Sometimes homeowners fall behind on mortgage payments and end up facing foreclosure due to various reasons. Maybe the homeowner lost a job and couldn’t get another job or had to take a different job which paid less than he/she was making before. Maybe the homeowner lost a spouse who was the breadwinner for the family. Maybe the homeowner experienced necessary medical expenses which made it impossible to keep current on the mortgage.
If a homeowner falls too far behind (usually at least three months) on the mortgage the mortgage lender will begin foreclosure proceedings.
The options for saving the house are somewhat limited: (1) Get completely caught up on the arrearages, (2) seek a loan modification, or (3) file for Chapter 13 bankruptcy.
Getting caught up on the arrearages will probably be very difficult as it will requires a lump sum payment to cover the arrearages (i.e., the total amount of the missed payments) plus any late charges, attorney fees and other fees the lender is entitled to include pursuant to the mortgage agreement. Some homeowners might be able to get caught up this way if they have retirement funds they can borrow from or have family/friends who are willing to help them.
A homeowner could also seek to get a loan modification. A loan modification is basically where the mortgage company agreement to put the arrearages (and other fees) to the back of the loan, essentially making a larger loan, and might also include making the monthly payment lower and/or making the term of the loan longer. The lender will generally require a lot of documentation (paystubs, letter of hardship, tax returns, estimated budget, etc.) before reviewing the loan modification. If a loan modification is granted the homeowner is considered current and any foreclosure sale that was scheduled is cancelled.
A homeowner can also consider using a Chapter 13 bankruptcy to get caught up on the mortgage arrearages over the life of the Chapter 13 payment plan. A Chapter 13 bankruptcy can be a very powerful tool if the homeowner doesn’t otherwise have the means to get caught up and/or is denied a loan modification. A Chapter13 bankruptcy is a way to force the mortgage company to work with the homeowner so he/she can try to save the home from foreclosure.
If you are facing foreclosure, don’t wait too long before finding out if Chapter 13 bankruptcy can work for you. Contact one of our experienced attorneys to find out what your options are.
By Errin Stowell, W M Law Attorney