Mortgage

House Foreclosed But Still Owing Money to the Lender

by Jeff Kelly, Esq.

in Foreclosure

When a house gets foreclosed, many consumers fear that they will still owe money to the lender after the foreclosure of their home.  In Georgia, it is usually only the second mortgage companies that pursue a deficiency after a house is foreclosed.  However, the Wall Street Journal reports that many banks are now pursing deficiency judgments on the first mortgages as well (click here to read the full article).

In the article, the Journal details how mortgage companies are becoming more aggressive in Florida in pursuing these deficiency judgments after foreclosure sales.

I doubt that we will see first mortgage holders start pursuing deficiency judgments in Georgia.  Click here to read a blog post I wrote about confirmation of foreclosure in Georgia.  In my twelve years as a bankruptcy attorney, I’ve seen it happen only one time.  In almost every single case, it is complete waste of time for a mortgage company to chase a consumer who just lost their home in a foreclosure sale.

However, I have seen an increase in cases where a credit union refuses to foreclose on the house.  Instead, they sue the consumer on the note.  When they are successful in their lawsuit, the credit union will then be able to garnish twenty five percent of the consumer’s net income.

When I saw a consumer go through this type of situation, I advised him to continue living in the house while his wages were being garnished.  In his case, getting garnished was much cheaper than the mortgage payment.  Also, the amount he was being garnished for was much cheaper than renting an apartment.  In his case, the credit union was incredibly stupid by choosing to garnish his wages instead of just foreclosing on the house.

If we see first mortgage holders start to pursue deficiency judgments in Georgia after a foreclosure is completed, I doubt it will last long.  In almost every case, the consumer will file for bankruptcy and wipe out the mortgage company.  Legal fees for pursing a deficiency judgment against a consumer are expensive.  Thus, any mortgage company who chooses to pursue a deficiency judgment will most likely be throwing good money after bad.

1. What is Chapter 13?

2. What is Chapter 7?

3. How much does it cost to file?

4.  Stop Garnishment

5.  Stop Foreclosure

Balloon Notes and Chapter 13 Bankruptcy in Georgia

by Jeff Kelly, Esq.

in Ch 13

Balloon notes can present some serious issues in a Chapter 13 bankruptcy.  As a Georgia bankruptcy attorney, I’ve seen some situations work out and other cases end up serious trouble because of balloon notes.

A balloon note is a type of mortgage which does not fully amortize over the life the loan.  Thus, there is a balance at the end of the balloon note.  A debtor with a balloon note must either refinance it or pay the entire balance.

Balloon notes are typically give to debtors who can’t qualify for a traditional long term mortgage.  I recently met with a couple in my Rome office who built the house of their dreams using a balloon note.  At the time the house was constructed, the husband had just started a new job.  He expected his income to increase to the point where he would be able to refinance the loan within a few years.  Unfortunately, the bottom fell out of the economy and he was unable to obtain a traditional refinance of the loan.  To make matters worse, the wife was fired from her job.  By the time she found a new job, they were three months behind on their mortgage payments.

The good news is that we can pay back mortgage arrears in a Chapter 13 bankruptcy.  The problem is when the balloon note becomes due during the case.  In most Chapter 13 bankruptcy cases, the debtor cannot afford to pay the entire balance of a balloon note during the life of the plan.  Sixty months is the absolute longest amount of time that a Chapter 13 can run.  In most balloon note situations, we will put a provision that will state, “Debtor shall seek court approval of a refinancing of the balloon note when it becomes due.”  However, if a bank refuses to redo a balloon note, they can exercise their right to foreclose on the property.

Fortunately, under the current economic climate, most banks don’t want to own more real estate.  Thus, they have been willing to allow many debtors to create a new balloon note when the old one becomes due.

Any person who has a balloon note mortgage should bring this to the attention of their bankruptcy attorney before any case is filed.

Other Posts:

1. What is Chapter 13?

2. What is Chapter 7?

3. How much does it cost to file?

4.  How do I stop a garnishment of my wages?

Mortgage Company Regulation Bill Working its way through Congress

by Jeff Kelly, Esq.

in Foreclosure,Mortgage

The Wall Street Journal recently reported on a mortgage company regulation bill that is working its way through Congress (Click here to read the article).  The Journal reports that mortgage companies are lobbying Congress to “soften a series of provisions that reshape how most Americans obtain home loans.”

The bill proposes:

1.  To require lenders to hold 5 percent of the loans they originate that are sold to investors as securities;

2.  To give borrowers greater protection when the mortgage process breaks down; and

3.  To force mortgage companies to charge all origination fees upfront or reflect them in the mortgage interest rate but not both.

I think we will most likely see some type of mortgage reform come out of Congress before the November elections.  In response to the mortgage meltdown of 2009, Congress is going to pass laws forcing mortgage companies to take a much closer look at potential home buyers before they are given any mortgage loans.  The Journal reports that the current proposed legislation “would require lenders to ensure that borrowers can repay their loans and to prove that any refinancing provides a ‘net tangible benefit’ to the borrower.”

The end result is going to be that obtaining a mortgage in the future will be much more difficult than it has been in recent times.  Because of these new stringent requirements, some people who are considering surrendering their house in a foreclosure may want to think twice before letting the house go.

Houses can be saved from foreclosure by filing a Chapter 13 bankruptcy.  A Chapter 13 can eliminate credit card debt, medical debt and any other type of unsecured debt.  Furthermore, any mortgage payments that have been missed can be put in a Chapter 13 plan.  In some cases, Chapter 13 can make it easier to pay future mortgage payments because you no longer have to worry about credit card payments or medical payments.

One of the cruel side effects of the new legislation is that some people who have owned homes in the past will never be able to buy another one in the near future.  Self employed applicants who have extreme income fluctuations throughout the year will have a difficult time complying with the new standards.

Any person in Georgia who is considering surrendering their house in foreclosure should first meet with a local bankruptcy attorney.  It cannot hurt to explore all of your options.

Other Posts:

1.  Can I Wipe Out a Second Mortgage in Chapter 13?

2.  Will I be taxed on my house after foreclosure?

3.  Should I file Bankruptcy or Short Sale My House?