AS the mortgage crisis continues unabated, more and more people facing foreclosure are also being forced in to bankruptcy. It appears that a lot of homeowners who couldn’t make their mortgage payments have been tapping into their credit cards and other personal lines of credit to get the cash that they need. Once the credit cards and the credit lines are maxed out, of course, these people find themselves in an even bigger financial mess. According to a recent survey, credit card debts are at an all-time high and if this trend continues, I predict that bankruptcy filings will continue to rise as they have over the last 3 years since the new bankruptcy laws were passed.
Lately, I’ve been seeing a lot of homeowners who are considering bankruptcy but are also in the process of trying to get a loan modification with their lender because they have a foreclosure pending. A lot of them are telling me that their lender has told them that they do not qualify for a voluntary loan modification because of their high debt-income ratio. What this means is that if you owe a lot in other debts (such as credit cards, personal loans, etc.) besides your mortgage, the bank may think that even though your mortgage payments are lower after your loan is modified, it would still be difficult or impossible for you to keep your home because you have other debt obligations that must be paid (and a lot of people in foreclosure are also behind on all their other debts so these debts are showing up as collection accounts on their credit report). In other words, the bank may be telling you that given your current debt load, you simply cannot afford to keep your home and they would rather cut their losses and foreclose on your home because they are left with no other option. Bear in mind that banks hate foreclosing on any property but will do so as a last resort.
Because of the massive number of foreclosures that banks are currently dealing with, I find that a lot of lenders are slow these days in initiating the foreclosure process even when the borrower is already several months delinquent. However, in California, once a Notice of Default is filed against the property, the 90-day statutory period begins to run and the clock starts ticking. Unless the foreclosure is stopped, by filing bankruptcy or other legal means, the lender only needs to give 21 days’ notice (by sending the borrower another document called "Notice of Trustee Sale") after the 90-day period in setting a sale date for the property being foreclosed on. Filing bankruptcy, Chapter 7 or Chapter 13, will immediately stop the sale from going forward and the bank will need court permission to continue with the process if mortgage payments are not being made. An experienced and knowledgeable bankruptcy attorney can explain to you how Chapter 7 or Chapter 13 may help you save your property or at least postpone the foreclosure sale so that you can look at all other possible options. In Chapter 13, it is also possible to "strip down" or remove your 2nd mortgage if the current market value is below the amount of the 1st mortgage.
Eliminating (or at least consolidating) your debts may improve your debt-income ratio and this may be what your lender wants to see when considering your application for a loan modification. Of course, this is just one of the factors that they take into account when evaluating your financial information. Just as important are your ability to show regular and stable employment as well as an assurance to the lender that whatever caused the financial hardship to begin with is now behind you so that you can afford your new mortgage payment once your loan is modified. IMPORTANT: Please be aware that most lenders are STILL willing to negotiate a loan modification in spite of the fact that a bankruptcy case has been filed. However, there are certain lenders with more restrictive policies. You need to know what your lender’s policies are.
If you are in foreclosure and burdened with a lot of debts that you can no longer afford to pay, let me help you evaluate your options. Call Toll-Free 1-866-477-7772 to schedule a free office consultation. We have offices in Glendale, Cerritos and West Covina.
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None of the information herein is intended to give legal advice for any specific situation. Atty. Ray Bulaon has successfully helped over 4,000 clients in getting out of debt. For a free attorney evaluation of your situation, please call Ray Bulaon Law Offices at TOLL FREE 1-866-477-7772.
( Published October 14, 2009 in Asian Journal Los Angeles p. B5 )
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