Bankruptcy Questions Answered

Housing Prices Hit Eight-Year Low

The latest figures from Standard & Poor’s Case-Schiller Index show that the double-dip in the housing market many economists feared is now a reality. In other words, according to sources, housing market prices have taken another nosedive and home values are now near the same level they were in mid-2002.

How much of a dip is this second downward spike? Reports indicate that:

• The first quarter of 2011 saw a 4.2 percent decline in home prices.
• In the final quarter of 2010, prices dropped 3.6 percent.
• Home prices are currently 5.1 percent lower than they were this time last year and, according to Standard & Poor’s, have reached a new low even for the recession.

If all this sounds like bad news, the kicker is that the cycle of foreclosures and lowered home values seems unlikely to end any time soon.

Gloomy Outlook for the Housing Market

Consider these troublesome figures.

• About 1.9 million homes in the U.S. are currently in some stage of foreclosure, according to RealtyTrac, a company that keeps track of such things.
• Housing prices fall when supply is greater than demand (that is, when there are more homes available than people looking to buy).
• Right now, supply is skyrocketing: empty foreclosure properties are common sights in many states, and apparently nearly two million more are about to follow.
• Unfortunately, demand is also fairly low: many Americans are still skittish about their employment situation and unwilling to take on the burden of a mortgage. Further, many banks have tightened lending standards, making mortgage loans harder to come by even for those interested in buying.
• On top of all this, sources note that as many as 28 percent of U.S. homes are currently underwater, meaning that the owner owes more on the mortgage than the home’s current value. Underwater homeowners may find themselves in foreclosure down the line, whether by strategically defaulting or by being unable to make payments.

Can Chapter 13 Bankruptcy Help?

In the past, Chapter 13 bankruptcy has often been heralded as a way to stave off or prevent foreclosure for some filers. The question of whether Chapter 13 could help some of the millions of Americans who might have mortgage foreclosure in their future is a complex one.

Chapter 13 may work for some people facing foreclosure, but only if those people have sufficient income to make regular payments according to the repayment plan. In other words, if you’re in danger of losing your home because you lost your job, Chapter 13 may not do the trick.

One interesting note, though, is that some sources have reported bankruptcy judges ruling for mortgage cram-downs in Chapter 13 cases, despite laws that prohibit such rulings.

Posted in Bankruptcy and the Economy, Economy, Foreclosure, Mortgage Foreclosure, housing market, recession | Comments Off

Bankruptcy Lawyers Help Homeowners Erase Second Mortgages

Many Americans currently considering bankruptcy are in financial trouble partly because of the struggling housing market. Underwater mortgages (those in which the homeowner owes more than the home’s current value) are a reality for as many as 28 percent of American homeowners.

Even though bankruptcy law prohibits the court from modifying the terms of a primary mortgage, some bankruptcy lawyers have found a legal way to help their clients stay in their home and avoid foreclosure.

Unsecured Second Mortgages

Here’s the process some bankruptcy petitioners are following to help ease their mortgage debt:

• File for Chapter 13 bankruptcy: Entering a Chapter 13 case means that the filer agrees to a three- to five-year repayment plan in which she will catch up on past-due debts.
• Petition the court to declare a second mortgage unsecured debt: Filers who have second mortgages that, combined with their primary mortgages, exceed the value of their home’s current value, may be able to make this move. A bankruptcy lawyer can explain in more detail how the move works and whether it might be possible in any individual’s case.
• Make payments according to the repayment plan: If the court accepts the petition, the filer must continue making payments according to her repayment plan for the duration of the bankruptcy case. At the end of the case, the remaining unsecured debt (including that from the second mortgage) may be excused by the court.
• Avoid foreclosure: In many cases, reclassifying a second mortgage as unsecured debt allows filers to make mortgage payments and remain in their homes.

The Winners and the Losers

Naturally, this legal maneuver is good news for struggling homeowners and potential bankruptcy filers. But banks and other lenders are apparently less than thrilled about the development – after all, they’re the ones who lose out on mortgage payments when debts are excused in court.

But, as one news outlet reminds us, the only way to change the law is an act of Congress. Given the current state of the American housing market and level of financial difficulty many Americans are facing, a move of that sort seems unlikely: what politician would want to be responsible for taking away a tool for avoiding foreclosure?

Can You Save Your Home from Foreclosure?

In order to take advantage of this legal protection, your financial situation must meet a number of criteria:

• Sufficient income to make payments: In order to benefit from Chapter 13, you have to be able to make monthly payments according to a repayment plan, which means you have to have a steady source of income.
• Two (or more) mortgages: Again, primary mortgages cannot be modified in bankruptcy court.
• An underwater home: Finally, you can only have debt declared unsecured if there is no property to secure it (that is, if your loan is worth more than your home). If your home value exceeds the amount of your primary mortgage, then at least a portion of the second mortgage is secured by the home, and cannot be excused by the court.

If you’re ready to find out whether this might work for you, connect with a bankruptcy lawyer today.

Posted in Bankruptcy and the Economy, Chapter 13 Bankruptcy, Foreclosure, Mortgage Foreclosure, stop foreclosure, underwater home | Comments Off

Strategic Default and Foreclosure: What’s the Difference?

With the housing market headed for what some analysts are calling a double-dip downturn, there’s been a lot in the news lately about homeowners who strategically default on their mortgages. Here’s a look at what that means, how strategic default relates to foreclosure and what you need to know if you’ve got a mortgage you can’t afford.

What Is a Strategic Default?

The mortgage manipulation known as the strategic default works like this:

• A homeowner reassesses her debt situation: This can be spurred by a number of things, and in the current economic climate common triggers include having difficulty paying bills (though not necessarily making mortgage payments) and realizing that a home is now worth less than the amount of the mortgage loan.
• A homeowner decides not to make mortgage payments: After a month or two of missed mortgage payments, the mortgage loan will be in default (or, said another way, the borrower will have defaulted on the loan). The decision is usually considered “strategic” because those who choose this path opt to meet other financial obligations in lieu of paying their mortgages.
• The home goes into foreclosure: Because the homeowner stops making mortgage payments, the mortgage lender begins the foreclosure process and takes back the home.
• The homeowner deals with the credit consequences: In addition to finding new housing, strategic defaulters must also face serious financial consequences. Strategically defaulting on a mortgage can seriously damage a credit score, and many lenders (of all kinds) may refuse to issue loans to those with strategic defaults on their record. Fannie Mae, for instance, has announced that strategic defaulters are banned from Fannie Mae mortgage loans for seven years after defaulting.

How Is Strategic Default Different from “Regular” Foreclosure?

A strategic default is a conscious choice on the part of a homeowner to stop making mortgage payments, even if those payments are still affordable. Those who choose to strategically default often indicate that they are no longer willing to pay for a loan worth more than their house.

“Regular” foreclosure happens when a homeowner can no longer afford a mortgage loan and so has no choice but to stop making payments. In both cases, the homeowner loses the house to the lender; in strategic defaults, doing so is a conscious decision on the part of the homeowner.

What Are Other Options for Struggling Homeowners?

Because of the serious credit consequences and questionable ethical nature of strategically defaulting, many homeowners are not willing to do it, even if their loan is bigger than they’d like. Alternatives include:

• Applying for a mortgage modification: Some banks (assisted by federal programs) offer mortgage modification programs. To find out whether you might qualify, contact your bank as soon as possible.
• Filing for Chapter 13 bankruptcy: Some homeowners are able to at least delay (and possibly prevent) mortgage foreclosure by filing for Chapter 13. If you’re interested in learning whether you qualify, contact a bankruptcy lawyer in your state.

Posted in Bankruptcy and the Economy, Chapter 13 Bankruptcy, Foreclosure, Mortgage Foreclosure, strategic default | Comments Off

Mortgage Scammers on the Loose

Despite the best efforts of groups like the Better Business Bureau and the Federal Trade Commission, scammers manage to find new ways to take money from unsuspecting consumers on a regular basis. Here’s a look at one of the latest warnings that’s been posted by consumer advocates.

A New Mortgage Scam Afoot

The latest in a long line of mortgage and foreclosure “rescue” scams seems to be one that involves attempting to trick homeowners into thinking they qualify for money from a lawsuit against their lenders. According to the BBB, the scam works like this:

• An official-looking letter arrives: Victims have reportedly noted that they received a letter indicating that they were eligible to join a “joinder action suit” against certain mortgage lenders and banks. The letters noted the potential for winning significant financial compensation in the suit.
• Unrealistic promises: Victims who called the number listed on the letter were apparently directed to employees of the scammer, who falsely suggested that, by joining the suit, victims might win thousands of dollars, have their interest rates slashed to two percent or have their mortgage principal reduced by 80 percent.
• Request for upfront payment: In classic scam fashion, victims were then told that they must pay a $5,000 retainer fee to ensure their spot in the lawsuit.

Unsurprisingly, none of the information presented in the letters or during follow-up phone calls was true. But what many victims found disturbing was that the scammer had access to their personal information, including name, address, loan information and even loan amount. In other words, this particular scam may have seemed frighteningly legitimate.

How to Spot a Scam

If you’re among the millions of Americans currently struggling with your mortgage, be sure to follow these safety tips (from the BBB) if and when you decide to seek mortgage assistance.

• Go directly to your lender first. Third-party “relief” providers, especially those that approach you unsolicited, are much less trustworthy and much more likely to take your money and offer you nothing in return.
• Be suspicious of mailings from strangers. If you receive a letter about any class action or mass joinder lawsuit, be sure to check online to learn about the latest scams. Then, contact your bank or connect with a lawyer to assess the nature and legitimacy of the letter.
• Shy away from advance fees. Thanks to new consumer protection rules that took effect this year, advance fees are only permitted in rare cases. In many cases, those that ask for money upfront are interested only in your money and may not stick around long enough to provide the help they promised.
• Beware of forensic loan audits. These are hot scamming ground and often have no effect on a person’s mortgage payments.

Posted in Financial Literacy, Foreclosure, Mortgage, Mortgage Foreclosure, mortgage rescue scams, scam | Comments Off

New Solutions for Those with Mortgage Woes?

These days, many Americans are desperate to stay on top of mortgage payments, and are considering unorthodox ways to pay the bills. apparently, when a company called Adzookie offered to pay people’s mortgages for up to a year if those people would display large advertisements on their homes, applications flooded in by the thousands, as a recent report from Credit.com details.

The deal reportedly works like this: if you apply and are accepted into the program, Adzookie will paint advertisements on your home and pay your mortgage for three months (with a chance to renew for another nine if the ads remain in place).

While that may sound like heaven to some struggling homeowners, only a handful of people will be selected for this deal. So what can the rest of us do?

Finding Affordable Housing

Because of the tight standards of many refinancing programs, few homeowners are able to qualify. So that might mean a few things, one of which could be giving up a mortgage (whether with the help of personal bankruptcy or not) and renting for a while.

So how can you find affordable rent? By following these steps for negotiating:

• Know the area: Figure out what people are paying for apartments in the neighborhood you want. In addition, try to determine whether there are more apartments than tenants or vice versa. If there are lots of vacancies, you have a better chance of negotiating a deal. You can do this by scouring local postings and asking people who rent nearby.
• Consider amenities: Determine whether your potential apartment is bare-bones or all-inclusive. The former may provide you better negotiation opportunities, but make sure you’re able to find necessary services nearby—if you have to haul your laundry across town every time you’ve got dirty clothes, a small rent savings might not seem worthwhile in the long run.
• Prove yourself: Offer to show to a potential landlord a strong credit report, a reference from a previous landlord or proof of steady income. A landlord who views you as a good credit risk is more likely to cut you a deal because she’ll be less likely to have to chase you down for rent or lose money on you.
• Think outside the box: Offering to sign a lease longer than one year (which saves a landlord the work of finding new tenants), pay ahead of the due date (which saves a landlord worry and possibly money loss) or move in whenever works best for a landlord can all give you leverage in negotiations, as all these circumstances tend to ease a landlord’s financial (and worry) load.

Posted in Bankruptcy and the Economy, Credit Report, Foreclosure, Mortgage Foreclosure | Comments Off

The Latest on Student Debt and Underwater Homes

New reports highlight some interesting information about two topics near and dear to those who have filed or are considering filing for bankruptcy: underwater mortgages and student loan debt. Here’s a look at what kind of picture the latest numbers paint.

Students Don’t Need to Default to Be Behind on Loans

The Institute for Higher Education Policy released a report last week showing that two-fifths of those who borrowed money for educational purposes fell behind on their payments at some point in their first five years of repayment. So what does this mean?

• Widespread repayment difficulties: These numbers may not even reflect the current rates of repayment difficulty, given that graduates in the last few years have faced a much tougher job market than those who graduated five years ago.
• Old measures may be inadequate: Traditionally, studies on student debt have focused on the rate of default rather than delinquency. Looking at delinquent loans offers a clearer picture of how many people are struggling to repay their loans, even if they manage to get back on track at some point.
• Bankruptcy not an option: Student loans are typically not dischargeable in bankruptcy court, which means that those with unmanageable student debt have few options for easing their debt burden. This is scary, considering that some estimates put the country’s total student debt at $896 billion, which is greater than our national credit card debt total.

Reports note that these numbers may affect the current debate in Congress over whether for-profit colleges and universities should be eligible for federally backed financial aid.

More Underwater Homes

Recent numbers released by a company called CoreLogic show that the number of underwater homes in the U.S. (that is, homes with a current value less than the amount of the mortgage on the house) has climbed since last quarter. Here’s a look at the numbers.

• A reported 11.1 million U.S. homes were underwater in 2011’s first quarter, a jump from 10.8 million in the last quarter of 2010.
• Nevada has a 65 percent rate of underwater mortgages, and is apparently the only state in which the average homeowner is underwater.
• Besides the more than 11 million underwater homeowners in the U.S., 2.4 million Americans have less than five percent equity in their houses, according to sources.
• Collectively, we reportedly owe about $751 billion more on mortgages than our homes are worth.
• Analysts predict that home prices could fall by another five to 10 percent in 2011, meaning that those with little equity could soon find themselves underwater.

Unfortunately, mortgage loans for primary residences cannot be modified in bankruptcy court, but in some cases homeowners may find a Chapter 13 or Chapter 7 filing useful for eliminating other debts to help improve their odds of staying on track with their mortgages.

Posted in Bankruptcy and the Economy, Chapter 13 Bankruptcy, Chapter 7 Bankruptcy, Foreclosure, Mortgage Foreclosure, Student Loans | Comments Off

The Latest on Foreclosures & Home Sales in the U.S.

Because the current recession was caused in large part by questionable practices in the mortgage market, home sales and foreclosure rates have been particularly interesting to monitor as an overall indicator of the economy’s rate of recovery.

Here’s a look at some of the latest findings and reports about the industry.

Home Sales Up Slightly, Thanks to Foreclosure Sales

The Associated Press reported this week that home sales in the U.S. rose from December 2010 to January of this year:

• Rate of increase: Reports show that existing home sales (i.e. sales of not-new, previously occupied homes) rose at a rate of 2.7 percent between December and January.
• Annual rate: The rate of sales in January put the market on pace to sell 5.36 million homes for the year. December’s sales were at a 5.22 million annual rate. A “healthy” economy, sources note, generally includes about six million home sales per year.
• First time buyers: The latest numbers show that first-time home buyers accounted for 29 percent of all sales, well below the 40 percent that apparently is the hallmark of stronger economic times.
• Hearty areas: Particularly strong types of home sales reportedly included foreclosure sales, at 37 percent of all transactions, and cash-only sales, which accounted for another 32 percent. Sources indicate that these numbers mark a doubling in such types of sales from two years ago.
• Median home price: The glut of foreclosures now on the market continues to drive down home prices, and the median price in January was apparently $158,000, down 3.7 percent from this time last year and the lowest median in nearly a decade (since April 2002).
• Unsold homes: Sources report that 3.38 million unsold homes still clog the nation and hold back the housing market’s recovery. At January’s rate of sales, it would take more than seven months to sell these homes.

New Changes on the Horizon for Mortgage Servicers?

A recent report at Credit.com notes that the federal government may be nearing an announcement of new regulations for the mortgage servicing industry. Here’s why:

• During the subprime housing boom, mortgage servicers were often rewarded for signing customers up for more expensive loans than they could have qualified for.
• This led to abusive practices by many mortgage servicers and caused many customers to pay more than they could have for their loans in interest rates and related services.
• Since the collapse of the housing market, federal investigators have apparently been attempting to determine which practices were most detrimental to borrowers.
• As the research period draws to a close, insiders are reportedly expecting the announcement of new regulations for the mortgage servicing industry in the coming weeks.

Posted in Bankruptcy and the Economy, Consumer Protection, Foreclosure, Mortgage Foreclosure | Comments Off

The Latest on the Foreclosure Crisis

Since the housing boom of the early 2000s, the housing picture in the U.S. has changed dramatically, as anyone struggling to make mortgage payments each month already knows. But exactly what is the state of mortgages and foreclosures right now in the country? Here’s a look at some indicators that say a lot.

Lowest Homeownership Rate In More than a Decade

Recent data released by the Census Bureau (and reported at Credit.com) show that home ownership in the United States has dipped to its lowest level since 1998:

• In the fourth quarter of 2010, 66.5 percent of Americans reported owning their own home.
• In 2009, 67.2 percent of the nation claimed homeowner status; the drop reflects the continued effects of the recession on income and ability to make mortgage payments.
• At its peak in 2004, as many as 69.2 percent of Americans reported owning a home.

Just as subprime loans were found to disproportionately affect non-white home buyers, it seems that foreclosure rates are currently higher among that segment of the population: in 2007, the number of African Americans that owned a home was reported at 48 percent; a year later, the number had already fallen to 44.8 percent. Similarly, among Hispanic families, 50 percent reported homeownership in 2007, but only 46.8 percent did in the last quarter of 2010.

Perhaps the most troubling aspect of these numbers is their apparent explanation: while the first wave of foreclosures resulted largely from the resetting of subprime loans, this wave seems to be more a result of long-term job loss hindering homeowners’ ability to make their (otherwise affordable) mortgage payments.

Homeowners on their Own to Fight Foreclosure?

In a related story, The New York Times recently reported that, more and more, Americans are having to fight the foreclosure of their homes without legal representation or outside help. According to the article, areas of the country with high foreclosure rates are holding how-to workshops for individuals and couples interested in contesting foreclosure in the courts.

New reports apparently show that foreclosure is shifting its face in the court system: what was once a process that involved mostly paperwork now, it seems, involves more and more people actually visiting the court to make their case for keeping their homes.

How Can I Fight Foreclosure?

Whether you’re struggling from job loss, job reduction or an unaffordable mortgage loan, you may be able to fight foreclosure with the help of a Chapter 13 bankruptcy filing. Thanks to its three- to five-year repayment plan, Chapter 13 helps many homeowners catch up on their mortgage payments by rearranging the amount and type of debt they’re responsible for paying each month.

Posted in Bankruptcy and the Economy, Foreclosure, Mortgage Foreclosure, recession, stop foreclosure, unemployment | Comments Off

2011 may Be a Record Year for Foreclosures

Much has been written in the last few years about the foreclosure crisis that took hold once the housing bubble burst. And, according to the Associated Press, this year will not offer any relief – in fact, sources suggest, 2011 looks like it could see even more foreclosures than 2010 did.

1.2 Million Foreclosures Predicted for 2011

So why are news outlets and industry insiders predicting that 2011 will have more mortgage foreclosures than any year we’ve seen? A number of factors are apparently contributing:

• High unemployment: While the national unemployment rate has declined slightly since its peak of just above 10 percent, it’s still much higher than normal and millions of Americans without work are or will soon be unable to keep up with their mortgage payments.
• Plunging home values: Further, the crash of the housing market means that millions of homeowners are currently “under water” on their mortgages – in other words, they owe more than the home’s value and so have little incentive to pay their loans back.
• Delayed foreclosures last year: Another spur for 2011’s foreclosure season is the delays in foreclosure processing that happened at the end of last year: in addition to ordinary holiday moratoria on foreclosure proceedings, the robo-signing scandal halted foreclosures on many properties around the country. Those foreclosures that were delayed may now proceed normally.

A Look at the Numbers

So just how bad is the foreclosure crisis expected to get this year? The numbers provided by news outlets paint a pretty bleak picture:

• A reported five million borrowers are currently behind on payments by at least two months; without serious change in the employment scene, that number is likely to increase.
• It seems that as many as 2.9 million (that’s one in every 45) U.S. houses were in some stage of the foreclosure process last year. This could mean that the homeowners simply received notice of default or that the foreclosure actually took place.
• Apparently, five states are responsible for the bulk of foreclosures around the country, and insiders expect the pain to worsen in these areas: California, Arizona, Florida, Michigan and Illinois have reportedly accounted for about 1.5 million of the foreclosure notices received last year.

An End in Sight?

One source quoted in the Associated Press article seems to think that 2011 will show the “peak” of foreclosure filings in the U.S., which could be taken for either a good sign or a bad sign – 2009 and 2010 both set records for foreclosure volume.

And is there any hope if your home is nearing foreclosure? You may still be able to benefit from the protection of Chapter 13 bankruptcy (ask a lawyer for details), or perhaps from lowered mortgage rates. But many banks, it seems, are still less than eager to offer refinancing deals.

Posted in Bankruptcy and the Economy, Chapter 13 Bankruptcy, Economy, Foreclosure, Mortgage Foreclosure | Comments Off

Foreclosures Expected to Balloon this Month

Recent news reports have forecasted a significant increase in the rate of mortgage foreclosures across the country in the first month of 2011. According to National Public Radio, the forces that held foreclosures in check for the final months of 2010 are no longer at play and this year should see foreclosures picking up with a vengeance.

Here’s a look at what’s happened so far in the foreclosure world and what you can expect in coming months.

The Sad Saga of U.S. Home Foreclosures

While many economic indicators suggest that we’re finally tugging ourselves out of the recession that’s gripped us for years now, the state of the housing market suggests otherwise. Here’s a look at why.

• Robo-signing foreclosure scandal: In the last few months of 2010, a foreclosure scandal hit: it seems that, at many banks, the practice of “robo-signing” had become common for foreclosure paperwork. Lawyers questioned the legality of the practice and, in the meantime, hundreds of thousands of foreclosures were put on hold while the courts decided what to do.
• End-of-year foreclosure stays: Following that scandal came the holidays, a time during which many banks and lenders traditionally put a hold on foreclosure processing.
• Backlog of foreclosures in 2011: Now, of course, the holidays are over and the robo-signing cases have been more or less settled. And, according to NPR, as many as 100,000 homes could go into foreclosure by the end of January.
• Even more homes on the market: Naturally, increased foreclosures are bad news for the families directly affected by them, but they’re also likely to be problematic for the already glutted housing market. And, with mortgage lending standards tightened and unemployment still above nine percent, the chances of other families buying those homes any time soon are slim.

Is there Any Hope for Foreclosure Relief?

If you’re worried about losing your home to foreclosure, now is the time to take action. Consider the following.

• Visit a housing counselor: She can help you figure out what your options are and whether you can realistically catch up on your mortgage and stay in your home.
• Speak with a lawyer: An attorney can help you figure out whether or not Chapter 13 bankruptcy could provide you with sufficient means to halt foreclosure and work towards saving your home.
• Consider rescission: Ask your lawyer about the right of rescission, which could help you keep your home if your lender originated the initial loan fraudulently.
• Contact your lender: Whatever you decide to do, be sure to keep lines of communication between you and your lender open. While mortgage modifications may not always be an option, they can provide a realistic alternative when they’re practical.

Posted in Bankruptcy and the Economy, Chapter 13 Bankruptcy, Foreclosure, Mortgage Foreclosure | Comments Off