If you’re reading this blog because you are facing foreclosure, you may have already spent some time on the internet researching ways to help you keep your house. Probably you have found a variety of lawyers and non-lawyer websites touting miracle “solutions” that will allow you to “prove” that your mortgage servicer lacks the right to foreclose on you. Maybe you have read about “securitization fail” arguments, or “split-the-note” arguments, or “MERS is a fraud” arguments, or “robo-signer” arguments, or “modification fraud” arguments, or any number of other strategies that, the deeper you go, eventually spiral into conspiracy-theory territory.
It is true that there ARE real problems with the securitization process, and there ARE real problems that arise as a result of mortgage servicers’ robo-signing practices. There may even be problems with the MERS system that are actionable in court.
In our experience, though, litigating these problems in court is a difficult and expensive road to justice. One cannot simply buy an “audit” from some online source, present it to a court, and expect to get anywhere at all with it. Most lawyers I know would scoff at such “audits”.
Some of these services are apparently even scams just out there to make a buck selling false hope. The Federal Trade Commission has information about false mortgage relief schemes here: http://www.consumer.ftc.gov/articles/01 … lief-scams and http://www.consumer.ftc.gov/blog/mortga … vides-none
That said, there are still many ways for you to prolong your stay in your house, some of which could help you keep your house for the long-haul. Some of these are proper, legal methods we endorse and employ ourselves. Other strategies we discourage and do not offer to our clients because we believe they cross the line into bad-faith and/or illegal territory or are just not going to work.
The “Good” List of Strategies For Staying in Your Home
Chapter 13 Bankruptcy
The best and most certain way to keep your home, especially if you have defaulted on your mortgage relatively recently and can afford to make your payments going forward but just can’t afford to get caught up all at once. People hate the thought of “bankruptcy”, but really, it’s just a word for being responsible and accepting the financial reality that you cannot afford to solve your problem without legal intervention. We realize that, especially with the proliferation of loan mod offers and foreclosure defense/rescue operations, it can be very appealing to try to use non-bankruptcy options first, before resorting to bankruptcy as a last-ditch effort.
The problem is, by the time loan modifications fall through and foreclosure defense/rescue efforts play themselves out, you are probably going to be so much further behind on your house (or worse, you’ve already lost it to foreclosure) that a Chapter 13 bankruptcy is often no longer a viable option. On the other hand, the good news is that Chapter 13 bankruptcy offers a legal, organized, well-established process through which folks are permitted to “cure and maintain” their mortgages – i.e. catch up, while making ongoing payments.
Chapter 7 Bankruptcy + Loan Modification
This is a combo folks. For reasons that are difficult to explain, mortgage servicers are modifying loans while borrowers are in a Chapter 7 bankruptcy at a far greater rate than they are modifying loans outside of bankruptcy. Maybe it’s because the servicers are concerned about the heightened government oversight that accompanies a bankruptcy. Maybe having a bankruptcy attorney involved gets these modification applications put on a shorter list for faster consideration. Maybe it’s because you are getting rid of many of your other debts during the Chapter 7 bankruptcy and cannot file another bankruptcy for a while, so you appear to be a better credit risk. Who knows? Who cares?
This is a strategy that (a) legally and effectively stops foreclosure efforts, and (b) gives you a legitimate chance for a modification. This may be a better strategy for folks who have waited too long to file a traditional Chapter 13, or for folks who, even if they filed a Chapter 13 early after defaulting on their mortgage, still could not afford their mortgage payments going forward. Benefits include a shorter time “in bankruptcy” than Chapter 13, and, if it works, a better loan payment. Negatives are that it is not certain that you will be able to get a mod, and if you don’t, then you could find yourself either having to file another bankruptcy – this time, a Chapter 13, to stop subsequent foreclosures, or else you may be out of options to stop foreclosure efforts.
Individual Chapter 11 Bankruptcy
This is not for the faint of heart or light of pocket book. Chapter 11 has traditionally been the territory of corporations big and small, but recent statistics indicate that Chapter 11s for individuals have skyrocketed (individual filings are up 88% in the Northern District of Texas) over the last year or so. Chapter 11 offers more flexibility than Chapter 13 in some respects, and individuals whose debt levels are too high for Chapter 13 are not barred from Chapter 11. However, with that flexibility comes exponentially more complexity. That complexity results in exponentially more cost to you. Filing a Chapter 11 is usually at least five times more expensive than a Chapter 7 or Chapter 13, and often it can be much more expensive than that. Chapter 11 allows you to propose a plan of reorganization, but your creditors have to accept the plan, and your creditors also have a right to propose a plan of their own if they don’t like yours. You may be able to work out a modification with your mortgage creditors, but that is far from certain.
Yes, we know the banks “lose” your paperwork and repeatedly demand that you update your mod applications. Yes, we’re outraged and infuriated by it too. But this is the only other serious, legal, and proper option for preventing a foreclosure, and it does not guarantee that foreclosure efforts will be halted. There is also a major downside to pursuing a mortgage modification without first filing a bankruptcy: you will get further and further behind unless you are careful to save the money that would have gone toward your mortgage payments. In our experience, most people do not save up their mortgage payments while a modification is being considered. Many folks will be stuck in mortgage modification purgatory for a year or more while they wait and wait for their mod to be approved, or reconsidered, or for their paperwork to land in the right person’s hands. Not only is this frustrating, but it’s incredibly destructive to your chances of keeping your home in the end.
Remember: if you file a Chapter 13 or Chapter 7 bankruptcy early on after you default, you may still try to modify your loan later, so this option isn’t off the table, but if you’re impossibly far behind on your mortgage after years of trying to get a mod, your chances of succeeding in Chapter 13 will be almost nil, and a Chapter 7 may only offer a brief reprieve, rather than a long term fix. In our view, a mortgage modification strategy should be pursued either as a last resort, or in connection with a bankruptcy, but not as a first option. Unfortunately, this is counter-intuitive, and most people find themselves stuck in the mortgage modification vortex for months and even years before finally turning to a bankruptcy attorney when it’s already too late. Don’t be one of those folks!
The “BAD” Tactics We Strongly Disapprove of:
The Foreclosure “Rescue” Scam
If anyone asks you to temporarily “sell” them your property or to otherwise transfer title to your property (or even a minor ownership share in your property) in order to prevent a foreclosure, (a) run away, and (b) call the FBI. Seriously. These are some of the most insidious scams out there, and they usually also involve getting people to sign bogus promissory notes and making monthly payments to the scammers. Some of these scammers will even tell you to file a bankruptcy – they may even give you bankruptcy paperwork to fill out and tell you to take it to the courthouse. There is nothing legitimate or legal about this kind of operation, even though they may have an office and staff and official-looking documents. Stay away.
Anti-foreclosure Litigation Stall-tactics
These tactics involve lawsuits filed by attorneys (or individuals) solely for the purpose of delay, not to resolve any legitimate dispute. As someone who has litigated many legitimate claims against mortgage companies, I can tell you that there are many legitimate bases for disputes with mortgage companies, and most any reasonably intelligent attorney with experience in this field can find one or more of these disputes to assert in a lawsuit against your mortgage company. The problem is, while many of these disputes may be legitimate, their resolution almost definitely will not result in you getting out of paying for your home, nor can they offer any promise of a loan modification or other long-term solution.
Most of the time, “foreclosure defense” litigation just buys time, while you pay the lawyer instead of the mortgage company. If time is all you care about, this may be a perfectly acceptable arrangement, but we don’t encourage it. Instead, we think it is almost always in folks’ best interests to pursue strategies that are focused on their long-term economic rehabilitation, not simply maintaining an unhealthy status quo, which is about all these tactics do.
Suffice it to say that if you face reality and go with one of the legitimate methods above, you will be much better off. Too many people are getting suckered into these worthless and/or illegal foreclosure prevention programs.