Bankruptcy & Foreclosure

Foreclosures happen when you can’t afford to pay for real property that you purchased with a mortgage, often referred to as defaulting on the loan. The main difference in a foreclosure and a repossession is a repossession is on personal property (e.g. cars, furniture, and appliances) and a foreclosure is on real property (e.g. land and buildings). There are two types of foreclosure, a judicial and a nonjudicial foreclosure. A judicial foreclosure involves the case going to court and allows the homeowner to contest the foreclosure. A nonjudicial foreclosure does not require any court action. Once a Default has occurred the lender will either file a lawsuit for foreclosure if a judicial foreclosure is required or file a notice of default if a nonjudicial foreclosure is allowed. 

What Defines a Loan Default? A loan default is determined based on the terms of your loan agreement. A loan default can occur from missing one payment or not having insurance, among other things. 

Are there Ways To Stop A Foreclosure While In Default? The Creditor may offer several ways to cure the default. If the creditor is reaching out to you because you are in default they may offer multiple ways to cure the default. Some common examples are adding the missed payments to the end of the loan, waiver of missed payments, or filing bankruptcy. Additionally you may be able to reverse the default by paying the outstanding balance, sell the property to pay the loan off, or sign a deed over to the lender through a deed in lieu of foreclosure.

What is a Short Sale and What are Its Effects? A short sale is a voluntary sale of the home before foreclosure. It is called a short sale because the sale price often comes up short of the balance owed. If the sale comes up short, all of the proceeds from the sale go to the lender and the sale must be approved by the lender. It is less damaging than a foreclosure to your credit. It helps the lender recover as much of the loan balance as possible without the cost of foreclosure. If the sale price is more than what is owed, the homeowner will get to keep whatever money is left after the mortgage is paid off. 

What is a Deed in Lieu of Foreclosure and What are Its Effects? In this transaction, the homeowner voluntarily signs the deed over to the lender or bank and is released of all mortgage obligations. Again, by avoiding foreclosure, the homeowner’s credit and mortgage eligibility may take less of a hit. The lender may benefit by avoiding the costs and additional time involved in the foreclosure process. However, it may only approve a deed in lieu of foreclosure if the homeowner cannot sell the home in a short sale and there are no other liens on the property. Even then, the lender may not accept this offer.

What Happens If I Can’t Cure the Default? If the default cannot be cured by one of the above means, the home will be put up for auction known as a foreclosure sale. Foreclosures are open to the public and typically take place on the steps on the county courthouse or online.  Before the auction occurs, the Mortgage company must notify both the homeowner and the public of the auction and its date, time, and locations.

A bankruptcy can help with a foreclosure in several ways. If you file a bankruptcy prior to actual foreclosure sale of the property, you can avoid on the foreclosure. If you file a Chapter 13 bankruptcy, you can pay the past-due amount through the bankruptcy while continuing to pay the mortgage payments as they come due. If you file a Chapter 7 bankruptcy you can temporarily stop the foreclosure but if the default is not cured, the Property will still be foreclosed on.  If you file a bankruptcy after the foreclosure sale, your debt becomes an unsecured debt which can be discharged in either a Chapter 7 or a Chapter 13. 

How long does a Foreclosure Stay on Your Credit? A foreclosure can stay on your credit for up to seven years from the date of the first missed payment.