Dubiln Packard

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The Future of Foreclosure

The Future Of Foforeclosure, new jersey, lawyerreclosure In the United States

The truth is, the foreclosure crisis is not over.

The end of the Great Recession, on the books recorded as June 2009, seems to be a premature end-date for those still feeling first-hand the financial backlash of the economic downturn.

Homeowners suffered significantly during the Great Recession; foreclosure rates skyrocketed, many of which compared to the foreclosure rates during the Great Depression (to read more about this, click here); and it has become evident over the years that things are going to take a long time to return back to normal.

While foreclosure rates have decreased since their acme during the Great Recession, they still remain over three times their normal levels (as David Dayen noted). Further, those whose loans exceed the value of the home- known as being underwater, continue to make up an enormous amount of homeowners; their number exceeded 8.7 million in 2015.

RealtyTrac found that for the first time in 3 years, foreclosure auctions were increasing, along with foreclosure filings. The signs spell out trouble- but the government and polls continue to say that we are out of the recession and that things are looking up.

The Problem Began Before The Recession Hit

The way that mortgages were handled changed significantly during the housing bubble. Many brokers sold too-good-to-be-true mortgages during the housing bubble to people who normally wouldn’t qualify: they preyed on people with low wages, people of Latin American decent, African Americans, those who were immigrants, working-class people making minimum wage. Interest rates were often incredibly low, and adjustable rate mortgages with initially low teaser rates were common; but many of these rates will be resetting to higher ones, rates which many homeowners will not be able to afford. Some economists believe another foreclosure spike is imminent.

Everyone is working against the homeowner.

Although many homeowners will have the desire to save their homes from foreclosure, it is evident that the financial institution may be working against them. Because of increases in the price of real estate, those whose homes are in foreclosure face the possibility of the bank seizing their home; it is now more financially favorable for the banks to just seize and sell your home, rather than helping you through the foreclosure process. This practice is seen going on all over the country. Banks want to settle the mortgages and foreclosures once and for all, and their way of handling this is by driving the homeowner into eviction.

To make matters worse, the loan servicers, those in charge of approving and denying homeowners for loan modifications in order to avoid foreclosure, continue to make it nearly impossible to obtain a modification. (To read more details about the corruption of loan servicers, click here). Many servicers continue to deny homeowners for no reason, despite the fact that they may qualify, and mishandling the documentation that borrowers send in, and neglecting to carry through with loan modification agreements that were reached with the homeowner.

Maybe most aggravating, is the fact that there are no laws governing their actions, and no penalties to face for committing such shameful wrongdoings to the homeowners.

What’s To Come?

It is likely that those dealing with mortgages from the time during the housing bubble will continue to suffer down the road.

National recovery has been slow, and even slower in those areas that received the greatest blows; which is inherent in the nature of the beast– subprime lenders targeted people in areas that were very poor to begin with, so when the recession hit, the people struggled to a greater extent than those living in wealthier areas.

It is unfortunate that those who suffered the greatest in the Great Recession are being helped the least, and that no one wants to step up to the plate and take the blame. Taking the blame may actually require them to try and fix the problem, instead of just pointing fingers. And who in government or from the banks wants to do that? It’s much easier to sit idly by while people continue to struggle.

 

 

 

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HAMP: The Obama Administration and The Banks’ Love Child

HAMP
Timothy Geithner, U.S. Secretary of The Treasury under the Obama Administration

HAMP: The Obama Administration and The Banks’ Love Child

When the economy was hit hard, the people turned to their government for help.

Economists stated that during the period from  2007 to 2009, the bottom 90% of Americans experienced the loss of one-third of their wealth, most of which was concentrated in their homes. After the housing market collapsed, millions of Americans were hurt deeply, and looking for financial healing. They turned to their government for help.

Cram Down: A Policy For the People

The government had a couple of solution plans drawn up to try to help those who were hit hardest by the recession: homeowners. The first of which, largely supported by Obama during his campaign for the presidential election, was “cram down.” Cram down gets its name from the action that the bankruptcy judge may take in reducing or eliminating debts that a borrower cannot pay; it is a common practice in bankruptcy court. In the context of foreclosure, it would force down the value of the debt to the value of the home; the logic of this being, the bankruptcy judge can write-off or reduce the debts that the homeowner cannot pay off– allowing an underwater homeowner to keep their home when they normally wouldn’t be able to.

HAMP: A Protection Plan For Financial Institutions

A number of legislators and citizens alike supported cram down as a way to remedy the foreclosure crisis. It was a plan for the people, and in the homeowner’s best interest. But, ultimately, nothing was done to get it passed. Obama dropped the idea in favor of a different policy, the Home Affordable Modification Program (HAMP).

While cram down was a plan for the people, HAMP was a protection plan for the financial institutions. HAMP was born out of negotiations between Obama’s economic team and the financial industry. Notice how I said the financial industry;  homeowners were nowhere in sight, their interests and needs were not heard. But, what rang through loud and clear in these discussions were the wants and needs of the banks.

All Of The Power In The Hands Of The Banks and Loan Servicers

HAMP granted all of the power to the financial institutions. Mortgage companies were offered small incentives to modify loans for borrowers who were susceptible to going into foreclosure. But, at the end of the day, it was the mortgage companies who decided whose loans to modify (not the bankruptcy judges who were arguably much less partial in the situation). As it turns out, it was not in the mortgage companies’ best financial interest, to modify homeowners’ loans. These companies were able to increase their revenue if they kept homeowners in limbo, and eventually allowed the loans to default and proceed through to foreclosure and the eventual auction of the home. This practice allowed them to keep collecting payments and charging the homeowners various other fees, while on the outside giving the appearance of helping them.

To read more about the scandalous activities of loan servicers and the corruption that went on behind the scenes, read: ( Loan Servicers: The Face Of Corruption).

And to compound the issue of it not being in loan servicers’ best interest to give loan modifications, the problem was only worsened by the strict protocol that the mortgage companies only approve of borrowers they deemed deserving. The Treasury Department, who pulled the strings of their puppets, the banks/servicers, made it very clear that the loan services must only reward those who were “deserving” of loan modifications (known as a “hardship”).

HAMP: A Band-Aid For The Financial Crisis, Not A Real Solution

To the government, HAMP was merely a band-aid for the financial crisis; for a short period of time, it retarded the progression of foreclosures. And to the added benefit of The Treasury and financial institution as a whole, it gave banks the power of controlling the timing of foreclosures, so that millions of homes were not foreclosed upon at the same time, allowing them to absorb their inevitable losses at a slower rate. To them, even though there was chaos, at least it was controlled.

Journalist, David Dayen, stated that in a period of 5 years from the time that the policy was put into place, it only helped one-tenth of at-risk homeowners avoid foreclosure; at a time when over 10 million were at risk of losing their homes to foreclosure (to read more from Dayen at Bill Moyer’s site, click here).

Today, the red tape and corruption still lingers. Homeowners continue to struggle obtaining loan modifications, being bounced around to different departments, constantly sending in the same documentation and still getting denied even when they qualify. HAMP, the solution designed to help homeowners continues to plague them. This especially holds true to those still dealing with old loans from the time Pre-Recession, many of which continue to be problematic 8 years later. It can still be exceedingly difficult to get a loan modification, many loan servicers continue to make it extraordinarily difficult.

From the time of its conception, the solution that the government and financial organization came up with was never to benefit individual homeowners; it was a scapegoat when the alternative cram down policy would’ve caused too much financial loss for the banks.

But, who looks out for the middle class then? Those who suffered the greatest financial hardship when the recession hit?

 

 

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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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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.