It is impossible to turn on the news these days and not hear about the financial meltdowns of corporations, large companies and individuals. It is distressing to hear of the housing bust and of people losing their homes to foreclosure. Foreclosures occur for a variety of reasons, the most common being because of loss of employment, death, separation or divorce. We are also learning that many foreclosures are occurring because of very poor lending practices on the parts of the banks; however we won't go into the politics of that here.
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So what is foreclosure exactly? It is the final step a lender will take against a borrower who cannot pay their debt. The lender will try to collect all or part of a previously uncollected debt against the real estate. Each state has it's own foreclosure process but typically begins when a lender files a notice of default or lis pendens against the property owner. All interested parties are now officially alerted to the pending foreclosure action. Clearly you do not want to get to this point. The most important advice for anyone facing foreclosure is to not avoid phone calls or certified letters. Rather, it is very important that you contact your lender as soon as possible. It may be possible to negotiate or re-structure the terms of your loan to make your payments more affordable.
If you do not contact your lender or if the lender is not amenable to your proposals the next step for the bank will be to set the date of the foreclosure sale if you the borrower is not able to satisfy the bank demands within a specified period of time. The sale is actually an auction where the lender sets the price that is will be sold for. If the price is not met the bank will then take ownership of the property. If this occurs the property is then termed REO, or Real Estate Owned. Banks really don't want to own your real estate and the borrower has the right to either satisfy the loan or sell the property right up until the auction. Keep in mind though, that if you are able to sell the property prior to, or even during auction, that proceeds from the sale will go towards satisfying the debt. You really need to find the funds to speak to a good property attorney about your options and rights.
In some states there is a statutory redemption period. What this means is that statutory redemption allows the mortgagor (the homeowner) to regain ownership of the property after foreclosure sale. About half of the states have statutory redemption laws. Generally, these laws give anywhere from six months to a year for the mortgagor to redeem the mortgage by:Payment of the foreclosure sale price, and A statutory rate of interest to the sale purchaser. Junior lien holders also have a right to redeem under statutory redemption laws (in order of their priority) though not until after the period for the mortgagor to redeem runs out. As a rule, the mortgagor can retain possession of their property during this statutory redemption period.
How to Avoid Foreclosure Strategies
If you have a short term financial setback such as a job loss, but you have found gainful employment and are struggling to catch up with your past due bills your bank may work with you to adjust your payments. I cannot stress how important it is to keep in touch with your lender even if your news is bad. They need, and want to hear from you!
Open a dialogue with the bank about negotiating different payment amounts for interest rates. They really do not want to take your property. They want to get paid. Work with them, and chances are they will work with you.
Consider asking for a Forbearance. A Forbearance Agreement is an agreement between you and the lender. It generally allows you to stop making payments now, temporarily, and add those payments to he end of your loan. Some forbearance agreements allow a gradual payback.
Try to negotiate a Deed in Lieu of Foreclosure. This is an option in which you are able to voluntarily deed the property back to the bank in exchange for a release from all obligations under the mortgage. Bear in mind however, if you can actually pay your mortgage and just don't want the property any longer the bank is not going to play ball with you.
Sell the property and pay off as much of your obligation as possible. This is termed a Short Sale meaning that your mortgage lender agrees to accept a payoff of less than the balance due on the loan.
Bankruptcy - Chapter 7 Liquidation or Chapter 13. You will need to speak with your bankruptcy attorney about which option is best for your situation. Chapter 7 will not stop a foreclosure but it may be the best option for people with little property but a lot of unsecured debt. Chapter 7 allows you to wipe out, or discharge, the debts you owe. This will stay on your credit report for 10 years. Under Chapter 13 you file a re-payment plan with the court. You must repay some debts in full; others may be repaid only partially or not at all, depending on what you can afford. Both plans will hurt your credit for a very long time and should be the last resort.
Real Estate Definitions
Lis Pendens is Latin for "a suit pending." The term may refer to any pending lawsuit. (2) A written notice that a lawsuit has been filed concerning real estate, involving either the title to the property or a claimed ownership interest in it. The notice is usually filed in the county land records office. Recording a lis pendens against a piece of property alerts a potential purchaser or lender that the property's title is in question, which makes the property less attractive to a buyer or lender. After the notice is filed, anyone who nevertheless purchases the land or property described in the notice takes subject to the ultimate decision of the lawsuit.
Foreclosure happens when you fall behind on your house payments and your lender uses state procedures to sell your house. Foreclosure works differently in different states. In some states, the lender has to file a lawsuit to foreclose (judicial foreclosure), while in others, it can foreclose without going to court (non-judicial foreclosure).
Bankruptcy is a federal court process designed to help consumers and businesses eliminate their debts or repay them under the protection of the bankruptcy court. Bankruptcies can generally be described as "liquidations" or "reorganizations."
Chapter 7 bankruptcy is the liquidation variety: If you own property that isn't exempt under your state's laws, it may be taken and sold ("liquidated") to pay back some of your debt.
Chapter 13 bankruptcy is the most common type of "reorganization" bankruptcy for consumers: You get to keep all of your property, but you must make monthly payments over three to five years to repay all or some of your debt. Both kinds of bankruptcy have numerous rules - and exceptions to those rules - about what kinds of debts are covered, who can file, and what property you can and cannot keep.
Property Liquidation. In Chapter 7 bankruptcy, some of your property may be sold to pay down your debt. In return, most or all of your unsecured debts (that is, debts for which collateral has not been pledged) will be erased. You get to keep any property that is classified as exempt under the state or federal laws available to you (such as your clothes, car, and household furnishings). Many debtors who file for Chapter 7 bankruptcy are pleased to learn that all of their property is exempt.
Secured Debt. If you owe money on a secured debt (for example, a car loan for which the car is pledged as a guarantee of payment), you have a choice of allowing the creditor to repossess the property; continuing your payments on the property under the contract (if the lender agrees); or paying the creditor a lump sum amount equal to the current replacement value of the property. Some types of secured debts can be eliminated in Chapter 7 bankruptcy.
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