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Foreclosures Stopped by Bank of America: Not Always Good News

By Susanne Robicsek, North Carolina Bankruptcy Attorn

Foreclosures by  Bank of America have been stopped in all 50 states, which is good news for many homeowners frustrated by foreclosure-documentation problems.   It is good that some of the mortgage industry’s widespread problems are being examined, but stalled foreclosures may not be beneficial for everyone.  This may actually worsen problems for some borrowers, and all borrowers should be aware of pitfalls that can result from this temporary relief.

The Good:

For some homeowners, the delay may afford the time to resolve the foreclosure and may be able to save their home by proving the documents are improper, curing the default, working out a modification or filing a Chapter 13 bankruptcy to catch up payments.  Chapter 13 allows a homeowner to stop foreclosure and keep their house if they can catch up missed payments over a 3-5 year period while making the regular payments too.

For others, the delay is welcomed giving families some extra time in their home before they have to move.  They can use the time to save up for their move, pack up their belongings, and find a new home.

The Bad:

And then there are homeowners who actually want the bank to foreclose.  Why?

Many of my bankruptcy clients want to surrender their house because they can’t afford the payments.  They need to move to a cheaper home and they want to get situated rather than waiting month after month wondering when the shoe will drop and they will be forced to move on a few week’s notice.  They just want to move on with their lives and they want resolution.

Other clients have to move, maybe to another city to find work, to take care of a family member or some other reason.  Because they owe more on the house than it is worth, they can’t sell it by traditional means.  They must move, and yet they still have to worry about their old home.   As long as the property is in the borrower’s name, the borrower has legal responsibilities besides the mortgage payements.  They must pay Home Owner’s Dues, property taxes, and maintain the property (keeping the yard mowed, etc.)  according to City Codes.  It is also advisable to keep insurance on the property to protect against liability.

Saving the home from foreclosure:

But for people who want to save their house, their mortgage problems will deepen as the extra months during this period only add to how much it will take to resolve the matter.

Any homeowner who wants to try to save their house and is behind on payments should save as much money as they can during this moratorium.  Don’t spend the money you would have used to pay your mortgage!

Eventually the foreclosures will resume, and the more months that pass without payment the harder it will be to catch up or  resolve the matter when the dust settles.  It may be tempting to use the funds to catch up on other bills, but that only puts homeowners who are in default in a position where it is harder to fix.

Many people wait until just before a foreclosure sale to seek the advice of a bankruptcy lawyer.   Typically, if your house payments are behind the lender will refuse to take payments or ask for a reduced (modified) payment during a trial modification period.   One of the things I most hate to see is someone who had used the money they would have used for the house payment to try to catch up on credit card payments that will all be written down (or off) in a Chapter 13 bankruptcy or Chapter 7 bankruptcy.  The borrower had to file bankruptcy anyway, and the house arrears are so high that there isn’t any way to cure the house payments in Chapter 13.

The Wall Street Journal reported in an article that the moratorium on foreclosures will not be lifted until their review of the practices associated with foreclosure documents is complete.

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Full post as published by Bankruptcy Law Network on October 13, 2010 (boomark / email).