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What happens to the mortgage payments I am behind on?
Good question. Normally in Chapter 13, we set up a plan of repayment for you, and one of the things that gets included is any and all the amounts necessary to pay back "in full" whatever amounts that you got behind on with respect to your mortgage. That's the bad news. The good news is that you are generally given many months to do so. For instance, in North Carolina, in most cases, you can spread this payment out over the entire duration of your Chapter 13 plan, which is anywhere from 36 to 60 months, depending upon your circumstances. Let's say you were $3,000 behind in your mortgage payments before filing bankruptcy under Chapter 13. And...let's say your Chapter 13 plan is set up to run for 48 months. In most cases, you can pay back the $3,000...without interest or additional late fees...by paying $62.50 per month ($3,000 / 48 = $62.50).
Special North Carolina alternative option: In North Carolina, the Bankruptcy Courts have adopted a program to help you modify your mortgage. However, this program only applies to home mortgages. This program is called the LMM Mortgage Modification program. There are a number of requirements in order to qualify for this program. But, if you qualify, you can use this program to modify your home mortgage to both: (1) Bring it current and (2) Lower your mortgage payment by as much as 20%. Bringing your mortgage "current" means that there is no longer any payments that are behind. This program is especially helpful if you are at least 3 months behind on your home mortgage.
Tell me more about foreclosure. What exactly is foreclosure?
If you will remember, way back when you got your mortgage, you signed 2 documents. You probably signed a lot more than 2 documents, but the 2 documents I am speaking about were the Note and the Mortgage (called a Deed of Trust in North Carolina.) The Note was your personal promise to pay for the money you borrowed from the mortgage lender. The Mortgage was your agreement to serve up your home or other real property as "collateral" for the loan. By doing so, you allowed the mortgage lender to put a lien on your real property.
"Foreclosure" is the court proceeding which your mortgage lender starts for the purpose of selling your real property. The mortgage lender then applies the money from the sale of your property toward payment of your debt.
So, how does foreclosure work?
Foreclosure is handled somewhat differently from State to State, but using North Carolina as an example, here is how it works. When you get far enough behind....usually about 3 months....on your mortgage, to the point where your mortgage lender has reason to believe that you either can't or won't pay your mortgage, the mortgage lender starts foreclosure. This is a court proceeding.
However, before doing so, you will usually get one or more demands for payment. If you still don't pay and catch up your mortgage, the mortgage lender will turn the matter over to an attorney who specializes in handling foreclosures. That attorney will sometimes write you to give you one last chance to catch up your mortgage. Then, you will be sent a letter that tells you that the mortgage lender is exercising its right to "accelerate" your mortgage, which means it is exercising its right to declare your entire mortgage due...as opposed to just your delinquent payments. In North Carolina, this is a necessary step before the mortgage lender can start foreclosure. At this point, the mortgage lender will generally refuse to take any partial payments from you because the mortgage lender does not want to do anything to accidentally "waive" its rights to proceed with foreclosure.
After this is done.....in North Carolina.....there are 3 major steps included in the foreclosure process. First, you have to be served with a Notice of Foreclosure Hearing. The purpose of this hearing is for the mortgage lender to get permission to sell your real property. This hearing is usually just a formality, because in most cases, there is no question that you are behind on your mortgage payments, and showing that you are behind is usually all the mortgage lender has to show. Once the mortgage lender gets the go-ahead to put your real property up for sale, the mortgage lender, by its foreclosing attorney, then posts and publishes a Notice of Foreclosure Sale. A copy of the Notice of Sale must be served on you, and...in North Carolina...this gives you about 20 days advance notice of the sale.
The sale is then conducted in a public place. Anyone interested in buying your property comes to the sale and bids on your property. This highest bidder gets your property. After the bidding is concluded, the highest bidder must then pay....as a down payment...a deposit in the amount of 10% of the bid price.
After this, there is a 10 day waiting period, called the "upset bid period", during which you are given a chance to pay off the entire mortgage (which almost never happens), and other people are given a chance to post higher bids for the property. In most cases, no higher bids are posted. Assuming this is the case, the sale is considered final the end of the 10 day upset bid period.
Once the sale is final, the highest bidder pays the rest of the bid price, and receives from foreclosing attorney a deed which conveys... to the highest bidder.... title to the property.
The money received from the highest bidder is first applied to pay any outstanding real property taxes, and then it is applied toward payment of your debt with the mortgage lender and...if there is enough money....the costs involved in preserving the property and processing the foreclosure. In almost 100% of the foreclosure cases, the amount bid is not enough to pay off all these costs.
After my house is foreclosed, how long is it before I have to move out?
We will use North Carolina law to answer this question. In North Carolina....after the foreclosure is complete, someone checks to see if you are still living in the property. If you are still there (and you have NOT filed bankruptcy), the buyer of the property gets the Sheriff involved. The Sheriff would then serve you with a "Notice to Quit" the property, which requires you to vacate the property within so many days. If you don't vacate within that time, the Sheriff comes and physically throws you out, along with your family and all your belongings. You are literally put out on the street.
Assuming the foreclosure does not bring in enough money to pay off my debt with the mortgage lender, what happens to unpaid part?
Well...that's where the Note comes in. Remember the Note your signed at the closing. That Note....in essence....pledged you as collateral for the loan. Very simply....you still owe whatever part of the debt is not paid through the sale of your property. This is generally referred to as a "mortgage deficiency". In most cases, the mortgage lender will try to collect upon this Note obligation by suing you personally and taking a judgment against you.
How much can I expect the unpaid part to be?
Every foreclosure sale is different, but the harsh reality is that a foreclosure sale almost never brings anywhere near as much money as when you sell your property through a licensed real estate broker. As a result....we many times see mortgage "deficiencies" of $20,000 to $50,000 or more. How much the deficiency is depends on what your real property was worth, and how much value...if any....there was in your property above what was owed on your mortgages. For instance, let's say your house was worth $170,000 in the hands of a real estate broker, but only sold for $120,000 at a foreclosure auction. And...let's say you had 2 mortgages against it, one for $140,000 (including your past-due payments and the costs of foreclosure), and a second mortgage for $30,000. In this example, after foreclosure, you would still owe $20,000 on your first mortgage loan and $30,000 on your second mortgage loan, for a total of $50,000.
Can filing bankruptcy help me get out from under this mortgage "deficiency"?
Absolutely. The bad new is that you owe it. The good news is that this debt is "unsecured" and...most of the time...by filing bankruptcy you can get rid of most...if not all... of this debt. In our example, that may mean getting rid of $50,000 in debt...plus all the future interest.
When should I come to see an attorney about filing bankruptcy?
If your house is in foreclosure or about to be....the answer is now, immediately, today. The sooner the better. The earlier you are in the process of foreclosure or threatened foreclosure: (1) the more options you have, (2) the quicker you will find out what your options are, (3) the less the foreclosure expenses the mortgage lender will have incurred and...in turn... the less you will have to pay back, (4) the more time there is to figure out if filing bankruptcy is right for you, and if so, the more time there will be for getting all the documents properly prepared to effect your filing.
I'm still living in my house, but what if I can't afford to keep up the payments? What can filing bankruptcy do for me?
Sometimes, there just isn't enough income to continue to afford your home, as for instance where you have lost your job or where you and your spouse have split up.
In this event, filing bankruptcy before the final foreclosure deadline can at least buy you more time in your home. Filing bankruptcy is like throwing a net over the mortgage lender. You see, when you file bankruptcy, the Bankruptcy Court immediate issues a court order that tells all creditors to stop in their tracks until they are given permission by the court to do otherwise. The net is this Court order, and what happens is that your mortgage lender has to stop the foreclosure....until it gets permission from the court to continue. Even if the mortgage lender responds as fast as possible, as long as the foreclosure was not final at the time you filed bankruptcy, filing bankruptcy will buy you an additional 30 days in your home. In most cases, it works out to another 2 or 3 months, or more.
In addition, by filing bankruptcy before the final foreclosure deadline, you can stop the foreclosure, and if there is enough value in your house to justify selling it, you can buy some time to try to get it sold through a real estate broker. Remember, selling your house through a real estate broker almost always brings more money that having it sold at a foreclosure auction. Filing Chapter 7 will buy you 3 or more months. Filing Chapter 13, especially where you agree to pay some "adequate protection" payments to the mortgage lender, can buy you 6 months to a year, depending upon the facts of your situation and the State that you live in.
How else can filing bankruptcy help me with respect to may house?
Sometimes...we can completely strip off and get rid of a 2nd or 3rd mortgage. Under the law, if your file bankruptcy under Chapter 13, you have a right to strip off any mortgage that is completely "unsecured". For instance, say your house is worth $100,000, but you owe $110,000 on the first mortgage, and another $30,000 on a second mortgage. By filing bankruptcy under Chapter 13 (and this assumes you stay in your case to completion), you could...in this example...strip off the second mortgage completely. And...let's say your mortgage payments on the second mortgage are $350 per month. This would save you $350 per month. This might be the difference between keeping your house and making it, on the one hand, or not filing and losing everything.
I am behind in my mortgage payments and the foreclosure has already been started. Is it too late to hire a mortgage broker to try to refinance my house?
It probably is too late. First off, in our experience, if your situation is so far gone that you are already in foreclosure, there is little likelihood that a mortgage broker can help you, and this assumes that the mortgage broker isn't just leading you on to make a few bucks at your expense. The biggest problem is that every day you delay getting in to see an experience bankruptcy attorney is another day closer to whatever final foreclosure deadline applies in your State. Don't take a chance. If you house is already in foreclosure...even if you are working with a mortgage broker...even if the mortgage broker sounds promising...make an appointment to go see an experienced bankruptcy attorney. You have nothing to lose and everything to gain. Give yourself a backup plan...just in case the refinance does not come through as hoped.
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