Mortgage and Foreclosure Law Blog

Hi Again Dear Internet Readers! Today I'd like to start a multiple part series on Bankruptcy and How you can protect your Mortgage from Foreclosure.

Did you know you can avoid or delay foreclosure of your home by seeking bankruptcy protection? We love to help borrowers like you work out a deal with their lender to modify your mortgage to a payment you can afford. That is our main goal. However, there are people who are in such bad shape financially that the Bank just won't work with them or qualify them. For these people the bank proceeds with foreclosure. If you are facing foreclosure and cannot work out a deal or other alternative with the lender, bankruptcy may help.

The foreclosure process takes several months. You should always pay attention to letters from the bank and especially from their attorneys. You should have plenty of notice before you come home to a locked house with an eviction notice. During these several months you should be working with your bank or an attorney (like me ;-) ) in order to try options to "save your home." However, if you've already tried and failed with these measures, now is a good time to consider bankruptcy as a possibility for avoiding or stalling foreclosure. Here are some ways that filing for bankruptcy can help you:

The Automatic Stay: Delaying Foreclosure

As soon as you file for Bankruptcy the court issues an order commonly referred to as the "automatic stay". This is an order to all your creditors to immediately cease all collection activities against you. Make no mistake, your lender is a creditor of yours. In fact, this procedure is so powerful you can file for bankruptcy and get a sale date stopped in the same day! Please don't ever do this though. The automatic stay will typically last about three to four months.

Your lender can file a motion to lift the stay. If the lender obtains the bankruptcy court’s permission to proceed with the sale (by filing a “motion to lift the stay”), you may not get the full three to four months. But even then, the bankruptcy will typically postpone the sale by at least two months, or even more if the lender is slow in pursuing the motion to lift the automatic stay.

There is much more to this and I'll go over it in my next post....

Good Day Readers! More Good News regarding some much needed tax relief. Recently there have been two new changes to the mortgage tax laws that could save new homeowners and those facing foreclosure thousands in taxes. The new changes affect Private Mortgage Insurance (PMI) for new borrowers and tax "penalties" for those already suffering through foreclosure.

First of all, let me explain what PMI is and when it is needed. PMI is required by most lenders when a homeowner borrows more than 80% of a home's value. In other words, if you put down less than 20% for a down payment the lender will require you to pay PMI. The reason is to protect the lender, not you. It protects the lender in the all too common event that the borrower can't pay his/her mortgage. If you were to put down 20% or more, and then couldn't pay your mortgage, the lender is generally protected from loss as they can foreclose and sell them home using the 20% of equity to protect their loss. Now, the rules of PMI haven't really changed; but now borrowers can deduct PMI payments from their taxes, reducing the after tax cost of buying a home!

The second change benefits those who have been unable to keep up with their mortgage payments and have faced losing their home to a foreclosure or short sale. It use to be that, if a lender could not sell the property to satisfy the full debt of the mortgage owed on the property the homeowner in default would be liable for taxes on the unpaid balance. This tax law change now waives any tax penalties from January 2007 until December 2009 on any primary residences that enter into foreclosure or short sale.