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Posted by Jim V on August 26, 2003 at 19:37:07:
In Reply to: Please help with question about bankruptcy to avoid foreclosure! Thanks! posted by steve on August 26, 2003 at 12:08:05:
: I'm interested in anyone's advice on bankruptcy and foreclosure. From my research thus far, it seems that the lender doesn't really want my home any more than I want them to take it. I'm currently in foreclosure, with sale imminent. I've made a written offer to my lender to roll in the delinquency and continue accepting normal payments. I've read that the "loan mitigation authority" of the bank would rather re-structure my loan to roll in the delinquent payments than take possession of the property.
: The question is twofold:
: 1)Does anyone know how to play hardball with the lender, or am I at their mercy? I don't want to file a bankruptcy because of the negative credit ramifications, but would to save my house.
: 2) Is bankruptcy really that horrible?
: Thank you very much for your reply.
Yes, it's true that most lenders would much rather have a performing loan than a property they will have to possibly rehab, market and sell. One common problem people have when experiencing difficulty making the monthly payments is that they are exposed to the collection department of the lender. Collectors are often considered mean and nasty people, but their job is, after all, to collect the payments. They are paid to get payments, not be understanding and helpful. When the loan gets to the default stage, which is usually when three payments have been missed, the loss mitigation department of the lender will enter the picture. Loss mit's job is to salvage the loan if possible by employing the best of several different possible workout solutions. If the homeowner suffered a temporary hardship that lead to the default, but now has sufficient income to be able to make the normal monthly payment plus an amount to repay the arrears, that will often be the preferred workout. A common arrangement will be 50% of the arrears to be paid (to the lender) to start the plan, with the balance paid over a period of 3 months up to one year.
The two most common forms of bankruptcy are Chapter 7 and Chapter 13. Chapter 7 (liquidation of debt) is commonly used to prevent deficiency judgments from haunting the borrower for years to come in those states that allow the lender to seek a deficiency. Chapter 13 (repayment of debt) will provide a court ordered plan for the repayment of the arrears owed the lender over a period up to 5 years. The lender is prohibited from continuing the foreclosure action or otherwise attempting to collect the debt while the borrower is under the protection of the bankruptcy court (either Chapter). If the court ordered repayment plan is not followed exactly in a Chapter 13 plan, the lender will have the property removed from the courts protection and the foreclosure will proceed from the point it left off.
Credit impacts are reduced by re-establishing credit either at the time of, or shortly after any negative events. Foreclosure will significantly impact credit for 3 years, with the effect lessening through the 7 year period it will be reported. Every home loan application will ask whether a borrower has EVER had a foreclosure. Bankruptcy will significantly(somewhat less than foreclosure) impact credit for 2 years, with the effect lessening over the 10 years it will be reported. Again, re-establishing credit is essential for minimizing the impacts.
My answer to your question:
1. It's tough to play hardball with the lender. They will either get the property or the money they are owed sooner or later.
2. If you can come to a workout arrangement with your lender, you'll avoid both a foreclosure and a bankruptcy. That would be my first choice.
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