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As if filing bankruptcy was not tough enough…

Clients walk into the offices of The Mark Bamberger Company with some dreadful problems.  One of the more common is the threat or ongoing nightmare of a foreclosure.  In some cases, their lender is saying it is right on the horizon.  In more cases foreclosure has been commenced.  What is important to know is that the filing of a foreclosure complaint is only the first step of a long process; ending in a sheriff’s auction sale of the property out from under my clients.  This process can take between three and 18 months; depending on how vigorously the client fights, how clever their attorney is in stalling for time or negotiating a refinance or loan modification, or how badly the lender really wants the property.

The Automatic Stay

Often I am asked how foreclosure ties into bankruptcy.  Whether the bankruptcy is under Chapter 7 or Chapter 13, the answer is roughly the same.  Filing bankruptcy puts ALL pending or ongoing legal action “on ice”.  This is legally termed the “automatic stay”.  The only way a creditor gets out of this is to wait out the discharge of the bankruptcy or move the bankruptcy court for relief from the automatic stay; which often takes about as long as the bankruptcy itself.

Never Surrender

Bankruptcy CAN be an efficient way to stop a foreclosure long enough to negotiate a deal with the lender.  Before the filing of a bankruptcy petition, the lender has all the power.  After filing the petition, the debtor gains some power since they can choose whether to keep or “retain” the property or give it up, called “surrender”.  Even if the debtor says they want to keep it; five minutes and an amendment to the petition can change the outcome.  What that means is that the lender gets the property; with all the debt and non-performing loan that goes with it.  They generally do not want that, no matter how nice the house is, since they are inheriting debt; plain and simple.

So much for mandated loan modification

Unfortunately, as has been reported on the national news, the major lenders took billions in federal bailout money; only to go back on their promises to make loan modification easier.  Sometimes they seem to be cutting of their nose to spite…my clients!  The bottom line is this – a bankruptcy can be used as leverage, but never guarantees success in a client keeping their home!

Mark J. Bamberger, Esq., Owner and Attorney at Law

The Mark Bamberger Co., LLC

Offices in Tipp City, West Chester, and Enon

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Mark J. Bamberger, Esq., Principal

The Mark Bamberger Co., LLC

Those with adjustable rate mortgages (“ARMs”) who made it through what seems to have been the worst part of the recent Recession are taking a deep breath in thanks of maintaining their homes from foreclosure either within or without Bankruptcy.  It is good news, to be sure.  But before uncorking that champagne, bear this in mind.  Many economic experts who study these things forecast that a second wave of foreclosures and bankruptcies on the near horizon.

The reason for this pessimistic prediction has to do with the structure of many housing loans.  Many of the ARMS still out there are about to hit a second “adjustment” phase, in which, like the first one, the rates will shoot for the sky.  This could raise some ARMs from 6% to perhaps more than 10%, meaning hundreds of dollars more in monthly mortgage payments for the average household and further financial peril.  This wave is predicted to begin washing up on our shores later in 2010 and into 2011 and 2012.  And no, this has nothing to do with the Mayan calendar!

As before, the important thing to do is avoid panic.  Just as the federal programs for home retention, for example President Obama’s Home Affordable Program, helped so many through the first wave, many who know this stuff say a second mortgage assistance program is on its way.  Also, mortgage brokers are now accustomed to dealing with attorneys representing economically challenged and desperate clients.  My mantra is this: “As wonderful as your house is, in this market the bank does not want it!  It is in their best interest to keep you as a paying customer as long as they can”.  In other words, they are on your side – well as much as a monolithic, cold, heartless creditor can be.

And on the subject of mortgage broker empathy, more often now I see more clients in my offices concerned about the pace of their loan modification under federal or state home retention programs.  They also complain about the mortgage brokers repeatedly losing paperwork and nagging them for “updated financials” to process their modification applications.  Although I join many others in assuming an insidious and nasty motive from mortgage brokers, some of this just makes sense.  As I advise my clients, mortgage creditors are so overwhelmed with modification applications that it can literally take four months or more for them to review a client file and render an offer on modification.  The lost paperwork and need for them to update that client’s financial information is more an artifact of the backlog than anything insidious.  Alternatively, if a client has evidence of nasty motives, I am more than happy to take their civil case against that mortgage broker.

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