*rings boxing bell*
Ladies and gentlemen… here we go… the main event! Jeena and Jeff battle it out in the ongoing debate of bankruptcy attorneys: Is there a difference between someone being Judgement Proof v. Collection Proof. Each have a different view. Who will win the battle of words????
If you aren’t an attorney, this still DOES matter to you. Do YOU know the difference?
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By: Jeena Cho
A very common situation I come across is where the client is struggling to make all of her payments, including mortgage, car, credit card, and living expenses. So, a question that comes up frequently is what happens when I stop paying my mortgage? The answer depends on if you stop paying on your first or second mortgage.
Let’s suppose that you’re delinquent on the first mortgage. Typically, after 3 – 6 months of missing payments, the lender will send you a Notice of Default. This puts you on notice that you are delinquent and that the lender intends to accelerate the terms of the note. Meaning, instead of making your normal monthly payment of say $3,000, the bank is demanding the full loan amount.
This is the time where you need to have the hard conversation and ask yourself “can I really afford to keep this home?” In my experience, many people have other debts aside from the mortgage, such as credit card payments. Oftentimes, if the client didn’t have the other debt, he or she would in fact be able to make the mortgage payments.
After the Notice of Default, you’re typically given about 3 – 6 months before the lender sends you a Notice of Trustee’s Sale. This is where the lender tells you the date and time of when your home will be sold off. Note that it may take the lender a lot longer than 3 – 6 months before sending you the Notice of Trustee Sale. I’ve seen many clients who are delinquent on their mortgage who still has not received the notice after 12 months.
The Trustee Sale has a minimum notice of 21 days. On the foreclosure date, your home may be auctioned off. I say may because I’ve seen situations where the bank will either cancel the auction date or the home isn’t sold on that date for various reasons. Of course, there’s also the possibility that your home will be auctioned off on that date. After the auction date, if you’re still living in the property, the bank can proceed with its eviction process.
Many people purchased their home by taking out an 80/20 loan or have pulled equity out of the home later. In this situation, you have both a first and a second lien. So, the next common question I get is “what if I’m current on my first mortgage but missed my second mortgage?”
The answer to that question really turns on what if anything the second mortgage lender would get if it initiated the foreclosure. It’s important to note that regardless of which lender initiates the foreclosure – first or second, the first mortgage will always get paid first. The second mortgage may initiate the foreclosure and get nothing from the transaction. As a practical matter, unless you have equity in your home (e.g., your combined mortgage is $500,000 but the fair market value is $550,000), it is unlikely that the second mortgage will initiate the foreclosure.
What I have seen in my experience is that after some period of delinquency, the second mortgage company will sell the debt to a third party debt collection agency. The third party debt collection agency will then attempt to collect the debt from you. It may be possible to settle your second mortgage for less than what you owe on it.
Please note that foreclosure process varies widely by State. The above information is based on California law.
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One of the powers in bankruptcy that my clients enjoy the most is the automatic stay. Upon filing bankruptcy an injunction goes into effect that generally prevents creditors from taking most actions against the person that filed and against their property. This includes foreclosures, repossessions, most lawsuits, collection efforts and typical creditor harassment. The stay is automatic, meaning that arises by operation of law upon filing for bankruptcy.
Sometimes you will hear the term “relief from stay.” This means that a creditor acknowledges the automatic stay, but it goes to the bankruptcy court and files a motion to permit the creditor to proceed in some manner against the person that filed or against his or her property. This is referred to as filing a motion for relief from the automatic stay.
We see relief from stay motions most often in relation to foreclosures. Many of our clients are behind on mortgage payments and file bankruptcy to stop foreclosure via the automatic stay. Due to misinformation, a lot of my Chapter 7 clients believe that when they file Chapter 7 the automatic stay is permanent and foreclosure cannot happen again. If you intend to keep the property, it is important to understand that the automatic stay expires by operation of law after you receive your discharge. But if you are behind on your Chapter 7 payments, the bank can move for relief from stay immediately after filing requesting permission to proceed with the foreclosure. In most cases the court will grant the motion.
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Let’s face it. Attorneys are expensive. One of the most common reason for racking up additional attorney fees - being disorganized. You can save yourself money and make it easier for your bankruptcy attorney by following these simple steps.
Once you make the decision to file for bankruptcy, the next hurtle is gathering and providing all of your financial documents to the attorney. As a general rule of thumb, everything that has to do with your income, assets and debts must be provided. When you finally hire your attorney, you might think he or she will be able to “make it better” or solve your problem using a magic wand. Nope, your bankruptcy attorney needs your help. A common issue we come across is where clients don’t want to do the legwork gathering all the documents and organizing them in an orderly manner.
In general, attorneys are paid hourly, meaning the more time an attorney has to spend on your case, the more you’ll pay. So, doesn’t it make sense to save your attorney as much time as possible? When you hire a lawyer, you are paying her for her legal expertise, not her document organization skills. I want to spend my time figuring out legal issues, preparing your petition, or answering your questions. Not opening unopened bills or sorting through 500 pages of a disheveled pile of mess.
There’s no easy button. Only you have access to your documents. I can’t get your bank statements, tax returns, credit cards statements, collection letters, mortgage statements, or medical bills. You have to provide it to me. The average client will produce somewhere in the neighborhood of 500 pages. Imagine having to go through and review 500 pages of document for not just one client but for multiple clients. That’s a lot of information to sort and digest.
Review. Look over the list of documents and get an understanding of what we need.
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