Archive for the ‘Mortgage’ Category
Sunday, June 13th, 2010
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
Monday, May 31st, 2010
Every week I receive several phone calls from homeowners who want to take advantage of the federal HAMP (Home Affordable Mortgage Program) but do not know where to start. Often these callers are behind two or three months and are receiving foreclosure notices, but they really do not want to file Chapter 13 before exhausting all non-bankruptcy alternatives.
These homeowners may have received foreclosure notices that suggest that the mortgage lender intends to negotiate or modify their mortgage. Georgia law now provides that all foreclosure notices must include a "negotiation provision." O.C.G.A. Section 44-14-162.2 provides:
Notice of the initiation of proceedings to exercise a power of sale in a mortgage, security deed, or other lien contract shall be given to the debtor by the secured creditor no later than 30 days before the date of the proposed foreclosure. Such notice shall be in writing, shall include the name, address, and telephone number of the individual or entity who shall have full authority to negotiate, amend, and modify all terms of the mortgage with the debtor, and shall be sent by registered or certified mail or statutory overnight delivery, return receipt requested, to the property address or to such other address as the debtor may designate by written notice to the secured creditor.
However, in real life, very few of these homeowners have had much success in reaching a deal with their lenders.
What about the highly touted HAMP program? A quick search on the Internet reveals dozens of articles suggesting that, to date, HAMP is not working.
Now comes word that the federal government has modified HAMP to include homeowners in bankruptcy with new guidelines effective on June 1. Supplemental directive 10-02 specifically addresses the applicability of HAMP to homeowners in bankruptcy.
These directives are intended for mortgage servicers and set out numerous obligations for servicers. I did find a fairly comprehensive Making Home Affordable FAQ section written for borrowers on the MakingHomeAffordable.gov site.
In reviewing the HAMP materials, it appears to me that the program is designed to direct homeowners to approved HAMP counselors, rather than to have homeowners apply directly. Further there appear to be regulations that apply to mortgage servicers where they must proactively advise homeowners of possible eligibility. The on-going issue – the HAMP rules are so complex that most individuals will have no idea about whether they are eligible. For example, to qualify for a modification, here are the requirements set out in the FAQ:
- Be the owner-occupant of a one- to four-unit home.
- Have an unpaid principal balance that is equal to or less than:
- 1 Unit: $729,750
- 2 Units: $934,200
- 3 Units: $1,129,250
- 4 Units: $1,403,400
- Have a first lien mortgage that was originated on or before January 1, 2009.
- Have a monthly mortgage payment (including taxes, insurance, and home owners association dues) greater than 31% of your monthly gross (pre-tax) income.
- Have a mortgage payment that is not affordable due to a financial hardship that can be documented.
Would you know what documents to produce, or how to calculate 31% of your monthly gross income? The government goes on to advise you that "only your servicer will be able to tell you if you qualify." In other words, you are expected to turn to the foreclosing lender to help you apply for a program that will stop foreclosure.
Thanks to Las Vegas bankruptcy attorney Randy Creighton for highlighting the June 1, 2010 HAMP changes on his well researched blog post.
Posted in 1 , 10 02, Borrowers, HAMP, Mortgage, Mortgage modifications, a, addresses, affordable, applicability, approved, bankruptcy and HAMP, bankruptcy and mortgage modification, changes to HAMP, counselors, directive, eligibility , federal, highly, home, homeowners, issue, june, lenders what, makinghomeaffordable gov, materials, modified, on going, program, program , quick, reviewing, rules, search, site in, specifically, supplemental, the, touted | Comments Off
Thursday, May 20th, 2010
During the real estate boom that caused the housing bubble that eventually sent the country into a serious recession, it was common practice for borrowers to apply for a mortgage by using "stated income," which meant indicating their income without offering proof.
But mortgage lenders have learned their lesson and now, according to the New York Times, qualifying for a mortgage loan is harder than ever for those working for themselves.
Providing Proof of Income
In order to convince a bank to lend you the money to buy a home, you have to prove that you can afford to repay it. Generally, that entails showing official records of your earnings and current credit situation. People who work for themselves or own a small business, though, may not have regular paychecks to present, which may mean:
- Higher interest rates: According to the Times, the few banks that still extend stated-income loans charge significantly higher interest rates than they do for standard loans. From an economic perspective, this makes sense: when there’s a greater risk involved, there must be a greater potential gain. But it can mean a much more expensive loan for borrowers.
- Careful bookkeeping: Some banks will apparently initiate loans with two years' tax receipts, but this might also present a problem for some self-employed borrowers. It seems that, in order to offset losses in the rough economy, many people have been taking liberal tax deductions, thus lowering their overall reported income. This, naturally, could hinder their ability to qualify for a large loan.
- Solid finances required: One expert quoted suggested that self-employed borrowers with considerable cash reserves and credit scores of at least 700 should be able to get traditional loans, but those who have lost income (or filed bankruptcy) during the recession may have difficulties.
But, according to the piece, self-employed Americans shouldn’t despair. It seems that as many as 30 to 40 percent of those who work for themselves qualify for mortgage loans they apply for. If you aren’t sure how your finances currently look, consider starting the mortgage application process by viewing your credit report (for free) at www.annualcreditreport.com.
Additional Resources
Understanding Your Mortgage Loan (PDF)
Practical Guide to FHA Lending (PDF)
Posted in Home Loan, Mortgage, Mortgage Foreclosure, lending, self-employed, small business | Comments Off
Saturday, February 13th, 2010
Part of becoming truly financially responsible and independent involves accepting responsibility for your financial situation. Not only do you have the power to improve your finances, you’re the only person who can (and will) consistently watch out for your rights as a consumer.
This point was driven home once again in this post from CreditBloggers.com, in which the author examines one aspect of banking that people probably don’t realize can cost them serious money.
Understanding Overages
Here's a look at how you could end up losing a couple thousand dollars in a few minutes (without even realizing it):
- You go into your bank to apply for a mortgage loan. A loan officer presents some numbers to you and offers you a loan, which comes with an interest rate that is determined largely by your credit score.
- If you’re lucky, you were offered the lowest interest rate that your credit status qualified you for.
- If you’re unlucky (as many thousands of Americans are), you were offered an interest rate with an "overage"—an interest rate slightly higher than the best rate your credit score allowed.
Why would lenders even offer such loans? Because it can be profitable for them:
- A higher interest rate equals a more profitable loan (because you, the borrower, pay more in interest).
- A more profitable loan is more attractive to investors (because they can collect more money on it).
- The bank gets a higher price for the loan, some of which goes to the loan officer as a reward.
According to the post, issuing loans with overages is fairly common, even at some large, well-established banks, which is why you must act as your own advocate when investigating significant purchases.
Protecting Yourself and Your Money
If you aren’t already monitoring your credit report, consider doing so. At the web site annualcreditreport.com, you can view a free copy of your credit report from each of the Big Three reporting bureaus once per year.
And, if you’re getting ready to apply for a mortgage, you may want to pay to view your actual credit score (visit MyFico.com). To determine what mortgage rate you’re likely to get, do some online research or speak with a financial guru you know before hitting the banks.
Additional Resources
Choosing the Mortgage that’s Right for You (PDF)
Posted in Financial Literacy, Interest Rates, Loans, Mortgage | Comments Off
Friday, November 13th, 2009
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
Saturday, June 6th, 2009
Smith Bryan asked: People who took out bad mortgages or bought houses they couldn’t afford once interest rates reset shouldn’t be helped. “I acted responsibly,” they said. “Why should someone who acted less responsibly than I did be rewarded by a better deal then I got?” Others say that the collective impact of these mortgages going into foreclosure and people filing bankruptcy have such a negative effect on the economy that something needs to be done to staunch the hemorrhaging.
The problem is that all of the solutions discussed thus far seem to carry a high price tag. Buying the bad mortgages would cost hundreds of billions, as would giving government benefits directly to people with bad mortgages.
Also when it comes to mortgages, there are many people that have been scammed by a mortgage broker, promised one loan and given another. To the untrained eye, unless those flaws are obvious in the loan documents, the future holder of the loan is not liable for that claim. If proper assignments were not completed until just in time for court, the consumer may have plenty of rights to offset the claims made by the servicer. But consumers will never know the option is there if the lender can hide the chain of assignments behind smoke and mirrors. Bankruptcy courts are federal courts. Federal courts are constitutionally limited to addressing only a case or controversy between parties who have a true stake, something to win or lose in the outcome. Someone claiming such a stake has to be able to prove it.
Recently decisions have been made requiring the lending industry to disclose what it has been doing with loans. It’s a small thing but very important. Homeowners rarely understand how their loan ended up where it is. Sometimes they have conflicting information about who is entitled to the payments. Servicers don’t always talk to each other coherently when they pass paper between themselves, so how can a consumer not trained in mortgages be expected to understand it? Consumers may discover they have rights and claims which should be vindicated. Consumers don’t know when their rights are violated, in fact, they often are outraged by things which are lawful while only confounded by the unlawful. A lot of these consumers never find out any of this until they file for bankruptcy and are being foreclosed on.
Bankruptcy filing is or can be the most powerful foreclosure tool if used properly. In fact bankruptcy is probably the most powerful financial tool one can use in this country. And in these tough economic times, it’s not so it’s a question of whether a bankruptcy filing can stop foreclosure, but more of a question of what else cans bankruptcy due in addition to stopping the foreclosure. For instance, it may be possible to attach the mortgage itself and entirely strip off the property if there is an enforceability issue. Likewise, if new legislation is passed, arrears may no longer be an issue since the home loans will be entirely restructured into one mortgage reduced to a fair market value, with a lower interest rate, a lower payment, and spread over 40 years.
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Sunday, April 26th, 2009
Lender411 asked: Bankruptcy used to be the stigma laden option for consumers who were simply too deep in debt to find a way out. In the past Chapter 7 filings could lighten the debt load for filers by simply doing away with credit card bills and other unsecured loans. In some cases, homeowners could even keep their homes and cars, depending on their ability to repay the loans and of course also the amount of equity contained within the asset.
When changes to the bankruptcy code were submitted – making it much more favorable for unsecured creditors like credit companies – and kept consumers repaying outstanding balances as part of their filing requirements, the fast paced return to a life without fiscal woes was greatly curtailed. As the housing boom bottomed out, and a waning economy sent more and more homeowners into bankruptcy, the amounts of seized parcels of real property skyrocketed and empty homes litter residential streets, driving down home prices.
Since there is hardly a waiting number of consumers for these foreclosed properties, a number of state attorneys general have now come out in favor of a further amendment to the bankruptcy code that would put the bankruptcy court in the position to order banks to proceed with mortgage loan modifications. Proponents believe that this step will protect large numbers of bankrupt homeowners from actually having their homes seized and added to staggeringly high inventory of already foreclosed homes.
Bankers and mortgage investors are not too keen on the idea, since it essentially places the risk of bad mortgages back on them, leaving them to figure out how to make a home affordable for a debtor who is essentially out of disposable income. Banks argue that such a move would greatly increase the cost of mortgages for all consumers, since banks would have to protect themselves against the potential for high impact costs this kind of program might have for them.
The current political climate in Washington, however, does not have a lot of sympathy for creditors and for banks that are crying foul and as such the Obama Administration is favored to see this measure through. What is more, since proponents crunched the numbers, they came to the realization that the actual increase would only be about 0.15 points to current mortgage rates, keeping them still rather competitively priced for those considering the purchase of a home or the refinance of an existing home.
With so much opposition, it is not surprising that banks might find themselves in the unenviable position of having to change their business practices. While thus far they have been extremely slow to let go of the bailout money they previously received for the funding of consumer loans, they might before long find themselves to be court ordered to do so. It is anyone’s guess what the long tern effect of this kind of financial climate will be. As it stands, beleaguered homeowners appreciate the opportunity to remain in their homes, even as their finances are in shambles.
In order to compare the lowest mortgage rates, you can visit our site www.lender411.com.
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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:
