Dubiln Packard

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Loan Servicers: The Face of Corruption

HAMPLoan Servicers: The Face of Corruption

A Glance at HAMP

The Home Affordable Modification Program, HAMP, was a policy that went into effect during Obama’s presidency. As the administration and financial institutions ( its creators) would proclaim, it was designed to relieve the foreclosure crisis. But, what most won’t tell you, is that there was a great deal of corruption going on behind the scenes – all of which greatly hurt homeowners, and explains why despite Obama’s promises that 3 to 4 million people would receive loan modifications, that number struggled to creep above one million, even 5 years after the policy was adopted.

HAMP was created to give incentives to mortgage companies to modify loans of homeowners who were at risk of going into foreclosure; further it gave all of the power to these mortgage companies to approve or deny homeowners for modifications.

How Your Loan Servicer Became God Almighty When HAMP Was Adopted

In order to grasp just how much power your loan servicer was given when the government passed the bill for HAMP, one must realize that mortgages are not handled by their lenders.

During the housing bubble, many home loans were sold to middle-men, packaged into securities, then sold to bond investors. Banks hired loan servicers to: collect mortgage payments, provide customer care to borrowers (the homeowners) and to dole out the earnings to investors.

The loan servicers handled everything. So, surely, it made sense to give them the added power of approving and denying homeowners for loan modifications when HAMP was contrived. Right?

All of the power was put into the hands of a small group of people. Loan servicers played a pivotal role in the success/ failure of HAMP.

With great power comes great responsibility.

HAMP granted loan servicers with an inordinate amount of responsibility in handling the foreclosure crisis. Typically, the best way to save a home from going into foreclosure is through attaining a loan modification. Thus, the loan servicers had all of the power in controlling the rate of home foreclosures because they were the ones who dictated approving or denying people for loan modifications, on top of a plethora of other responsibilities.  The loan servicers were incredibly ill-equipped to deal with the volume of work that was laid on their laps. They were flooded with millions of individual requests for modifications. But, most companies were understaffed, and the employees they did have were not adept at handling loan modification approval. The only way they could keep their heads above water was by slashing customer care. Even if they wanted to provide customer service, they didn’t have the manpower to do so.

The Servicers Learned How To Profit

Overwhelmed with work, and with little profit to be made doing things by the books, the loan servicers manipulated the system and found a way to make HAMP work for them.

They would intentionally “lose” paperwork that the homeowners were sending into them, as to extend the time the loan was in default. (Click here to read about Paula, whose bank lost her husband’s death certificate, paystubs and more)

They stretched out the period of time for the trial modifications. This enabled the servicers to continue collecting payments and late fees, typically while proceeding through the foreclosure process, unbeknownst to the borrower. This sneaky maneuver allowed the services to then deny the homeowner of a loan modification, and additionally require the borrow to pay back payments, missed interest, and late fees; if they didn’t comply to these stipulations, the servicer could dangle the risk of foreclosure over the homeowner’s head. (Click Here to read about Ross, whose bank agreed to a loan mod, then foreclosed on his home)

Bank Of America Scam

Bank of America’s mortgage servicing team brought to light the wrongdoings of their department in a class-action lawsuit. Employees testified that Bank Of America instructed them to lie to customers, purposefully throw-out documents sent by the borrowers, and deny homeowners for modifications for no reason whatsoever without providing any explanation to the borrower.

Bank of America took it one step further by rewarding subservient employees with bonuses.

The corruption was far-reaching, Bank of America is just one of the many banking institutions who engaged in such despicable behavior.

No matter what they did, the homeowners couldn’t win.

Little to their knowledge, no matter how hard the homeowners tried to save their homes from foreclosure, the loan servicers made it impossible. All of the people whom the homeowners believed to be helping them, were in fact working against them.

The scenario recycled itself over and over again: the borrower begins making payments, gets denied for a loan modification, the home goes into a foreclosure that could have been avoided.

In a report from the Government Accountability Office about 2 years ago, 64% of all loan modification applications were denied. It continues to be a problem today because no one is willing to take accountability, and, no one is being punished for their actions, even the loan servicers who caused much of this catastrophe are not held at fault for their actions– there are no laws governing bad behavior like this.

Much of the corruption that was going on behind the curtains of the foreclosure crisis caused for a whirlwind of financial ramifications which the middle class bore the burden of, and continues to bear today. No one wants to step up to the plate and take the blame for this corruption; so many people’s hands are dirty in this situation, and its the middle class who is suffering through the wrongdoings of those they trusted.

It’s highly likely that you may have experienced first-hand the corruption of loan servicers; but that is no reason to give up; there are still options out there to save your home.

 

 

 

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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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Luke, 42, and Bridgette 42, With Very Limited Options, Moved On With A Fresh Start: A Foreclosure Case Study

Luke took a step back and reality set in that his home was finally going to be sold at a sale and he and his family would have to move from their home of 10 years: if he didn’t take any action, he would have to move without time to prepare and he would owe the IRS $120,000 in income taxes.

chapter 7 bankruptcy, foreclosure, sheriff sale, lawyer, new jerseyLuke was making $350,000 a year as a custom homebuilder, but one day, all of the client calls stopped.

In this foreclosure case study, we hear about Luke who worked as a new homebuilder for 22 years. He started his own business when he was 20 years old and built a large client base in Bergen County. He earned consistently upwards of $350,000 most years and was able to buy a great lot and build a beautiful home for his family.

The demand for new homes was growing at a seemingly unstoppable pace. But all of this changed when the housing market took an enormous hit in 2008. Overnight, Luke went from getting 15 calls a week from potential clients to 0. No one was buying new homes and 10 years later, they still aren’t.

Depressed, hopeless, and broke, Luke didn’t know where to turn.

Luke felt distraught, he had a wife, Bridgette, who was a stay at home mom, and 3 kids to provide for– 2 of which were already in high school and soon going off to college.

Months past and Luke still wasn’t getting any calls. He felt hopeless, his wife started to resent him for not being able to provide for the family and told him to “get a job!” Luke was depressed and this only made matters worse because his kids were upset that he was withdrawn and not spending time with them anymore.

Pro Tip: Don’t get down on yourself after losing your job or if you can’t find good-paying employment right away again. The job market is tough for people, men in particular, over the age of 45. But don’t give up, there is a light at the end of the tunnel.

Luke noticed the way that his wife and kids looked at him differently and saw the pain in their eyes. He knew that completely disengaging himself from his family was not beneficial to anyone, but he couldn’t look at them without being reminded of the guilt and feeling like he failed them as a husband, father and provider.

Mortgage payments went unpaid, his kids’ college funds and his savings were depleted and Luke had just received foreclosure papers.

Luke made an effort to try and fix his home and situation, but this didn’t come as easily to him as fixing others’ homes. He transitioned his business into focusing on general home improvement, but still struggled to find work. Home prices had not turned around enough to the point where people wanted to have work done on their homes.

Pro Tip: No noe has a crystal ball but try be realistic and assess your job situation with an honest outlook; knowing the state of the housing market and economy, Luke should have formulated a way to transition out of the home business sooner. 

Within a year, Luke had used all of the money he had saved, and the money he set aside for his kids’ college funds to try and pay the bills. He also maxed out all of his credit cards. Once all of this was exhausted, Luke couldn’t pay the mortgage any longer. He soon received foreclosure papers in the mail.

Pro Tip: Don’t go into a frenzy after receiving foreclosure papers. The foreclosure process typically takes many months in NJ. But, don’t take a do-nothing attitude, use this time to take action and develop a strategy. Taking action early on will get you the best outcome.

He couldn’t go on living like this any longer. Bridgette acted like she hated him and his kids had become apathetic; they didn’t say, “I love you” anymore and looked at him with confusion and pity. And now to top it all off, Luke got notice that the sheriff sale was scheduled; he was terrified that he and his family would be kicked out their home within a few days.

Pro Tip: It is easier said than done, but, try not to let your financial problems create strife and a divide within your family. It is much easier to work through these harder times as a team. So often, spouses beat each other up instead of trying to develop strategies and goals together, and unfortunately it is easy to overlook how that behavior affects the family as a whole.

Luke was desperate to find out what options he had.

He needed to find someone to help him. After doing research online, he came across a lawyer who could help him with a foreclosure. His Google search led him to Todd Murphy. After an in-depth phone call, in which they carefully looked at all of the possibilities, Mr. Murphy regrettably informed him that he was too far behind in payments and didn’t make enough money to qualify for a loan modification or a chapter 13 bankruptcy. These were the tools that would’ve allowed Luke to get the most desirable outcome if he wanted to save his home.

A loan modification could’ve allowed him to pay back his missed payments with a new term and interest rate. Or, a chapter 13 bankruptcy could’ve allowed him to pay back his missed payments and start making normal payments… but neither option worked because he had waited too long and wasn’t making enough money.

A loan modification would have taken the total of the missed payments and added them to the principal balance; this would have given him a new term and interest rate, so he could begin paying back what he owed on his home. But, he didn’t make enough money to qualify. The chapter 13 bankruptcy would have combined the missed payments and the normal payments; he would have been paying this back within 60 months. The chapter 13 bankruptcy was impossible though because Luke waited too long and the new combined monthly payments would’ve been way too large to manage with his minimal income. It wouldn’t be possible to save Luke’s home; Mr. Murphy suggested a chapter 7 bankruptcy as the next most viable solution.

Pro Tip: A debt to income ratio test must be done to see if you qualify for a loan modification; and an analysis must be done to see if you qualify for a chapter 13 bankruptcy. For a loan modification, you must have the right ratio of income to expenses, and for a chapter 13 bankruptcy you must have enough income to make the combined monthly payments (your arrears and current monthly payments combined). Each option takes into account how many missed payments you have. 

Why Would A Chapter 7 Bankruptcy Be A Good Option?

Luke was concerned about getting thrown out of his home the day the home was sold at the sheriff sale. Mr. Murphy explained that, after the sale, the new owner (often the bank) would have to use the courts to evict Luke and his family as if they were tenants not paying their rent– this would take upwards of 90 days. With a chapter 7 bankruptcy, three more months could be added to the time they could stay in the home and if they took their 30 day adjournment of the sale first, that would get them a total of 7 months more than they originally thought.

Pro Tip: Most people would be disappointed at the prospect of moving, but it is important to remember that you have had the great benefit of living for free for a number of years.

From a financial standpoint, if they didn’t do a chapter 7 and their home was sold at a sheriff sale, Mr. Murphy explained that because the sale price would not cover the amount they owed on the home, that amount would be forgiven. Once it’s forgiven, the IRS treats that amount as taxable income. The amount of forgiveness would be taxed at the highest rate. They determined that if Luke’s home was sold at the sheriff sale for $500,000 and the loan balance was $750,000, he would end up owing the IRS over $120,000 in taxes. So, not only would he lose his home but he would then end up with a debt to the IRS he could never repay. But, if they followed through with a chapter 7 bankruptcy, the debt would be discharged and they would not owe any taxes on it.

Pro Tip: A chapter 7 bankruptcy can be a great tool in helping you avoid tax liabilities.

Mr. Murphy noted the other important benefit of the chapter 7 is that it would leave Luke debt-free. Over the course of the last several years, Luke had run up massive credit card debt; but the chapter 7 bankruptcy would discharge all of this.

The idea of bankruptcy didn’t sit well with Luke or Bridgette, but if they didn’t file for one, the consequences would be disastrous.

Despite all of this, the word bankruptcy left a bad taste in Luke’s mouth. That was the last thing he wanted to consider; all he knew about bankruptcy were the bad things. But, after hearing the good that could come from it and how it could help them discharge all of his debt, buy a little extra time in his home so they could find a new place and pack everything up properly, AND avoid tax liabilities, he discussed it with Bridgette that night; like Luke at first, she was incredibly upset to hear this as an option. But after it sunk in, they both agreed bankruptcy, with the benefits of putting the past behind them and giving them a fresh start for the future, might be their only good option left. This slowly turned into the first fruitful conversation they had in months. Over the course of the next week they went over the pros and cons of filing for a chapter 7.

Pro Tip: Many people attribute a bad reputation to bankruptcies, but what they don’t know is that bankruptcy can actually have a lot of benefits. If you can’t save your home, a chapter 7 bankruptcy can help you avoid tax liabilities, clear your debts, save money and rebuild your credit, and provide you with time to plan before the sheriff sale; it can give you a fresh start and a good alternative if you can’t save your home.

They decided that the good outweighed the bad, a bankruptcy was the right way to go.

Luke and Bridgette decided that the good attributes outweighed the bad, and that the chapter 7 bankruptcy would be the best way for them to try and recover and repair their situation before the sheriff sale happened. Their relationship finally began looking up, they realized that all of their marital troubles the were facing recently were rooted in the stress of not knowing what to do and not having a plan in place. But, soon, they would be over.

They broke the bed news to their kids, that they would have to move out of their current home, but told them they were able to formulate a new plan for the future and things were going to better very soon. They saved as much money as they could and worked on rebuilding their credit before the time of the sheriff sale, all while living in their home for free for another 7 months until the bank finally offered them $5,000 “Cash for keys.”

Pro Tip: At times, the new buyer of your home will harass you; once the home is old, the buyer now legally owns the home and is allowed to enter the property as a landlord. This is important to keep in mind while living at your home after the sheriff sale.

This was enough time for Luke to put some money away in the bank, and gave Bridgette enough time to find a job. They worked as a team and were finally able to communicate with each other again. Luke started spending more time with his kids and rebuilt his relationship with them.

Pro Tip: Sometimes buyers will also offer what’s referred to as “cash for keys.” If the buyer wants to move into their new home right away, they may be willing to pay up to $3,000-$7,000 for you to move out; this money can be helpful in securing your first month’s rent at a new location. And helping you get back on your feet.

By the time 7 months had past, Bridgette and Luke had saved around $8,000 and, along with the $5,000 cash for keys money, were able to find a nice home to rent. It was a huge change for them, but they stuck together and leaned on each other for support.

Pro Tip Summary:

  1. Timing is everything. As time goes on, without taking any action, your options become very limited. 

  2. If you can’t save your home,  chapter 7 bankruptcy can allow you to discharge debts, avoid tax liabilities,  live for free, buy you time, and even get you “cash for keys.”

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Jerry, 48 and Mary, 44: Made Lemonade Out Of Lemons: A foreclosure case study

After 20 years at the same company making more than $100,000 with a nice home and money in the bank, Jerry found himself broke and facing the possibility of losing his wife, his home, and everything he had worked so hard for his entire life. He was broken and didn’t know where to turn.

 

bankruptcy lawyer new jerseyMISTAKE: After Losing His Job, He Assumed He Would Quickly Find Another

Jerry worked for the same local bank for over 20 years and felt secure in his job. But, one day in the spring of 2009, Jerry’s boss told him he was being laid off. “Jerry, we have really valued all your hard work and dedication over the years, but, the way we do business has changed so we are going to have to let you go.” Jerry was beside himself; he had no idea how he was going to tell his wife the news he himself could barely stomach. But, he considered himself well qualified and with 20 years of experience in IT, he was confident he would quickly find a new job with the same pay.

Jerry dedicated all of his time to hunting for another job. Pouring through the newspapers, calling old contacts, scouring the Internet, and sending out thousands of resumes. Nothing. But, he wasn’t discouraged. He kept on. The unemployment benefits Jerry was receiving weren’t enough to cover all of the family expenses and not wanting his family’s life style to change at all; he used credit cards and money from his savings to pay his bills. Eventually his credit cards were maxed out and his savings were depleted.

At this point, Jerry started to become concerned he wasn’t going to find employment like he had before. Now, still not wanting to change his family’s lifestyle, his only option was to take an early distribution from his 401K. First, he took out $25,000, which after taxes and penalties got him only $15,000 in cash. Jerry and his wife, Mary, blew through this money quickly, with mortgage payments and living expenses just as high as they were when he had a job. He continued taking out more early distributions from his 401K, until it was finally gone and at age 48, he realized he was never going to replace the retirement savings he worked for 20 years to build.

Pro Tip: It’s never a good idea to start using money from your savings and 401K. Early distributions from retirement savings come with huge costs will be protected if yo ever need to file bankruptcy. And, retirement savings can be difficult, if not impossible to replace altering your life retirement permanently.

Hitting Bottom: The Incentive To Take Action

All of his dreams of retirement turned to dust. Jerry was down in the dumps, he felt like he had failed Mary and his family, not to mention himself. To make matters worse, Jerry argued with Mary every day about money. She berated him for not being able to find a job and for spending all of their savings. Now, there was no money to pay the mortgage.

Pro Tip: It’s crucial not to let your financial troubles, no matter how heavy they may feel, get in the way of your relationships with loved ones. It’s important to work as a team and get through the bad times together. Communicate often and develop a strategy early.

Jerry soon realized that he wasn’t going to find another high paying IT job any time soon, but he had sons who depended on him; “I’m not letting my kids quit hockey.” Jerry was resolute in that statement, making his sons quit hockey because he couldn’t provide would’ve been the most heartbreaking thing to him, so he took a job selling used cars.

Pro Tip: Don’t keep trying something that you are not getting any success with. The work world has changed; it’s not always the smartest assumption to make that you will regain employment in the same industry or at the same rate of pay again. Evaluate your skills immediately after losing employment and consider: are there jobs out there in your area of work and have you been on interviews and not getting hired? The business world has changed drastically and many people over 45 don’t have the skills for the current marketplace.

Jerry was an introvert and no salesman but he tried really hard to meet his monthly sale goals. Not making enough to cover his monthly expenses and not having any savings to draw from, he stopped paying the mortgages and when he missed his third payment the loan went into default and the bank would no longer accept payments.

Jerry’s first thought was “What am I going to do? Am I going to be kicked out of my home tomorrow?” My family is going to be on the street.

Pro Tip: While it is best to act ASAP, don’t panic after your loan goes into default. Even after you’re served with foreclosure papers, the overall foreclosure process in NJ typically takes many months. But, it is best to act fast to get the best possible outcome given your situation.

He frantically searched Google to find some help and get some answers to his many questions. Jerry’s wife took a small part-time job which kept their car on the road and helped toward the food bill.

Things were bad.

The Call For Help

Knowledge is Power

Eventually, Jerry felt like he had reached the end of the rope, and he starting calling around for help. He thought  a foreclosure lawyer might help and her sought the help Todd Murphy who had been recommended by a friend. Together, they did a complete analysis of his situation.

Pro Tip: Assess the situation. There are certain things that a lawyer who understands real estate and foreclosure law can look at in order to assess a particular situation. I examined the value of his home, the projected value of his home, the amount he owed on the home, monthly expenses and his income, to determine what strategy would be best for him.

Slouched deep in his chair, Jerry clearly didn’t want to be telling his sad story but it was a common one to Todd Murphy.

They reviewed his situation together. Jerry had two mortgages on his home with combined principal balances far exceeding the value of his home. The most glaring thing that stood out to Mr. Murphy was that just for Jerry to pay the minimums on his credit cards was going to cost him more than $1000 per month. That was interest only and nothing going toward the principal balance. Jerry had two cars, the family mini van, which they made payments on, and Jerry’s car he owned that was on its last legs. They ran a credit report and saw his credit scores were in the mid to high 500s which is just about as bad as they could be.

Pro Tip: Usually best course of action is to apply for a loan modification in which all of the missed mortgage payments are added to the principal balance and a new payment with a good interest rate is calculated. But, loan modification doesn’t work for everyone. Jerry’s income was too low and his debt and expenses were too high to qualify. If you’ve determined that you can’t qualify for a loan mod, begin looking into bankruptcy.

After determining that Jerry wouldn’t qualify for a loan modification, they looked at the possibility of a chapter 13 bankruptcy. This would act as a measure to catch-up on the missed payments over a period of 60 months and at the same time start making regular monthly mortgage payments at the existing rate of interest that in Jerry’s case was 6.1% (high by today’s standards).

Jerry had heard a lot of bad things about bankruptcy and the stigma it carried, but he could see he was in a pretty deep hole at this point so he listened.

Pro Tip: Don’t discount the idea of a bankruptcy right off the bat, educate yourself and find out how it may be a good solution to your problem.

They began the chapter 13 bankruptcy analysis by looking at the principal balance on Jerry’s first mortgage. It exceeded the value of the property.

Pro Tip: Sometimes, if you qualify for a chapter 13, you can strip off the second mortgage lien and convert the second mortgage to unsecured debt (like a credit card). Given Jerry’s income, very little of the funds he would pay each month into the chapter 13 bankruptcy repayment plan would go to pay his unsecured debts, so that would significantly reduce both the second mortgage loan and the credit card debt saving him hundreds every month and at the end of the 60 month repayment plan, the remaining amount on those debts would be discharged. This was a very big benefit and had the possibility of perhaps setting Jerry up to qualify for a loan modification due to the reduced debt load he would be carrying.

They continued the analysis by projecting out the value of this home in five years as well as what the principal balance would be at that time and we saw that the property was likely to still be underwater. That was an important consideration because Jerry would not be able to sell his home if he still owed more than it was worth – even in five years. Finally, they looked at Jerry’s monthly income and expenses and even though he wouldn’t have to make payments to the credit cards and the second mortgage loan, he still didn’t have enough cash each month to pay all of his living expenses, the first mortgage and the bankruptcy repayment plan. The chapter 13 bankruptcy wouldn’t work.

Pro Tip: You can find your home’s value on sites like Zillow. In Jerry’s chapter 13 bankruptcy analysis, one of the major factors that determined whether or not a bankruptcy made sense for him was the projected value of his home.

Jerry was disappointed to say the least.

The Strategy

Making The Best Of Your Situation

They then discussed another strategy. One that could put all of this debt behind him, allow him to save some money each month and rebuild his credit rating so that in the near future, Jerry could walk away from this home and buy a new home. Mr. Murphy explained that in New Jersey, it takes many months to foreclose on a property. He explained to Jerry that a chapter 7 bankruptcy would instantly wipe out his credit card debt saving him of $1000 per month in payments that were never going to pay down the balance. The chapter 7 would also discharge Jerry and his wife’s obligation to pay the mortgage loans without accelerating the foreclosure timeline at all. Debt-free, Jerry could start rebuilding his credit right away while living rent-free and even saving money every month. So, they arrived at a strategy that starts by discharging all of Jerry’s debts which cuts his monthly expenses and gets him started on rebuilding his credit immediately. Because it takes in excess of 12 months and usually in excess of 18 or even 24 months to fully foreclose on a property in New Jersey, Jerry would have the time he needed to get back on his feet.

Pro Tip: It takes about 12 months to rebuild credit to 680/690 and 24 months to rebuild to 750. 680/690 is sufficient to get a car loan or lease at a good rate and 750 is the minimum to be able to apply for a mortgage loan. This means Jerry, after 2 years, would be in the admirable position of having great credit and money in the bank and ready to consider buying a new home again.

Transformation in Thinking

By the end of the meeting, Jerry finally felt like a weight was lifted from his shoulders. He raced home to tell Mary. When he explained the chapter 7 recommendation Mr. Murphy had made, she said, “A bankruptcy Jerry?! We’ll never be able to buy another home again, let alone rent, we won’t be able to get jobs, and everyone will look at us differently.” Soon, they were back in the Mr. Murphy’s office together so he could explain the details to Mary and assure her after 12 to 24 months, they would be in very good financial condition. After some careful thought, she was ready to take action. Mary saw Jerry light up in a way he hadn’t in a long time; she finally saw a gleam of hope in his eyes.

The Light At The End Of The Tunnel

Now, about 18 months later, Jerry found himself a new job that he likes and is making decent income and he and his wife are putting money aside for the future while they both rebuild their credit ratings. Although they chose not to save this home and ultimately will have to move, he regained his self-respect, was able to engage with people and was more positive. Jerry and Mary’s marriage started to improve once they began working towards a common goal; they were finally able to communicate in a constructive and loving way.

Pro Tip Summary:

  1.  Be honest with yourself from day one.

  2. Assess your situation and understand all of your options, so you can make better decisions. 

  3. Set realistic goals and develop a strategy.

  4. Things only begin looking up once you begin working together.

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

is a short sale or deed in lieu of foreclosure better new jersey lawyer

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

Many 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 –  to learn more, read our post: Don’t Save Your Home From Foreclosure: Prepare For A Bright Future With A Fresh Start

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; to learn more about avoiding tax liabilities with a chapter 7 bankruptcy, read our post: When Is A Chapter 7 Bankruptcy Useful?

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.