Stop a Foreclosure

Posted by kevin on May 30, 2015 under Foreclosure Blog | Comments are off for this article

Both Chapter 7 and Chapter 13 will stop a foreclosure.

The Bankruptcy Code says that a bankruptcy “petition filed… operates as a stay, applicable to all entities, of—… any act to… enforce [any lien] against any property of the debtor… .” See Section 362(a)(4). This means that the mere filing of your bankruptcy case will immediately stop a foreclosure from happening.

But What if the Foreclosure Still Occurs?

But what if your bankruptcy case is filed just hours or even minutes before the foreclosure sale, but the foreclosing mortgage lender or its attorney can’t be contacted in time for them to be informed? Or what the lender is contacted in time but messes up on its instructions to its foreclosing attorney so that the foreclosure sale mistakenly still takes place? Or what if the lender refuses to acknowledge the effect of the bankruptcy filing and deliberately forecloses anyway?

As long as the bankruptcy is in fact filed at the bankruptcy court BEFORE the foreclosure is conducted, the foreclosure would not be legal. Or at least would very, very likely be immediately undone. It does not matter whether the foreclosure happened mistakenly or intentionally.

A Foreclosure by Mistake

If a foreclosure happens by mistake after a bankruptcy is filed, or because the lender didn’t find out in time, lenders are usually very cooperative in quickly undoing the effect of the foreclosure. It is usually not difficult to establish that the foreclosure occurred after the bankruptcy was filed, and that usually quickly resolves the issue. If a lender fails to undo such a foreclosure after being presented evidence that the bankruptcy was filed first, the lender would be in ongoing violation of the automatic stay. This would make the lender liable for significant financial penalties, so they usually undo the foreclosure right away.

A Foreclosure Purposely Conducted after Your Bankruptcy is Filed

This almost never happens. If you are harmed by a foreclosure intentionally done after your bankruptcy filing, you can “recover actual damages, including costs and attorneys’ fees, and in appropriate circumstances, may recover punitive damages.” See Section 362(k). Bankruptcy judges are not happy with creditors who purposely violate the law. Enough of them have been slapped that most creditors know better.

Chapter 7 vs. Chapter 13

For purposes of stopping a foreclosure that is about to happen, it does not matter whether you file a Chapter 7 or Chapter 13 case. The automatic stay is the same under both.

But how long the protection of the automatic stay lasts can most certainly depend on whether you file a Chapter 7 “straight bankruptcy” or a Chapter 13 “adjustment of debts.” That’s because even though you get the same automatic stay, each Chapter gives you very different tools for dealing with your mortgage. That’s why your mortgage lender will likely react differently depending on which Chapter you file under and how you propose to deal with the mortgage within each.

Bankruptcy Mediation Program

Posted by kevin on April 10, 2015 under Foreclosure Blog | Comments are off for this article

The United States Bankruptcy Court for the District of New Jersey has a foreclosure mediation program. To date, I have not utilized this service. After a review of the rules, I doubt that I would ever use the program.

In short, the program is available to debtors in Chapters 11, 12 or 13. A Chapter 7 debtor can participate with the permission of the court. Debtors include only individual debtors so if title to the property is in the name of a corporation or LLC, you are SOL. The property must be the principal residence of the debtor. So, pure rental property is out.

The debtor is required to make adequate protection payments to the creditor during the mediation. Here is where the program breaks down. The adequate protection payments amount to 60% of the principal and interest payment plus 100% of escrows. Say your P&I are $3000 per month, you pay $12000 in real estate taxes and another $150 per month for insurance. Your monthly payments during the mediation amount to $2950 per month.

1800- 60% of 3000
1000- 1/12 of taxes
150- Insurance

2950- Total

That is 71% of the total payment prior to filing. Depending on what your arrearages are,

What I try to do is figure out what I would be paying in a modification on principal and interest and make that the adequate protection payment. I also explain to the creditor how I arrived at that figure. I agree to pay the insurance going forward to avoid the force placed insurance super surcharge which is usually more that double what the debtor is required to pay for insurance. Then, the ball is in the creditors court to demand more money as adequate protection. If they want more, they will ask for it or file a motion.