Bankruptcy Questions Answered

Should You Save Your Home from Foreclosure, or Should You Let it Go

With the news full of foreclosure statistics showing huge increases along with stories of self-righteous Members of Congress asserting their heartfelt concern for "struggling homeowners" little attention is paid to the question of whether a homeowner ought to fight to save his home.  My friend and colleague, Charleston bankruptcy lawyer Russ DeMott were recently discussing this issue and I invited him to prepare a guest post about this very topic:

Chapter 13 bankruptcy is a tool that can be used to save your home from foreclosure.  But the big question sometimes isn’t “can I save my home,” but “should I save it?"

We all know that there’s been an epidemic of foreclosure resulting from the recent economic downturn.  Jobs were lost, values plummeted, and foreclosures have been on the rise.

So it’s natural to wonder, “can I file Chapter 13 bankruptcy to save my home from foreclosure?”  However, when you meet with a bankruptcy lawyer to explore your options, you need to explore all your options—bankruptcy and otherwise.  And that might be not saving your home.

When you’re having financial problems and seek advice, you should take the opportunity to review your entire financial situation.  Can you afford your vehicle payments? Can you “tighten the belt” and cut back on some unnecessary expenses?  And most significantly, “should you try to save your home?”

In my Charleston, South Carolina bankruptcy practice, I get calls every week from folks facing foreclosure.  The potential bankruptcy client’s question is always a “can we?”  Can we stop foreclosure?  Can we make the lender listen?  Can we catch up on these payments we’ve missed?  Can we protect our home? Can Chapter 13 bankruptcy help?

But I always focus on the “should we.”  Here are some factors to consider when deciding whether you should use Chapter 13 to keep your home:

• Can you afford the mortgage payments?  Do you have large house payments you can’t really afford, perhaps with more than one mortgage?  For example, it may be that you can afford payments of $1800 a month, but your current payments are $2800 per month.  Absent a mortgage modification, that’s a tough nut to crack every month.
• Is your interest rate scheduled to adjust?  It may be that you can afford your payments now but maybe not once your payments adjust.
• Do you have equity in your home?  (Equity is the value of the property less any liens (like mortgages, outstanding taxes, assessments, and home owner’s dues).  Lately, I’ve been getting calls from clients who not only have no equity, but actually have “negative equity.”  For example, your house might be worth $250,000 and you owe $350,000.  If that’s the case, you might not want to try to save your home from foreclosure.  You’d actually have more equity if you rented!
• Is this where you want to live for the indefinite future?  If not, perhaps you should use your financial problems to reevaluate where you want to live.  Perhaps renting in another area would lessen your commute or allow your children to enroll in a better school?

These are just a few factors you should consider.  You should weight all the pros and cons of saving your home. You can then have your bankruptcy lawyer help you decide whether filing Chapter 13 bankruptcy to save your home really makes sense.

Jonathan's note: in addition to the very relevant points Russ makes, let me add this:  if you decide that saving your house in a Chapter 13 does not make sense, a "fresh start" Chapter 7 could be appropriate.  Similarly, you can still file a Chapter 13 to reorganize  your other debts while you surrender your home.   My point – personal bankruptcy is not a "one size fits all" solution – a good bankruptcy lawyer can offer you several options to consider, many of which you may have never considered.

If there is one lament that I hear from my colleagues, it is this – "I wish my clients would call me earlier, when there is time to evaluate bankruptcy and non-bankruptcy options."  Sometimes, when there are only days or hours to go before a foreclosure, an emergency Chapter 13 may be your only choice.   Even if bankruptcy is something you really do not want to think about, you would be wise to establish a relationship with a bankruptcy lawyer before you end up facing a crisis.

Posted in 2800, Bankruptcy, Chapter 13 issues, Foreclosure, Foreclosure issues, Lawyer, Mortgage, Russ Demott, a, absent, bankruptcy and foreclosure, charleston, client’s, consent to foreclosure, contest foreclosure, deed in lieu of foreclosure, demott, equity, facing, folks, foreclosure  , home when, home  , home ” in, huge, increases, modification, month  , my, oppose foreclosure sale, potential, question, russ, save, saving, showing, statistics, the, you’d, you’re | Comments Off

Underwater Mortgages in the U.S. by City

For most of us, the story of how the Great Recession started is a familiar tune: the stock market soared because of speculation on the real estate market, which meant real estate prices soared as well. And when the bubble burst, millions of Americans lost serious money and foreclosure rates climbed steadily.

And the latest news, according to real estate information source Zillow.com, still reflects a seriously distressed housing market in many parts of the country.

Underwater Homes

One of the biggest problems homeowners face today is negative equity: when you owe more on a home loan than the property is currently worth, you’re said to have negative equity, or be “underwater” on your mortgage loan.

According to sources, a whopping 23.3 percent of U.S. homes are currently underwater, slightly more than the 23 percent reported in the last quarter of 2009. Here’s a look at the U.S. cities currently suffering from the highest negative home equity rates:

• #15: Jacksonville, Florida. Here, 127,807 homes, or 49.1 percent of residences, are currently underwater.
• #14: Riverside, California. This city has a 51.2 percent underwater rate, with 347,778 individual homes.
• #13: Tampa, Florida. 286,303 underwater homes give this city a 53.1 percent rate.
• #12: Vallejo, California. With 41,436 homes underwater, this city has a 54.7 percent rate.
• #11: El Centro, California. A 54.9 percent rate means 12,103 houses in this city are underwater.
• #10: Port St. Lucie, Florida. With 54,190 homes underwater, this city has a 56.2 percent rate.
• #9: Stockton, California. Once the foreclosure capital of the country, this city now has the dubious distinction of a 57.7 percent underwater rate, with 64,614 homes underwater.
• #8: Fort Meyers, Florida. Here, 58.2 percent of homes (83,533) have negative equity.
• #7: Lakeland, Florida. With 62,423 homes underwater, this city has a 58.5 percent rate.
• #6: Merced, California. 24,076 underwater homes, for a rate of 58.8 percent.
• #5: Modesto, California. A 60.7 percent rate with 54,417 homes underwater.
• #4: Reno, Nevada. 45,107 homes underwater gives Reno a 64.4 percent rate.
• #3: Phoenix, Arizona. Here, 64.4 percent of homes (totaling 479,692) have negative equity.
• #2: Orlando, Florida. With 289,209 homes underwater, Orlando has a 74.8 percent rate.
• #1: Las Vegas, Nevada. A whopping 80.6 percent of homes (254,880) have negative equity.

Negative equity is no small matter for affected homeowners, considering that mortgage modifications have been difficult to process and foreclosure is generally a trying process.

For some people facing foreclosure of their homes, a Chapter 13 bankruptcy filing may help, but it may not help the problem of owing more on a house than it's worth.

If you have negative equity in your home, consider speaking with a personal bankruptcy lawyer about your options.

Additional Resources

Estimates of Negative Equity among Nonprime Borrowers (PDF)

Foreclosure Mitigation Efforts in the United States (PDF)

Posted in Chapter 13 Bankruptcy, Foreclosure, Mortgage Foreclosure, underwater mortgage | Comments Off

Georgia Personal Bankruptcy Filings Continue to Increase

According to a recent article regarding Georgia bankruptcy published in the Atlanta Journal Constitution, it is nothing new that Georgia has one of the highest bankruptcy rates in the nation. What is new, suggests the AJC article, is who is filing: large numbers of people who have not previously had problems with financial instability.

With unemployment exceeding 10 percent, a real estate market in shambles, and many laws in place which support creditors, Georgia has had one of the highest bankruptcy rates for years. In 2009, and even here in early 2010, the numbers of people in Georgia filing personal bankruptcy continue to increase. These increasing numbers are partially the result of the large numbers of filers who are experiencing financial instability for the first time.

Richard Thomson, a partner at the Atlanta-based bankruptcy law firm Clark & Washington, said his firm is taking on an increasing number of higher-income professionals as clients. These higher-income filers simply can’t pay for all of their assets and possessions – boats, expensive cars, etc. As a result, they are filing bankruptcy as a means to start over, and their possessions are often given up as part of the process. According to Thomson, “They’re just saying ‘Take it. It’s not worth the effort anymore. I can’t keep up with it.”

Susan Blum and I are seeing the same trends here at Ginsberg Law Offices.   While our firm has regularly handled cases for formerly high earners and individuals with substantial assets, we are seeing more and more people who start our meetings by saying "I never in a million years thought I would ever end up talking to a bankruptcy lawyer…."   In many cases, clients who had previously enjoyed a comfortable lifestyle wait until disaster is about to strike before calling our office, perhaps in the expectation that their situations will improve.  And more and more of these clients are turning to a Chapter 7 liquidation rather than a Chapter 13 reorganization.

More Chapter 7 Cases Being Filed

According to the National Bankruptcy Research Center, over half of Georgians filing between January and November 2009 filed Chapter 7 Bankruptcy. In a Chapter 7, most debts are wiped out, but so are assets that aren’t protected by exemptions – second cars or vacation homes, for example. 47 percent filed Chapter 13 Bankruptcy, which allows consumers to hold on to a house and car but requires that they repay a portion of their debts generally over a five year period. A Chapter 13 is more or less a reorganization of debt.

These percentages are new for Georgia, which traditionally has been dominated by Chapter 13 filings, as debtors were most concerned about holding onto a house and accumulated equity. Currently, many homeowners have little equity or owe more than their houses are worth, which may be one reason for the spike in Chapter 7 filings.

According to Consumer Credit Counseling Service of Greater Atlanta, one in five consumers receiving recent pre-bankruptcy counseling said avoiding foreclosure was the primary reason for seeking bankruptcy protection. Georgia’s foreclosure process is the fastest in the nation, as it occurs without court or government supervision and takes only a week. A bankruptcy filing is the only realistic option for most Georgians seeking to delay a public auction of their homes.

I (Jonathan) have been representing individuals in Chapter 7 and Chapter 13 cases for over 20 years and I can only remember two or three times when the demand for our services was so high.  The Congressional Budget Office says that the recession is over but I am not seeing any indication that this is true.

Posted in 10, Amp, Assets, Bankruptcy, Chapter 7 Bankruptcy Filings in Georgia, Filers, Foreclosure, General consumer bankruptcy info, Georgia Bankruptcy, Georgia bankruptcy rates, Law, Possessions, and, atlanta based, boats, can’t, clark, clients, exceeding, expect, experiencing, financial, firm, georgia bankruptcy filings, georgia’s, higher income, homes jack, instability, instability with, numbers, pay, percent, problems, process, protection, recent bankruptcy trends in Georgia, seeking, simply, the, unemployment, williams, – | Comments Off

Stricter Mortgage Lending Regulations Implemented

As many people now know, the current recession was touched off by the collapse of the real estate market, which ballooned out of control in the mid-2000s.

Now, according to CBS News, mortgage lenders have learned a tough lesson and are changing the way they do business. Here’s a look at some notable changes and why they’re cropping up.

Big-Time Losses

During the subprime lending boom, many lenders (including big players like Fannie Mae and Freddie Mac) offered high- or variable-interest loans, no-down-payment loans, and other types of loans that people were unlikely to pay off easily.

Now, many of those loans have gone bad, meaning that the borrowers were unable to make payments and the houses in question have gone into foreclosure. Lenders are thus writing off (that is, accepting as lost) billions of dollars in bad debts – and they have to do something about it.

• Credit score requirement: In the era of subprime lending, people with low credit scores were often specifically targeted for high-interest loans. Now, according to sources, Fannie Mae will not issue loans to anyone whose FICO credit score is below 620.
• Equity requirement: If you’re looking to refinance your current home loan, lenders now require you to have some equity (that is, some amount of the principal paid off) in your original loan.
• Down payment a must: In the olden days, buying a house without a down payment was unheard of; the subprime lending "innovations," though, introduced loans with no down payment required. Major lenders, it seems, are returning to the traditional wisdom that you must pay a significant amount of money up front.
• Debt-to-income ratio consideration: Fannie Mae has also reportedly announced that it will not lend to anyone whose debt-to-income ratio rises beyond 45 percent – that is, in order to get a loan, you must not pay more than 45 percent of your monthly income on all debt payments (including car, credit card, student loan, etc.) combined.

So what does this mean for people thinking about buying a home? Basically, it means you need to be at the top of your game financially. You should be checking your credit report regularly and making sure you’re an attractive candidate to home lenders – and if you aren’t right now, it’s time to take steps to become one.

Additional Resources

Home Buying Brochure

Posted in Foreclosure, Mortgage Foreclosure, Mortgages, lending | Comments Off

Call Your Representative and Demand Mortgage Modification in Bankruptcy

An amendment being debated in the House of Representatives could provide powerful protections for homeowners going through bankruptcy. This legislation would allow bankruptcy judges to modify mortgages in Chapter 13 cases, providing a huge benefit for everyday hardworking Americans who are facing home foreclosure. The House may start voting on this amendment as soon as today!

Please take the steps below then share with your family and friends via email, Facebook, or any way you can get the word out!

1. Phone toll free at: 877.354.4958
2. Put in your zip code
3. When you reach the receptionist:
   • State your name
   • Say that you are a constituent
   • Ask the Representative to vote FOR the Conyers-Turner-Lofgren amendment (#201) to the Financial Services Reform bill.

The amendment is being fiercely opposed by the business and financial services communities. By calling your representative in support of this amendment, you can fight corporate greed and help your fellow Americans. This amendment will cost taxpayers NOTHING and will save millions of homes from foreclosure! Take action today!

Posted in Bankruptcy, Bankruptcy News and Events, Foreclosure, mortgage modification | Comments Off

One in Four Mortgages Underwater

Nearly one in four home mortgages are burdening borrowers with negative equity, an article by the Wall Street Journal reports.

Underwater mortgages find homeowners with declining home values to the point that they owe more on their mortgages than the home is worth.

The situation has hit new homeowners in the past few years, especially those who were paying interest-only mortgages as their home values declined.

However, this is no longer the case, as a whopping 23% of all home mortgages—10.7 million households— are underwater, according to real estate information company First American CoreLogic.

5.3 million of those homes are tied to mortgages worth least 20% more than the home's value.

The hardest hit states include Florida, Arizona and Nevada, where 65% of mortgages have negative equity—nearly three times the national average.

Negative equity can become a financial disaster for homeowners, especially if it means turning down a promotion or job transfer because they cannot sell their home.

The underwater crisis is intimately tied to foreclosures (a category also led by Nevada), as rising foreclosure rates can cause neighboring homes to lose value, and as some homeowners choose to simply stop paying on underwater mortgages, known as strategic default.

An estimated 588,000 borrowers defaulted on mortgages last year even though they could afford to pay, double the amount from 2007.

Posted in Foreclosure, Mortgage Foreclosure, Mortgages, Nevada, equity | Comments Off

October Foreclosures Dip from September, Soar from ‘08

RealtyTrac, a company that follows foreclosure data for the United States, released October numbers on Thursday. It seems foreclosure rates have decreased slightly since last month, but are still significantly higher than they were a year ago.

Foreclosure by the Numbers

Here’s a look at the statistical breakdown of recent foreclosure activity in the country.

• 332,292 property filings in October: This number includes three specific types of action: notices of bank repossession, auction and borrower default. That means one in every 385 American households is in some phase of the foreclosure process.
• Percentage changed: The numbers translate to a three percent drop from September of this year, but a 19 percent increase from October of 2008, suggesting that the moderate improvement is only relative.
• Estimate for the year: Based on information gathered thus far, RealtyTrac is reportedly predicting as many as 3.4 million foreclosures this year, a 48 percent jump from 2008’s total of 2.3 million.

These numbers may seem astoundingly high, and they are – remember that this recession started in the real estate industry, and continues to plague homeowners.

So why are foreclosures still inching up even when the economy is showing signs of recovery? Most likely, sources suggest, the unemployment rate is to blame. Even though consumer spending may be on the rise, millions of Americans are still without jobs – and without serious hope of getting jobs in the near future, which means missed house payments.

Foreclosure Prevention or Just Delays?

The Obama administration has taken some action to try to ease the pain in the housing market. The Home Affordable Mortgage Program, an initiative designed to encourage lenders to offer mortgage loan modifications with cash incentives, apparently helped as many as 20 percent of eligible borrowers last month, up from 16 percent in September.

But those numbers still represent far less than the majority of struggling homeowners – and some other laws may be offering less help than they seem to be.

Nevada, for example, allegedly has a law in place that mandates foreclosure mediation for at-risk borrowers. And, while sources indicate that the state saw a drop in foreclosures this month, it could very well see a jump later on, if and when mediations have been completed and proven unsuccessful.

Additional Resources

Home Affordable Modification Guidelines

Posted in Bankruptcy, Foreclosure, Mortgage, Mortgage Foreclosure, statistics | Comments Off

Bankruptcy Chapter 13 Mortgage Foreclosure

Posted in Bankruptcy, Chapter 13, Foreclosure, Mortage | No Comments »