Preparing for Default, Part 3: What Do You Want to Do About Your House?
Disclaimer: I’m a paralegal, not an attorney and cannot give you legal advice. Nothing on this website is meant to be legal advice, and there is no guarantee that the information on my blog will work for your individual situation. Please consult with an attorney if you have questions about your individual situation.
If this is your first visit to my website, welcome! My name is Christine Springer and I'm the founder of Desert Edge Legal Services and the author of the content on this site.
What do you want to do? The circumstances are different now and so are the incentives. For example, if you can't make your mortgage payment, you can probably more easily sell your home than you could in 2010.
In the last real estate crisis, most people tried for months to get a loan mod and couldn’t. Some tried short sales but the banks were just as uncooperative on these as loan mods. Some sued the lender and got good results, others sued and lost their homes anyway. The most successful clients went into Chapter 13 and got principal reductions, sometimes without filing an adversary proceeding.
Some were so underwater in value that they just lived there until the foreclosure sale and moved out. Some stopped making their mortgage payments, moved out and mailed their house keys back to the bank before going into foreclosure.
This time, the real estate market is different. People are also not in as dire straits as they were then. The job market is still pretty good overall.
There also seems to be a lot more compassion in terms of policymaking, especially after the pandemic. The good thing about the pandemic is that it’s disrupted so many things, it might be good cover for getting out and moving on, especially if affordability is an issue.
The laws are much more developed now as a result of the last foreclosure crisis, and I think this makes the path forward clearer. Many foreclosure related legal issues were decided in the last foreclosure crisis.
You won't hear “produce the note” this time. You won’t have to hire a newbie lawyer who has to come up with a brand new, novel legal argument. The case law will be established and your lawyer will know what has the best chance of working and what does not. This should also save you some money.
Chapter 13 bankruptcy is a fantastic option if you want to stay in the house and just need help catching up on payments. Chapter 13 also has the option to file an adversary proceeding, if you find something in the property analytics that might give you leverage.
I’ve worked on several Chapter 13 adversary proceedings and all of them turned out fantastic for the homeowner. They’re not without problems, though – the main one is that most bankruptcy lawyers don’t want to bother with these kinds of mortgage issues, which presents a challenge. However, it’s not an insurmountable problem.
An adversary proceeding (a lawsuit within the framework of a bankruptcy) based on what we find in the property analysis is hands down the best way to get your lender to give you a loan modification that you can afford. If you have leverage, this is the best place to use it. No "deadbeat homeowners" stigma in bankruptcy court.
It's a good idea to know what you want, either way. I've seen people who just wanted to buy more time. Other people wanted to keep their home and filed a lawsuit to save it.
Knowing what you want will guide your strategy. Don't get too hung up at this point on whether it will work. In my experience, most people who wanted to keep their house found a way to keep it.
You won't get a free house, but you can probably get a decent loan modification. If you get into my foreclosure defense coaching program for homeowners, we'll do your property analytics and that will drill down further on where your leverage will come from. I'll talk about that in another post.