The interplay of Chapter 7 bankruptcy and foreclosure defense offers homeowners the possibility of squeezing equity out of a home even if it is “underwater”. A house is “underwater” when the homeowner has no equity in the house. In other words, upon a sale of the property, the homeowner would walk away from the closing with no money. This is called a short sale because the payoff balance of the mortgage exceeds the value of the house, and therefore the payoff is short.
Most homeowners think their only option is a modification. However, the interplay of these 2 areas of law provides an option that few homeowners know they have.
After a Chapter 7 bankruptcy discharge, assuming they qualify, debtors have no further personal liability for either unsecured debt or their mortgage debt.
After a Chapter 7 bankruptcy, a mortgage lender may never again look to the homeowner for the personal liability on the mortgage debt. The homeowner is no longer liable for the mortgage deficiency balance.
The mortgage lien remains against the property after Chapter 7 and is still subject to foreclosure. If a lender starts a foreclosure action after the Chapter 7 bankruptcy, a good foreclosure defense could tie up the foreclosure action for years.
After the bankruptcy a homeowner may accumulate savings without worrying about creditors trying to collect from them…The mortgage lender can never reach those savings for the mortgage deficiency liability.
Many clients have begged me to help them modify a mortgage on a house that is “underwater”. They state: “If only the lender would reduce my monthly mortgage payment down to $2,000, then I could avoid foreclosure and remain in my house.”
Problem is…it’s not their house. Sure their name is on the deed, but the bank “owns” the house because it is “underwater”. Upon a sale of the house, the homeowner walks away from the closing with no money.
So for the next 5 years, assuming they get a mortgage modification, they hope to pay $2,000 per month for 60 months to live in a house that they will never own. The more “underwater” the house is the worse such a deal looks.
Now: contrast a foreclosure defense that allows the homeowner to remain in the house for up to 5 years or for as long as the foreclosure action lasts without paying any mortgage payments. It could take up to 5 years to complete a foreclosure action, sometimes less, sometimes more.
If the homeowner can accumulate and save all those payments, they can re-locate after 5 years with up to $120,000 in the bank. They have now successfully squeezed $120,000 out of their house, even though it is “underwater” and they could never have sold it and put that much money in the bank.
Call A Bronx Mortgage Foreclosure Attorney For Defense
If you would like further information or if you have any questions and would like to know if you qualify for this alternative to modification, contact the office of Thomas M. Denaro, Esq. at (718) 863-6000.