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Sheriff Sale

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New laws to address New Jersey Foreclosure Crisis

Governor Phil Murphy signed on April 29, 2019 new laws to address New Jersey foreclosure Crisis. These new laws will help New Jerseyans struggling with the state’s highest-in-the-nation foreclosure rate. The new laws will assist homeowners facing the prospect of foreclosure and pave the way for community revival by addressing blight. Many of the measures were recommended in a September 2018 report by the Special Committee on Residential Foreclosures, which was created by Chief Justice Stuart Rabner.

“The foreclosure crisis has hurt our economy and jeopardized economic security of too many New Jersey families,” said Governor Murphy. “Our communities cannot succeed while vacant or foreclosed homes sit empty or while families live in limbo. I am proud to sign these bills into law today and get New Jersey closer to ending the foreclosure crisis.”

Among the new laws, Governor Murphy signed A664, which codifies the Judiciary’s Foreclosure Mediation Program into law, creating a long-term, permanent program that will not only increase the number of people entering mediation, but also ensure that homeowners receive housing counseling assistance to help provide them with the best possible outcomes in the foreclosure process.

“The foreclosure crisis hit the families of Atlantic County harder than almost any county in the nation. These bills offer a better path for the region and hope for families in despair,” said Special Counsel Jim Johnson. “It’s a vital and important step forward.”

Another important law is S3464 which requires the sheriff to conduct a foreclosure sale within 120 days of the sheriff’s receipt of a writ of execution, instead of scheduling a closing sale within that time frame, as currently provided by the act. The bill also allows the Office of Foreclosure within the Administrative Office of the Courts to issue an order to appoint a Special Master to hold foreclosure sales for one or more properties within a vicinage. The bill also clarifies that, to convey the foreclosed property to the purchaser from the sheriff’s sale, the plaintiff’s attorney is required to prepare, and the sheriff’s office is required to use, the standard form of deed that is set forth in the “Fair Foreclosure Act.”

Perhaps most important, the bill also revises the statute that governs the process for adjournments in connection with sales of real estate by virtue of an execution. The bill provides that a sheriff or other officer conducting the sale may make up to four adjournments, two at the request of the lender and two at the request of the debtor, instead of the total of two adjournments that the statute currently allows. The bill provides that these adjournments shall not exceed 30 calendar days each, instead of the 14 calendar days currently provided for in the statute. As currently provided in the statute, a court of competent jurisdiction may, for cause, make further adjournments.

The Governor signed the following nine bills into law:

  • A664 – Codifies the Judiciary’s Foreclosure Mediation Program; dedicates monies from foreclosure filing fees and fines.
  • A4997 – “Mortgage Servicers Licensing Act.”
  • A4999 – Requires filing of certain creditor contact information with residential mortgage foreclosure complaint and lis pendens.
  • A5001 – Revises statute of limitations for residential mortgage foreclosures.
  • A5002 – Permits certain planned real estate developments to file certain liens; concerns limited priority of certain liens.
  • S3411 – Requires receivership appointment application prior to certain foreclosure actions; requires notice of intention to foreclosure on residential mortgage to be filed within 180 days prior to commencing foreclosure; limits reinstatements of dismissed mortgage foreclosure actions.
  • S3413 – Makes certain changes to summary action foreclosure process under “Fair Foreclosure Act.”
  • S3416 – Clarifies that “New Jersey Residential Mortgage Lending Act” applies to certain out-of-state persons and involved in residential mortgage lending in the State.
  • S3464 – Revises certain procedures for real estate foreclosure sales; alters adjournment of sale process.

The change in the adjournment time from 14 to 30 for each of the two adjournments available to homeowners provides for additional time often vital to helping save their homes at the last minute prior to a sheriff sale.

For more information on adjourning a sheriff sale, see my article How to Stop or Adjourn A Sheriff Sale in New Jersey and for more information and other articles in my sheriff sale series see Sheriff Sale Help.

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New Jersey Revises Statute of Limitations on Foreclosures

Finally Some Clarity on the Statute of Limitations for New Jersey Foreclosures.

There has been much confusion about the statute of limitations for residential foreclosures in New Jersey.  Finally, now, we have some clarity.  The New Jersey Assembly voted to modify the terms of the Fair Foreclosure statute to limit the filing of foreclosure cases to six years after default in some cases.

This bill reduces the statute of limitations in residential mortgage foreclosure actions from 20 years to six years from the date on which the debtor defaulted, in situations in which the date of default is used as the method to determine when the statute of limitations has expired.

Thus, the bill revises the alternative methods under the “Fair Foreclosure Act” for determining when the statute of limitations for the foreclosure of a residential mortgage has expired by providing that an action shall not be commenced following the earliest of: (1) six years from the date fixed for the making of the last payment; (2) thirty-six years from the date of recording of the mortgage; or (3) six years from the date on which the debtor defaulted.

This is great news for those homeowners that have been trying to resolve a home foreclosure for at least six years before the bank files for foreclosure.  The bill leaves a few unanswered questions which will no doubt come up in cases filed after the date of this bill.

Here is the Text of Assembly Bill No. 5001

ASSEMBLY, No. 5001
STATE OF NEW JERSEY
218th LEGISLATURE

INTRODUCED FEBRUARY 7, 2019

Sponsored by:
Assemblyman ANTHONY S. VERRELLI
District 15 (Hunterdon and Mercer)
Assemblyman RAJ MUKHERJI
District 33 (Hudson)
Assemblywoman VERLINA REYNOLDS-JACKSON
District 15 (Hunterdon and Mercer)
Senator TROY SINGLETON
District 7 (Burlington)
Senator STEVEN V. OROHO
District 24 (Morris, Sussex and Warren)
Senator DAWN MARIE ADDIEGO
District 8 (Atlantic, Burlington and Camden)

Co-Sponsored by:
Assemblywoman Murphy, Assemblymen Houghtaling and McKeon

SYNOPSIS
Revises statute of limitations for residential mortgage foreclosures.

CURRENT VERSION OF TEXT
As introduced.

An Act concerning certain mortgage foreclosures and amending P.L.2009, c.105.

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. Section 1 of P.L.2009, c.105 (C.2A:50-56.1) is amended to read as follows:
1. An action to foreclose a residential mortgage shall not be commenced following the earliest of:
a. Six years from the date fixed for the making of the last payment or the maturity date set forth in the mortgage or the note, bond, or other obligation secured by the mortgage, whether the date is itself set forth or may be calculated from information contained in the mortgage or note, bond, or other obligation, except that if the date fixed for the making of the last payment or the maturity date has been extended by a written instrument, the action to foreclose shall not be commenced after six years from the extended date under the terms of the written instrument;
b. Thirty-six years from the date of recording of the mortgage, or, if the mortgage is not recorded, 36 years from the date of execution, so long as the mortgage itself does not provide for a period of repayment in excess of 30 years; or
c. [Twenty] Six years from the date on which the debtor defaulted, which default has not been cured, as to any of the obligations or covenants contained in the mortgage or in the note, bond, or other obligation secured by the mortgage, except that if the date to perform any of the obligations or covenants has been extended by a written instrument or payment on account has been made, the action to foreclose shall not be commenced after [20] six years from the date on which the default or payment on account thereof occurred under the terms of the written instrument.
(cf: P.L.2009, c.105, s.1)

2. This act shall take effect immediately and apply to residential mortgages executed on or after the effective date.

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Save My Home From Foreclosure

Navigating The Foreclosure Process: Where Should I Start?

If you’re saying to yourself, “I want to save my home from foreclosure but don’t know where to start,” then you’ve come to the right place. Here is what you should do.

lawyer Foreclosure New Jersey Process save my home from foreclosure1. Educate

First and foremost in navigating the foreclosure process and deciding where to start, begin to educate yourself about the process. We have a plethora of free resources on our website: blog articles about foreclosure, loan modification, bankruptcy, the sheriff sale, and many more topics; we also have educational videos, case stories and helpful webinars which mimic a conversation that you would have with a real foreclosure lawyer if you were to call one– it will go over all of your options.

2. Avoid Scams

Secondly, avoid falling into traps; scams are a dime a dozen. It is highly likely that you will run into some while in the process of trying to save your home, so use your due diligence and keep an eye out for them. Many companies tout too good to be true deals. Most will take your money but don’t actually do anything to help.

3. Remain Strong

The road may get tough, but don’t give up; while the solution you find may have the wonderful end result of saving your home, sometimes the strategies can be hard to navigate, especially things like loan modification and bankruptcy. It can be a long and confusing process to get a loan modification or bankruptcy, but don’t fret, we are here to help you.

4. Decide On A Strategy

If you have just received a foreclosure complaint, you have 35 days to file an answer. To begin, decide whether or not you should file a contesting answer. From there, research what options you have to save your home. Taking all things into consideration, decide if saving your home really is the most realistic choice and the best solution. Then, put your strategy into place.

 

I’m Beginning To Fall Behind On My Mortgage Payments, What Should I Do?

falling behind on mortgage payments new jersey lawyer foreclosureMany people struggle to make their mortgage payments, you are not alone. If you’re saying to yourself, “I’m beginning to fall behind on my mortgage payments, what should I do now?” Here are some quick and powerful tips that will help you:

To answer the question “I’m beginning to fall behind on my mortgage payments, what should I do now?,” you should begin by calling your loan servicer to see what advice they have if you are just beginning to struggle with making your mortgage payments. Your loan servicer is the company responsible for mortgage payment collection. The number to reach them is located directly on your mortgage bill.

Your lender will allow you to miss 3 mortgage payments before declaring your loan in default, and then they won’t accept any more mortgage payments.

Practice good bookkeeping, this will be important in any solution you may employ down the road if you are faced with needing to apply for a loan modification or file for bankruptcy.

It is especially important to have good record-keeping skills if you are self-employed, because it is harder to be approved for a loan modification if you are self-employed, particularly if your finances are not in order or easy for the bank to understand.

Keep all of your documents related to your home in the same place, this will make it much easier if you need to call a foreclosure lawyer in the future.

The lawyer will need information from you, including home value, mortgage payment, the number of missed mortgage payments, interest rate, expenses, et cetera, so it is helpful if it is all in one place and easy to find.

Try your best to keep up with mortgage payments, but don’t be unreasonable. Do not, I repeat, do NOT, begin using your retirement savings or 401K to make your mortgage payments or to pay household bills. This money is nearly impossible to ever replace, and the temporary relief that it provides in paying your bills is not worth the strife that depleting it causes down the road. Further, if you end up filing a bankruptcy to save your home, your retirement money is protected.

Research all of your options for saving your home and decide on a solution that works best for your specific situation. Don’t get yourself into a solution that is unrealistic. Usually the best solution for those who have started falling behind on mortgage payments is obtaining a loan modification.

Be sure that you will be able to afford the option you settle on. No matter how hard it may be, sometimes moving is the best option if you cannot afford a home-saving strategy, because entering into one that you cannot pay for will only cause more trouble.

One of the most important things you can do when you start to struggle making mortgage payments is to learn as much as you can about all of the options that are available.

 

10 Things To Do If You Just Received Foreclosure Papers

Were you just served with foreclosure papers? Here is a quick list of what you should do once you are served with a Summons and Complaint.foreclosure papers new jersey lawyer loan modification bankruptcy

  1. The summons you may have just recieved requires a response within 35 days, commit to taking action within that time period (See below for more information)
  2. Find a qualified New Jersey Foreclosure Lawyer to help you through the process
  3. Complete the application for mediation which is included in the foreclosure complaint
  4. Communicate with your lender- see what options they suggest and request a loan modification application
  5. Apply for a loan modification as soon as possible
  6. Research all of your options and self educate
  7. Keep good records: save all of your mortgage payments (these will come in handy down the road)
  8. Put all of your court deadlines on your calendar, it is important not to miss any
  9. Make a list of all of your expenses
  10. If you don’t think you qualify for a loan modification, look into bankruptcy as an option

Our Opinion On Filing An Answer

From our many years of experience in handling foreclosure cases, we have a strong opinion that it is not in the homeowner’s best interest to file an answer * 99% of the time. We do not recommend a litigation strategy of filing an answer and further motions, because it doesn’t lead to saving your home. It only serves to extend the foreclosure process, but ultimately it will end in a sheriff sale. The strategy that we see the most consistent results with is obtaining a loan modification, or, if you can’t qualify for a loan modification then filing for a chapter 13 bankruptcy.

* Some lawyers’ opinions do not completely align with ours, if you are interested in the litigation strategy, consult with other lawyers for this route of action.

 

“I’m Falling Behind On Mortgage Payments, Are There Ways To Fix The Problem?”

mortgage new jersey lawyer loan modification

First – You’re Not Alone, AND Yes, There Are Ways To Fix The Problem

Thousands of people struggle to make their mortgage payments, especially after significant life changes, like loss of employment, death in the family, changes in income, and other factors that are out of our control. But, if you have just begun falling behind on your mortgage payments, you can still take control, and you have a number of options and strategies available to remedy the problem.

Before Considering Any Of These Options, You Need Income

If you are just beginning to look into ways to fix your mortgage problems, first and foremost – before you can put a strategy into place – you must have a form of income, or you need to find one.

These Are The Options That Can Help You

Home Loan Modification

Home loan modification is usually the best option for those who need a reduction in their monthly mortgage payments; it is the most popular solution. In a loan modification, we look at the principal balance of the loan, and the total of the missed payments. These numbers are added together to establish a new principal balance for the loan. Then, using a new interest rate of around 4%, and a new term of 30-40 years, a new monthly payment is calculated. If you have enough income to support that monthly payment, your problem is solved.

Refinance

Refinancing could be a good option for you if you have a difference in the amount owed on the home and the value of your home, also termed equity. Refinancing could allow you to get a new mortgage and reduce your interest rate. However, this is usually only an option if you have not missed payments yet, only if you are just beginning to realize that your mortgage payments are too high to manage, but you’re still current on payments.

Temporary Interest Rate Reduction

A temporary interest rate reduction could be appropriate for you if your income has recently been reduced, but there is a foreseeable increase again in the near future; it will reduce your monthly mortgage payments for a short period of time. For example, it could be appropriate if you have taken a temporary leave of absence from work, or your hours have recently been cut, but they will return to normal soon. A temporary interest rate reduction is only a short term fix to the problem, and the issue must be addressed at a larger scale if your decrease in income is not short term.

Forbearance

Forbearance results in a temporary reduction or suspension of mortgage payments. It could be the answer to your mortgage payment problems if the problem is temporary and has an end in sight. For example, forbearance could be an appropriate solution if you had to take a medical leave of absence from work, you have experienced a death in the family of someone who contributed to the household, natural disaster has affected your living arrangements – like a flood or hurricane, or another issue that has affected your home short-term. Before entering into a forbearance agreement, it is crucial that you’re assured you will have income in the near future, enough to repay the payments you had missed during the forbearance period.

Temporary Indulgence

This could be a viable option if reduction in income will be solved within the period of one month. Temporary indulgence grants the borrower a 30-day grace period during which they don’t have to pay their mortgage. There must be a concrete date under which you will be able to resume making your mortgage payments.

Repayment Plan

A repayment plan is only granted when your financial hardship has worked itself out, and you have recovered financially. You should only look into a repayment plan if you are able to prove to your lender that you can resume making your normal monthly payments again; while also paying back your missed payments. Under a repayment plan, you usually have to pay back all of your missed payments within a 1 to 2 year period.

Reinstatement

You must pay back your lender in one lump sum the total of missed mortgage payments. This is usually only a good option if your financial troubles have resolved and you have access to or have saved a large sum of money.

Partial Reinstatement

You must pay back 50% of what you owe, or more, in a lump sum. You also must negotiate a plan to repay the remaining amount due in missed payments within a specific timeframe.

Don’t Wait To Find A Solution That Works For You

We know it can be confusing to know what option will work best for you, but we are here to help. Our site has a number of resources for you to research all of your possible solutions. But don’t wait. The problem will only get worse if you do not employ a strategy early on. And as time goes on and you miss more and more mortgage payments, it becomes more difficult to find a solution you are eligible for, and if your home goes into foreclosure, the chances of being able to save it decrease drastically if you don’t take action early on.

If you don’t think that any of the aforementioned options will work for you, bankruptcy may be an option.

 

How Bankruptcy Can Keep You In Your Home

how can bankruptcy save my home new jersey lawyerBankruptcy Can Allow You To Catch Up On Missed Mortgage Payments And Save Your Home From Foreclosure

If you’re struggling to make your mortgage payments and have determined that the solutions listed in: I’m Falling Behind On My Mortgage Payments, Are There Ways To Fix The Problem?, don’t work for you, then a bankruptcy may be the best strategy to keep you and your family in your home.

Chapter 13 Bankruptcy Can Keep You In Your Home

A chapter 13 bankruptcy can allow you to put a repayment plan into place. This option requires that you have a form of income in order for you to make the new monthly payments to pay back your missed mortgage payments. Your total missed payments are added to the principal balance of your loan, with this new amount, a new interest rate is calculated and a new term is given. This can be a great option for those looking to save their home from foreclosure.

A chapter 13 bankruptcy can even stop a sheriff sale the night before it’s scheduled to happen, and can keep you and your family in your home.

But don’t wait until the last minute, it becomes harder to make a chapter 13 bankruptcy work with the more missed payments you have, because it makes the overall monthly payments higher.

 

If You Can’t Save Your Home From Foreclosure: Prepare For A Bright Future Using A Chapter 7 Bankruptcy.

chapter 7 bankruptcy foreclosure lawyer new jersey

You may have entered the foreclosure process with the mindset of wanting to save your home, but you discovered that you can’t save your home from foreclosure. Try this strategy – benefit from the lengthy process of foreclosure: prepare for a bright future.

Sometimes saving your home from foreclosure is just not the most realistic path to take, we know how hard it can be. Loan modifications are difficult. Not everyone qualifies for them, and many struggle working with their bank to get approved for one. Often times, you get denied time after time.

And, a chapter 13 bankruptcy is often used to save homes from foreclosure, but they are very hard to manage and require you to make huge monthly payments for 60 months to try and pay back missed mortgage payments. Depending on your situation, it can be a leap to try and make one work for you.

So, as hard as it may be to overcome, you’ve determined that saving your home is not a good strategy for you. You’ve come very far and made a huge decision. Now that you know you will be moving in the near future, you are wondering how you will get back on your feet again after the sheriff sale.

A Chapter 7 Bankruptcy Can Help You Get Back On Your Feet Again

There are two points in time when a Chapter 7 Bankruptcy can be helpful to you if you’ve determined that you can’t, or don’t want to save your home from foreclosure.

Scenario 1: There is no impending sheriff sale, and you are fairly early on in the foreclosure process.

You are going through the foreclosure process and have done a lot of your research, or maybe spoke to a foreclosure lawyer about your options for saving your home, but decided that saving your home is not in your cards.

Filing a chapter 7 eliminates all of your personal obligations to pay any and all debts. This then allows you to start rebuilding your credit right away since you do not have any debts.

At the same time, since the foreclosure process is just getting started, you can live rent-free for months before a sheriff sale can be scheduled which means you can save money that you would otherwise use to pay your mortgage or rent.

It is even possible to rebuild your credit from what may be 580 or 590, to 680 or 690 within 12 months. This score is good enough to buy a car at the best rate. After 24 months, you can be as high as 750. If you put the $2000 a month you might be paying rent with in the bank for 12 months you would have $24,000 and after 24 months, $48,000 and coupled with a 750 credit score, you could be in pretty good shape after 12 or 24 months.

Using the very lengthy amount of time that it takes to foreclose on a home to your advantage, you can eliminate all of your debts now, live rent-free during that time, rebuild your credit, and even save some money for the future.

Scenario 2: You have an upcoming sheriff sale.

If it is just inevitable for whatever reason that your house will be sold at a sheriff sale, you can delay the sale by up to 120 days by getting a 30 day adjournment from the sheriff’s office and then filing for a chapter 7 bankruptcy. With his additional time, you can better prepare for moving and also enjoy the other benefits of chapter 7 bankruptcy.

Assuming you postponed the sale by 30 days with a 30 day adjournment, (Read More About That Here), filing a chapter 7 will delay the sale by another 90 days and will discharge all of your debts.

Further, it can also help you avoid enormous tax liabilities. Here’s how:

If you don’t file for a chapter 7 bankruptcy, the bank has the right to seek to recover the difference between what the house is sold for and the amount that is owed, this is known as a deficiency amount. However, what is more common is the deficiency amount is forgiven by the lender and it is then required to be reported to the IRS as income in a 1099 statement and you may have to pay tax on that amount. A chapter 7 bankruptcy protects you against both of these very negative possibilities.

For example, if there is a deficiency amount of $100,000, you could owe up to $50,000 in income tax and you didn’t even get the money! Chapter 7 bankruptcy avoids this issue, provided it is filed BEFORE the sheriff sale. And of course, you get the added benefit of up to another 90 days in the house since the chapter 7 delays the sale by up to 90 days.

A chapter 7 bankruptcy before the sheriff sale will eliminate your debts and buy you extra time in your home so you are well-positioned for the future.

 

Is A Short Sale Or Deed In Lieu Of Foreclosure Better For My Credit Than A Sheriff Sale?

home foreclosure alternatives: short sale and deed in lieu of foreclosureMany people ask, “Isn’t a short sale or deed in lieu of foreclosure better than a sheriff sale on my credit?”

To answer this bluntly, no. Unfortunately, if your home is in foreclosure, your credit was already ruined once your loan went into default after missing 3 consecutive mortgage payments.

There is a lot of misinformation on the internet regarding the potential benefits of s short sale or a deed in lieu of foreclosure. I don’t recommend either of these two strategies, unless your lender is offering you a significant sum.

Both a short sale and a deed in lieu of foreclosure assume you either didn’t qualify for a loan modification, or have chosen not to apply for a loan modification because you want to move out of the home. Sometimes, a homeowner is trying to end the lengthy foreclosure process sooner through either of these two solutions, and that may be another reason to consider either of them.

One factor that make either a short sale or deed in lieu of foreclosure nearly impossible is if there is a second mortgage on the property, which requires you to negotiate with both lenders simultaneously and usually requires the first lender to share some of the proceeds with the second mortgage holder, when at a sheriff sale the second mortgage holder wouldn’t receive any funds.

Short Sale

Often times, the only one who benefits from a short sale is the realtor who collects his/her commission once the home is sold. A short sale involves an agreement with your lender, or bank, that when/if the home is old for less than what is owed, the lender will not come after you for any amount owed on the home after the sale.

A short sale also requires the right type of buyer; the buyer must be willing to patient, often for months, while the lender determines whether or not they will prove the short sale. An investor with cash would be the most desirable potential purchaser. A good realtor will carefully screen the buyer prior to making an offer to be sure he/she has the staying power to see the deal through to a closing. Numerous transactions have fallen apart after months of negotiating because the potential buyer was unable to continue the wait.

The most significant reason not to do a short sale is: you may still owe income taxes on the difference between he sale price and the amount owed, which would’ve been forgiven by the lender. The reason for this is that once the bank forgives your debt amount, the IRS then treats that amount as “income.”

However, a chapter 7 bankruptcy could save you from owing a devastating amount to the IRS.

If you do choose to do a short sale, it is crucial that you get an agreement with your bank in writing, insulating you from them taking any further action in trying to collect deficits after the sale.

One possible advantage of this option is that you may be able to negotiate with your bank for them to allot you money for moving. This could help you get back on your feet again after having gone through the foreclosure process, but, this possibility is extremely unlikely with a short sale.

Deed In Lieu of Foreclosure

A deed in lieu of foreclosure essentially requires that you hand over the keys of your home to your bank for nothing in return. The bank will cancel your debts for the deed of your home.

With a deed in lieu of foreclosure, you run into the same aforementioned tax issues that you would if you did a short sale. Once you hand over the deed of your home to the bank and they forgive the amount that you owed, the IRS treats that amount as income that must be taxed.

Instead of a deed in lieu of foreclosure, if you did a chapter 7 bankruptcy, you would not owe any money in taxes because the amount owed on your home would not be forgiven, but it would be discharged, and the IRS could not tax you.

Are Either Of These Options Right For Me?

Unless, your lender is offering you a hefty bonus for doing a short sale or you are trying to shorten the process so that you can move out of the home sooner, then neither of these options offer any real benefits to the homeowner.

Applying for a short sale or deed in lieu of foreclosure is no different than applying for a loan modification; in both situations you must submit a hardship letter and a significant amount of supporting financial documentation. Often, if you qualify for a short sale, you would’ve qualified for a loan modification.

Consider these factors very carefully before you decide to go through with either of these options.

 

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Don’t Save Your Home From Foreclosure: Prepare For A Bright Future With A Fresh Start

foreclosure: prepare for a bright future chapter 7 bankruptcy foreclosure lawyer new jerseyIf You Can’t Save Your Home From Foreclosure: Prepare For A Bright Future Using A Chapter 7 Bankruptcy.

You may have entered the foreclosure process with the mindset of wanting to save your home, but you discovered that you can’t save your home from foreclosure.  Try this strategy – benefit from the lengthy process of foreclosure: prepare for a bright future.

Sometimes saving your home from foreclosure is just not the most realistic path to take, we know how hard it can be. Loan modifications are difficult. Not everyone qualifies for them, and many struggle working with their bank to get approved for one. Often times, you get denied time after time.

And, a chapter 13 bankruptcy is often used to save homes from foreclosure, but they are very hard to manage and require you to make huge monthly payments for 60 months to try and pay back missed mortgage payments. Depending on your situation, it can be a leap to try and make one work for you.

So, as hard as it may be to overcome, you’ve determined that saving your home is not a good strategy for you. You’ve come very far and made a huge decision. Now that you know you will be moving in the near future, you are wondering how you will get back on your feet again after the sheriff sale.

A Chapter 7 Bankruptcy Can Help You Get Back On Your Feet Again

There are two points in time when a Chapter 7 Bankruptcy can be helpful to you if you’ve determined that you can’t, or don’t want to save your home from foreclosure.

Scenario 1: There is no impending sheriff sale, and you are fairly early on in the foreclosure process.

You are going through the foreclosure process and have done a lot of your research, or maybe spoke to a foreclosure lawyer about your options for saving your home, but decided that saving your home is not in your cards.

Filing a chapter 7 eliminates all of your personal obligations to pay any and all debts. This then allows you to start rebuilding your credit right away since you do not have any debts.

At the same time, since the foreclosure process is just getting started, you can live rent-free for months before a sheriff sale can be scheduled which means you can save money that you would otherwise use to pay your mortgage or rent.

It is even possible to rebuild your credit from what may be 580 or 590, to 680 or 690 within 12 months. This score is good enough to buy a car at the best rate. After 24 months, you can be as high as 750. If you put the $2000 a month you might be paying rent with in the bank for 12 months you would have $24,000 and after 24 months, $48,000 and coupled with a 750 credit score, you could be in pretty good shape after 12 or 24 months.

Using the very lengthy amount of time that it takes to foreclose on a home to your advantage, you can eliminate all of your debts now, live rent-free during that time, rebuild your credit, and even save some money for the future.

 

 

Scenario 2: You have an upcoming sheriff sale.

If it is just inevitable for whatever reason that your house will be sold at a sheriff sale, you can delay the sale by up to 120 days by getting a 30 day adjournment from the sheriff’s office and then filing for a chapter 7 bankruptcy. With his additional time, you can better prepare for moving and also enjoy the other benefits of chapter 7 bankruptcy.

Assuming you postponed the sale by 30 days with a 30 day adjournment,  (Read More About That Here), filing a chapter 7 will delay the sale by another 90 days and will discharge all of your debts.

Further, it can also help you avoid enormous tax liabilities. Here’s how:

If you don’t file for a chapter 7 bankruptcy, the bank has the right to seek to recover the difference between what the house is sold for and the amount that is owed, this is known as a deficiency amount. However, what is more common is the deficiency amount is forgiven  by the lender and it is then required to be reported to the IRS as income in a 1099 statement and you may have to pay tax on that amount. A chapter 7 bankruptcy protects you against both of these very negative possibilities.

For example, if there is a deficiency amount of $100,000, you could owe up to $50,000 in income tax and you didn’t even get the money! Chapter 7 bankruptcy avoids this issue, provided it is filed BEFORE the sheriff sale. And of course, you get the added benefit of up to another 90 days in the house since the chapter 7 delays the sale by up to 90 days.

A chapter 7 bankruptcy before the sheriff sale will eliminate your debts and buy you extra time in your home so you are well-positioned for the future.

 

 

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Do I Have To Pay Tax After A Short Sale?

do i have to pay tax after a short saleGreat! You did a short sale and now your mortgage lender sent you a 1099C to pay income tax on the amount of the loan that was not paid at the sale.  What? Do you have to pay tax after a short sale?

Answer: maybe.

The IRS treats forgiven or cancelled debts as income.  Under IRS rules, the lender is required to notify the IRS and to send you a form 1099C which may obligate you the pay income tax on the forgiven amount when you prepare your taxes for the year of the short sale.  Let’s say you had a home mortgage loan where  you owed $350,000 and the lender approved a short sale for $250,000.  In approving the sale, the lender is also agreeing to take $250,000 (less expenses) as full payment on the loan.  That means $100,000 of the loan is forgiven.  The IRS looks at this forgiveness as income and wants you to pay tax on it.

There Are Exceptions That May Apply To You.

Waiver By Congress. Up until December 2014, Congress provided a waiver of the tax given the high number of home owners that were losing their homes after the financial crisis of 2008 but that law hasn’t been renewed at this point.  You may want to check to see if Congress has renewed the waiver but at this point, it does not appear likely.

IRS Rules.  You may need the help of your tax preparer or accountant but here’s what the IRS has to say about forgiven or cancelled debts.  In IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments, the IRS explains the federal tax treatment of canceled debts in certain situations. In short, if you are Insolvent in the eyes of the IRS, you do not have to pay the tax.

Insolvency. If you are insolvent according to the IRS just before the debt was cancelled, this exception may apply to you.

In Publication 4681, the IRS provides: Do not include a canceled debt in income to the extent that you were insolvent immediately before the cancellation. You were insolvent immediately before the cancellation to the extent that the total of all of your liabilities was more than the fair market value (FMV) of all of your assets immediately before the cancellation. For purposes of determining insolvency, assets include the value of everything you own (including assets that serve as collateral for debt and exempt assets which are beyond the reach of your creditors under the law, such as your interest in a pension plan and the value of your retirement account). Liabilities include: The entire amount of recourse debts, the amount of nonrecourse debt that is not in excess of the FMV of the property that is security for the debt, and, the amount of nonrecourse debt in excess of the FMV of the property subject to the nonrecourse debt to the extent nonrecourse debt in excess of the FMV of the property subject to the debt is forgiven.

A special note if you have retirement savings: 401(k)s and IRAs count toward your assets.  Please note that in the above guideline, the IRS does not exclude retirement savings from your assets.  This may prevent some people from qualifying for this exception. If you do have retirement savings, it is important to know that that retirement savings is exempt from assets in bankruptcy so in this case, bankruptcy may be a better option for you in that it saves you the tax and preserves your retirement savings.

Bankruptcy.  If you file for bankruptcy, whether chapter 7 or chapter 13, the bankruptcy exception may apply to you.

In Publication 4681, the IRS provides: Debt canceled in a title 11 bankruptcy case is not included in your income. A title 11 bank- ruptcy case is a case under title 11 of the United States Code (including all chapters in title 11 such as chapters 7, 11, and 13), but only if the debtor is under the jurisdiction of the court and the cancellation of the debt is granted by the court or occurs as a result of a plan approved by the court.

There may be other exceptions that apply to you but these are the two that apply to most people.

This IRS rule also applies in the rare event the amount you owe is reduced as part of a loan modification or if the lender simply cancels your loan as sometimes happens with second mortgage loans when the lender realizes the value of the homes has dropped significantly.  You can read more about that here.