Patrick Moscatello, Attorney at Law
Debt Solutions - Foreclosure Prevention - Bankruptcy
Strategy Is Everything
If you are behind on your mortgage payments or in foreclosure you may also be facing a number of other financial problems, such as being behind on credit cards, medical bills or car payments. Each person’s situation is different. There are various solutions which can be used – alone or in combination – to address your financial problems. There is no “one size fits all” solution. It is important to develop a strategy that deals with all of your financial problems systematically. A workable strategy may involve using several different financial tools. Which strategy will work best depends on a number of factors including what you are trying to accomplish and your current financial situation.
Options if You are Behind on Your Mortgage
There are a number of different tools available to you if you are behind on your mortgage or in foreclosure:
If you are behind on your mortgage payments, your mortgage can be reinstated – even if you are in foreclosure - by paying the mortgage company the entire amount you are behind including all late fees and other charges. If you are in foreclosure, there may be time limits on reinstating your mortgage and you may be responsible for attorneys’ fees and costs connected with the foreclosure. For a reinstatement to work you must have a lump sum of money available to catch up on your mortgage. You should be careful not to leave yourself without a cushion to deal with unexpected expenses. Bear in mind that reinstating your mortgage does not address other financial problems, such as credit card debt or collection lawsuits.
In a loan modification, your mortgage company modifies your mortgage, which may include placing your arrearages on the end of your mortgage and/or lowering your interest rate or payment. Usually, homeowners enter into an agreement which changes the terms of their existing mortgage, changes the monthly payment and deals with the mortgage arrearages. A loan modification may be done directly with the lender or in conjunction with a federal program.
Even though the number of homeowners who successfully complete a loan modification has climbed, a relatively low percentage of people actually obtain a loan modification. You should be careful in approaching a loan modification for a number of reasons.
First, it is important to understand that you are not entitled to a loan modification. Your mortgage company must agree to the loan modification, but it is not obligated to do so.
Second, a loan modification may take many months to complete. It is not uncommon for homeowners to work with their mortgage company for 6-12 months only to find out that the mortgage company has rejected their loan modification application. If you rely on completing a loan modification alone to solve your mortgage problems, you may find yourself too far behind on your mortgage to save your home.
Often, a good strategy is to file a Chapter 13 bankruptcy in conjunction with working on a loan modification. This strategy can prevent your mortgage arrearages from growing to an unmanageable size while you go through the loan modification process.
As with a reinstatement, completing a loan modification may address only one component of your financial difficulties and does not deal with other problems such as credit card and medical debt.
Entering into a forbearance agreement with your mortgage company may be a good tool to use to get you back on track. Forbearance agreements work best when your arrearages are a result of a short-term interruption in income and you are able to work out the agreement with your mortgage company before a foreclosure is filed. Forbearance agreements – or trial periods – are also often a component of loan modification programs.
Refinancing may be an option for you if you have sufficient equity in your home. Unfortunately, many homeowners who are behind on their mortgage payments can’t qualify for a refinance.
Selling your home is an alternative. Obviously if you don’t wish give up your home, it may not be your first choice. In order to sell your home you must be able to sell it for enough to pay off the liens on your home.
Another alternative is a “Short Sale” where your mortgage company agrees to take less than it is owed and allows you to sell your home. Short sales may be unnecessary if you are also considering filing a bankruptcy to deal with your other debts.
If your home is in foreclosure, you may wish to participate in the New Jersey State Mediation Program. The Mediation Program provides an additional avenue to pursue a loan modification with your mortgage company under a State mediated program. In many cases, the State mediation program can successfully result in a loan modification even where a prior modification failed. However, your participation in the mediation program does not require your mortgage company to modify your loan and doesn’t address your other debts, such as credit cards and medical bills.
If you no longer want to keep your house, Chapter 7 may be appropriate. In a Chapter 7 bankruptcy you can discharge your credit card and medical bills as well as your personal liability on your mortgage. This means that even if your home is sold for less than you owe, you will not owe any balance to your mortgage company.
A Chapter 7 can also be used to reduce your debt load (i.e. get rid of substantial credit card debt), which may ultimately result in a successful loan modification.
In a Chapter 13, a petition is filed which immediately prevents or stops the foreclosure of your home. You then may have up to 5 years to pay back the arrearages on your mortgage. You may be able to get out of other debt such as credit card and medical bills. In a Chapter 13 you can address numerous problems at once, such as overdue utilities and property taxes. Your creditors are prevented from suing you while you are in bankruptcy. All law suits—including foreclosures—are prevented or stopped.
There are a number of types of Chapter 13 plans that are typically used in a foreclosure situation:
In a cure plan your mortgage arrearages are “cured” or paid back over a period of time. For example, if you are $12,000 behind, your payments could be approximately $220 per month for 60 months. When the arrearages are paid back, your mortgage is reinstated and your bankruptcy is closed.
A Chapter 13 can also be used to position you for a refinance. In a refinance plan, the monthly payment to the trustee can be as low as $50.00 per month. If you can remain current on your mortgage and trustee payments for a period of one year, it may be easier to qualify for a refinance even if you cannot qualify for a refinance now.
A chapter 13 can be used to give you additional time to sell your home. If you have attempted to sell your home and a sheriff’s sale is approaching, a Chapter 13 can be used to stop the sheriff’s sale and to give you up to an additional 12 months to sell your home. Your monthly trustee payment can be as low as $50.00 per month.
In a modification plan you pursue a loan modification while making a payment to your mortgage company. Your plan can prevent your arrearage from growing too large while you pursue a loan modification giving you more flexibility if your loan modification is unsuccessful. The Bankruptcy Court has recently announced a Bankruptcy Court sponsored mediation program which works in conjunction with a Chapter 13.
Each person’s financial situation is different. The array of options available to you can be confusing, and deciding how best to use them can be a daunting task. Making the wrong decision can cost you a great deal of money without getting the result you want. It is vitally important to put together a strategy using the right tools to address your problems. It is important to work with an experienced professional so that you can evaluate and understand how to use these tools in the right combination to obtain the best result for you.
For example, for some homeowners, the best strategy is to go through a simple Chapter 7 bankruptcy to get out of unsecured debt and then pursue a loan modification. Discharging your unsecured debts may put you in a better position to pay your mortgage payment if your loan is modified. Not having other debt—like credit cards -may make it easier for you to obtain a loan modification.
Other homeowners use a Chapter 7 bankruptcy to get out of their debt – including their mortgage – and remain in their home for an extended period while the foreclosure process is completed.
In other cases, it makes more sense to simply pay back your mortgage arrearages through a Chapter 13 plan while getting out of your credit card and medial bills. You can continue to work on a loan modification while you are in a Chapter 13 without fear of getting too far behind. In addition, in some chapter 13 bankruptcies you may be able to get completely out of a second or third mortgage.
In some cases, a simple short sale alone can take care of your financial problems.
When you meet with me, I will go over your personal financial situation – including your income, expenses, mortgage arrearages, credit card, medical and other debts to develop a strategy hand-tailored to address your financial problems using one or more of the available tools.
Contact us for a free case evaluation.
Patrick Moscatello, Attorney at Law
|Long Branch Office
90 Washington Street
Long Branch, NJ 07740
|Toms River Office
189 Rt. 37 West
Toms River, NJ 08753
|Phone: (888) 332-8247