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Learn about Mortgages

Learn About Mortgages

Are mortgages secured or unsecured debt? Find out the difference. Can a mortgage be modified, or even cancelled? In some circumstances. Find answers in this Mortgage Information Resource.

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What is a Deficiency Judgment?

New Jersey is a “recourse state” in mortgage law, permitting lenders recourse in the form of a lawsuit to recover the difference between sale proceeds and the balance on the mortgage in the event of short sale, deed-in-lieu, or foreclosure.

There are important limitations in New Jersey law, among them that the suit must be filed within 3 months of the sale. If the suit is filed and the judgment obtained, the lender has 20 years to attempt to collect it. In the event of such a judgment, bankruptcy is a tool that can be used to wipe the debt.

Will I be affected by a deficiency judgment?

Deficiency actions are more likely to occur when the borrower has other assets or is not delinquent on other loans, creating the appearance of the ability to repay. If the borrower is late everywhere and has no assets, the lender may instead issue a 1099 to the borrower, declaring the amount of the deficiency as a payment to the borrower. In this instance, the borrower may have incurred a tax liability, depending on when it happened. The Mortgage Forgiveness Debt Relief Act of 2007 eliminates such tax liabilities if the sale occurred between 2007 and 2013.

There are several defenses against deficiency judgments. One is a counterclaim regarding the fair market value of the residence. Another is negotiating a waiver of deficiency in the sale. The final defense would be a bankruptcy filing after a judgment.

When confronted  with the possibility of a deficiency judgment, qualified legal advice is essential.Todd Murphy Law can help every step of the way dealing with deficiency and its impact on your financial future.

Call Todd Murphy Law today!.

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Second Mortgages

Second mortgages are treated differently than first mortgages in all circumstances.

In a sale or foreclosure, the first mortgage holder has priority, receiving proceeds of the sale up to the amount of the full remaining balance.

In a Chapter 13 bankruptcy, a second mortgage’s lien on the property can be stripped and the loan converted to unsecured debt, pooled together with other debts covered under the Chapter 13 payment plan. All of the debt in the pool is eliminated on completion of the plan, often with a small portion of the original balance having been paid.

In a Chapter 7 bankruptcy, if the home is kept via a homestead exemption, the lien remains on the property. This situation has been challenged, with a new precedent established in the 11th Circuit allowing a second mortgage to be stripped in a Chapter 7 filing. Judicial thinking seems to be moving in this direction – but in the meanwhile, if a house in New Jersey becomes unaffordable under current law, either filing Chapter 13 bankruptcy or selling it are the available options.

If the property is underwater and is sold or foreclosed upon, sale proceeds go to the first mortgage holder first and any outstanding tax liens second, making it unlikely that the second mortgage holder will recover any funds in the sale. The debt remains outstanding, and the holder of the second mortgage may sue. Since the second mortgage has become unsecured debt as a result of the foreclosure, deed in lieu or short sale, it can then be wiped in a Chapter 7 bankruptcy filing.

Hopefully precedent will soon be established in New Jersey affording Chapter 7 filers the same protections as Chapter 13 filers – but, until then, an unaffordable second mortgage can force a homeowner out of their home unless they can qualify for a Chapter 13 bankruptcy filing.

Todd Murphy Law has extensive experience dealing with Chapter 7 and Chapter 13 bankruptcies and extensive experience negotiating with creditors.

Call Todd Murphy Law today for a free consultation.

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Foreclosure Defense | New Jersey

A decade ago it was rare for foreclosure challenges to be heard by the courts. A few years back revelations about predatory lending practices and shoddy record keeping had brought the banks themselves under greater scrutiny. Studies had shown high error rates in bank paperwork and mounting evidence of lender misconduct. In this environment, the chances of getting a foreclosure defense heard  increased greatly, leading to the proliferation of Foreclosure Defense services and advertising.

The State of New Jersey mandates “judicial foreclosure,” meaning the action takes place before a judge, offering the borrower the opportunity to defend or challenge the foreclosure without needing to file a lawsuit against the lender.

Complexities created by the securitization of loans can cause lenders and mortgage servicers to misapply payments. The ownership of mortgage notes can often be obscure. Paperwork submitted by the bank frequently contained serious errors. These kinds of errors could cause a foreclosure to be stayed by the courts, buying time for the borrower to modify the loan, refinance or sell.

This situation has reverted to the status of a decade ago, when foreclosure defenses were rare. Unless there’s a clear case of unrecorded payments or abuse on the part of the lender, such an action is unlikely to succeed.

Review of documents by an experienced attorney is recommended in order to find errors, if they exist, and create advantage for the distressed borrower.

If a loan is found to be “unconscionable” by the court, a borrower may be able to obtain rescission (cancellation) of second and third mortgages under certain circumstances. This outcome has become increasingly rare in the past few years.

Before hiring a Foreclosure Defense firm, research them. Promises and large up-front fees are commonplace with unscrupulous operators preying on the hopes of homeowners. Consult an attorney you trust before you sign!

Call Todd Murphy Law today for a free consultation

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What is Loan Modification?

Loan Modification A loan modification is a change of the terms of a loan, allowing it to emerge from —or avoid—default with payments affordable to the borrower. Late fees are forgiven, but other collection fees are rolled into the principal and the loan is re-amortized. Payments are lowered by changing the interest rate, the term of the loan, or both.

It can be challenging for the consumer to see the process through the bureaucracy of their bank. Common reasons for difficulty in completing the process are omissions in the paperwork, failure to meet deadlines and follow up, and the elusive nature of bank personnel– all of which can make the process very frustrating. To find out why loan modifications can be such a hassle, read our post: Why Are Loan Modifications Frustrating?

Due to recent changes in the law, it is now possible to begin a modification process before the loan goes into default. Pursuing this option early on can prevent a cascade of other problems that can result from a loan going into default.

The paperwork requirements for doing a modification are similar to those required to close on the original mortgage. A modification is similar to a refinance. Proof of income, a letter of explanation regarding variations in income, and other items may be necessary. If you want to find out how to get a loan modification, read out post: How To Get A Loan Modification.

 

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Can Bankruptcy Stop A Foreclosure?

Yes – in many cases.

Bankruptcy is a very smart choice for most individuals who are having trouble with too much debt. It is a government sanctioned program designed to help you while giving you every protection available under the law.

One benefit of filing for Chapter 13 bankruptcy is that it can stop foreclosure.  Chapter 13 bankruptcy can even stop a foreclosure on the night before it is scheduled to happen.

Each foreclosure situation is different, so speaking to a New Jersey bankruptcy lawyer is the best way to determine if filing for bankruptcy is the best way for you to prevent foreclosure of your home.  Chapter 13 bankruptcy is designed to help you reorganize your finances, and in the process can help stop a scheduled foreclosure.