Loan Modification

Threatened With Foreclosure? Hire a Lawyer!

By Kent Anderson, Oregon Bankruptcy Attorney

A homeowner threatened with foreclosure should talk to a lawyer, and do it right away. Talking to a experienced foreclosure defense lawyer immediately after receiving the first notice may pay large dividends. Despite a default in payment homeowners often have defenses under state or federal law.  There are a number of lawyers in Mortgage Law Network who can quickly evaluate your situation and recommend a strategy for dealing with the lender.

If you file for bankruptcy protection, your property will be covered in the bankruptcy case and the foreclosure will automatically be stayed.  However, the stay is only temporary in many cases.  For this reason, it is important to either choose a lawyer with foreclosure defense experience or consult with a consumer home loan specialist before looking to bankruptcy alone as a solution.

While the bankruptcy case is open - up to five years in a Chapter 13 bankruptcy - the bankruptcy automatic stay will stop the foreclosure and can prevent the lender or loan servicer from foreclosing on the property based on past due payments from the time before the bankruptcy is filed. The lender can still foreclose if you fall behind on payments that come due after the bankruptcy is filed, and they may also be able to get the bankruptcy court to remove the automatic stay for other reasons, such as failure to maintain insurance on the property or pay property taxes.

Postponing foreclosure with a bankruptcy is most helpful to a homeowner who intends to continue living in the house and will be able to make ongoing payments. A lawyer may be able to persuade the lender to undertake a voluntary loan modification, making payments more affordable, and can also explain the terms of any modification offered by the lender.  Some lender’s plans are too costly in the long run or too temporary to be of any real benefit.

Congress unfortunately rejected foreclosure prevention legislation known as Senate Bill 61 that would have given a bankruptcy court the authority to require lenders to accept changes to home loans, including reducing interest rates and reducing the principal balance on the loan to the current market value of the property.  If you owe substantially more on your house than it would currently sell for, this would have been a tremendous benefit. Other recently-enacted legislation increases the options available to homeowners battling foreclosure and provides Federal subsidies under limited circumstances.  A homeowner attempting to navigate a maze of overlapping workout options would be well-advised to seek advice from an experienced lawyer.

If you decide to allow the foreclosure to proceed, you may still need a lawyer. Under some circumstances, foreclosure can trigger a large cancellation of debt income tax liability from foreclosure.  Depending on the laws in your state, the type of foreclosure process (judicial or non-judicial), and whether the property is your primary residence, you may remain liable for the deficiency if the home sells for less than the outstanding debt.  Advance planning will minimize the risk of unexpected tax debt.

Full post as published by Mortgage Law Network on June 10, 2009 (boomark / email).