender has the right to sue the homeowner for the rest of the money that the homeowner owes. This type of lawsuit is called a deficiency case.
After the sheriff’s sale, you will receive a notice from the sheriff that advises you when you must vacate or move out of the house. If you do not move out of the house by that date, then the sheriff may come into the property and remove you and your belongings. In summary, it can take a year or more for an uncontested foreclosure to be final, from the date of the notice of intention to foreclose through the date the sheriff takes possession of the property.
HOW TO PROTECT YOUR HOME FROM FORECLOSURE
36. How can I stop my house from being foreclosed upon?
Many foreclosures can be prevented simply by calling your mortgage company and by asking to speak to someone in the Loss Mitigation Department about loan workout solutions, such as a repayment plan, loan modification agreement, forbearance agreement, loan assumption or a deed-in-lieu of foreclosure or short sale. The sooner you ask for help, then the easier it will be for you to formulate a plan to save your home. The bank does not want to sell your home. However, if you don’t pay your mortgage then it has no other choice but to file for foreclosure.
37. What is foreclosure mediation?
New Jersey has just recently started a court-run foreclosure mediation program. Mediation is an opportunity to try to negotiate a payment plan with the lender, with the assistance of a person appointed by the court. Foreclosure mediation is a last ditch opportunity for a homeowner to try to save his home. The program aims to assist homeowners to avoid foreclosure by proposing workout and payment arrangements. The program is free to participate in. The mediators attempt to encourage the borrowers and the mortgage lender to reach a settlement. Before you attend the mediation session, you should know the terms of your mortgage, and how much of a monthly mortgage payment you can make. It is important to emphasize that the foreclosure mediation does not stop the foreclosure process from continuing. If the mediation is successful, and if the parties come to an agreement, they may then agree to stop the foreclosure case. However, unless there is a court order or a written agreement to stop the foreclosure, the foreclosure process will continue while the mediation is still going on.
38. Can filing for a bankruptcy help me save my home from a foreclosure?
Sometimes, filing bankruptcy can help you save your home. Bankruptcy may be especially helpful if you have more than one mortgage on your home. In some cases you may be able to strip-off and eliminate second mortgages, such as home equity loans in bankruptcy. As soon as you file a bankruptcy, all court actions against you are automatically stayed or stopped. Therefore, filing bankruptcy automatically stops foreclosure cases and sheriff’s sales. This stay gives you some temporary breathing room to try to sort things out. You are eligible for this automatic stay unless you have filed several bankruptcies recently that have been dismissed.
39. What different types of bankruptcy can I file to help me save my home from foreclosure?
There are two types of consumer bankruptcies. One is called a Chapter 7 and the other is called a Chapter 13.
A. Chapter 7 bankruptcy
In a chapter 7 bankruptcy the court will discharge and cancel all of your unsecured debt. Unsecured debt means that there is no collateral for the debt. For example, credit card debt is unsecured debt. Alternatively, mortgages are considered to be secured debt. You have promised the mortgage company that your home can be sold through court action if you do not pay your mortgage debt. Therefore, mortgage debt will not be canceled in a chapter 7 case.
B. Chapter 13 bankruptcy
In a chapter 13 bankruptcy, you will be required to pay your secured debt a little at a time, over no more than five years. If you have a good mortgage, but you had a temporary setback such as an illness or temporary job loss, then a chapter 13 bankruptcy can help you get back on track. In order to qualify for a chapter 13 bankruptcy, you must be able to afford to make your current mortgage payments. You must also have enough extra income to pay off the mortgage arrears a little bit at a time.
If there is any chance you might need to file bankruptcy, you should contact an approved credit counselor. A list of approved credit counselors can be obtained through the Bankruptcy Court’s Web site. You must get a certificate showing that you completed credit counseling or the bankruptcy court will dismiss your bankruptcy. Your credit counseling certificate is good for six months. You can file bankruptcy at any time, but it is best to file bankruptcy before final judgment of foreclosure is entered against you.
40. Can a loan modification stop a foreclosure case?
With the increase of distressed mortgage loans around the country, most banks are now offering a variety of loan modification options. A loan modification is when the bank agrees to modify any of the terms of the original note. The bank may agree to reduce the interest rate, to extend the terms of the loan, or to reduce your monthly payment. The bank will agree to a loan modification as an alternative to filing a long drawn out and expensive foreclosure case. Nonetheless, most banks have requirements and qualifications before they will agree to any loan modification. In many cases a loan modification can reduce delinquent payments, back-end missed payments, extend the term of the loan, and reduce interest rates. Moreover, many banks will also permit a homeowner to refinance their loan.
41. Can a short sale stop a foreclosure case?
In today’s volatile housing market, many homeowners are unable to sell their home at a sales price that will enable them to pay off their mortgage. A short sale is an agreement between a mortgage lender and the homeowner that allows your home to be sold for less than your mortgage payoff amount. In a short sale the homeowner sells his home less than the payoff amount of the loan. At the closing the sale proceeds will be sent to the bank in full satisfaction of the mortgage.
A short sale will allow you to finally get out from under the mortgage that you cannot afford anymore. You may also qualify under the Mortgage Forgiveness Debt Relief Act of 2007 to be exempt from taxation on the realized income from that short sale. Many of the banks would prefer to short sale of the home rather than to foreclose so that they may offset the costs involved in foreclosure, such as the legal fees, carrying costs, eviction, etc.
FORECLOSURE MEDIATION FAQ’S
42. What is foreclosure mediation?
Mediation is a dispute resolution process in which a mediator, helps you and the bank to negotiate a settlement to your foreclosure case. Mediation is a non-binding process. This means it is not a final decision on your case. Mediators do not decide matters in the foreclosure case. A mediator’s only job is to assist the bank and the homeowner to try to reach a settlement.
43. What is the mediator’s role?
Mediators are experienced lawyers who are required listen to the parties and to try to assist them to reach a settlement or a foreclosure solution. Mediators may suggest creative and innovative solutions for the parties to consider. Mediators have no legal authority to impose an outcome or to decide the outcome of a foreclosure case.
44. Who are the mediators?
The mediators who participate in the foreclosure mediation program are screened by the AOC to ensure they have foreclosure mediation training in addition to basic mediation training.
45. Why should I try foreclosure mediation?
The mortgage lenders do not generally want to own houses especially in these hard times. Almost all of the lenders are willing to talk with homeowner-borrowers about reaching a reasonable settlement.
46. How does foreclosure mediation work?
Upon receipt of this request for foreclosure mediation and financial worksheet by the Office of Foreclosure, the material will be distributed to court staff in the local courthouse and to the lender’s attorney. Local court staff will then assign a mediator to your case and set a date for the mediation when the lender and homeowner-borrower must appear.
47. What happens at a foreclosure mediation session?
At the mediation session, you will meet with the mediator, the lender’s attorney and a representative of the lender. The mediator will explain his role and he will organize discussions about what arrangements you and the lender can agree upon that will allow you to keep your home. If the mediation is successful, then a foreclosure mediation settlement memorandum will be prepared by the mediator and signed by all parties.
48. What are some possible outcomes?
There are a number of possible solutions that you and the lender can explore. The solution will depend upon what you can afford based on what your income and expenses are, what other financial resources you have, what type of loan you have, the amount you owe in arrears. Each lender has a slightly different loss mitigation program. However, every lender will require that you have a reasonable ability to repay the modified monthly mortgage loan payment. If you cannot show ability to pay, then your lender has no incentive to effectuate a workout. The following are some possible solutions:
A. Reinstatement: Your lender could agree that all amounts required to bring your loan current can be paid (including late fees, attorney fees, taxes, insurance, etc.). Once these amounts are paid, then the foreclosure will be dismissed, and you will be back on your regular payment plan.B. Repayment Plan: An agreement to resume making your regular monthly payments, plus a portion of the past due payments each month until you are caught up (i.e., the lender raises the monthly payment for a set period of time until the arrears amount is caught up).
C. Forbearance Agreement: Forbearance agreements are plans that allow borrowers to repay a loan delinquency over time. Regular monthly payments are made according to your loan agreement, and an additional monthly payment is made each month that is applied to the delinquent amount. Once the delinquent amount is paid in full, the normal payment amount resumes. It fully reinstates the loan. A forbearance plan may include one or more of the following features: (a) suspension or reduction of payments for a period sufficient to allow the borrower to recover from the cause of default; (b) a period during which the borrower is only required to make his/her regular monthly mortgage payment before beginning to repay the arrears; (c) a repayment period of at least six months and (d) allow reasonable foreclosure costs and late fees accrued prior to the execution of the forbearance agreement to be included as part of the repayment schedule. However, they frequently may only be collected after the loan has been reinstated through payment of all principal, interest and escrow advances.
D. Extension Agreement: This is an agreement in which you pay a portion of the amount of your delinquency, and the remaining portion of the delinquent amount is added on the end of your loan.
E. Loan Modification: An agreement that permanently changes one or more terms of your mortgage. For example, (1) extend the amortization schedule, (2) converting a sub-prime loan into a fixed rate loan, (3) reducing the mortgage interest rate, (4) adding missed payments to the existing loan balance.F. Loan Guarantee Partial Claim: If your mortgage is insured, your lender might help you with a one-time interest-free loan from your mortgage guarantor to bring your account current. You may be allowed to wait several years before repaying this loan.
G. Time to Refinance: Provided you have a reasonable prospect of arranging to refinance the loan, your lender may agree to some period during which it will not schedule a sheriff’s sale.HOPE for Homeowners Program is a program for borrowers at risk of default and foreclosure and provides new, 30-year, fixed rate mortgages that are insured by the Federal Housing Administration (FHA). Refinancing without the benefit of a government program may be impractical for most homeowners. In today’s falling market, home values are often less than the amount of the original loan and refinancing lenders generally will loan no more than 70-80% of the value of the home.
H. Reverse Mortgage: Reverse mortgages, or home equity conversion mortgage (HECM) loans, are commonly used to help senior citizens tap into their home equity for retirement. As a foreclosure prevention device, you generally need to be age 62 or older and have adequate accumulated home equity.
I. Principal Reduction: Loan principal is reduced. This may be possible if you have a negative amortization loan (you are paying less than is necessary to full amortize (payoff) the loan during the loan’s term) and the lender is willing to reduce principal to the original loan amount. A principal reduction program may be agreed upon in exchange for a shared appreciation mortgage (SAM). A SAM is a fixed rate, fixed term loan. In exchange for a lower interest rate, you agree to give up a portion of the home’s future value. The future value is the difference between what it is worth now and what it will be worth in the future.
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