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What is a Foreclosure?

Foreclosure is a state court process that allows the bank to repossess your home.  When you bought your house, you signed a promissory note and a mortgage.  Because you signed the note and mortgage, if you are behind on your mortgage payments the bank is allowed to begin foreclosure proceedings in state court.  The mortgage holder can start the foreclosure process once you get behind on the promissory note payments.  The promissory note is the money part of the foreclosure.  There can also be a foreclosure if you fail to pay your property taxes or property insurance.  But most of the time, foreclosure lawsuits are filed because you are behind on your promissory note payments.  The foreclosure process ends with a foreclosure sale.  Once the foreclosure sale takes place, the mortgage company has one year to file another lawsuit to collect the difference between the value of the house and the amount of the foreclosure judgment.  After a year, the statute of limitations prohibits the mortgage company from filing a lawsuit against you for money.

The Foreclosure process.

The foreclosure process takes a long time.  If you are in violation of the agreement you made with the mortgage company because you failed to make payments under the promissory note or failed to pay property taxes and/or insurance, the mortgage company can begin the foreclosure process.  Once the foreclosure lawsuit is filed, a process server will attempt to serve you at your house or wherever else they can find you.  Anyone over 16 years of age can be served in your house.  Once you are served, you will have 20 days to respond to the foreclosure lawsuit.  If you don’t respond, the mortgage company can file a motion for default judgment.  That also takes a long while.  The mortgage company must file several affidavits before the state court will enter a default judgment on the foreclosure lawsuit.  However, once the default judgment is entered, the mortgage company is not done with the foreclosure.  They must prove to the court that you were in default of the mortgage or the promissory note to get a foreclosure judgment, and show how much money you owe.  The earliest sale date can take place four weeks after a foreclosure judgment is entered.  The foreclosure attorney must publish the sale date in a local newspaper (usually the legal newspaper) for four consecutive weeks.  When there are a lot of foreclosure judgment sales, this process could take up to six months. Therefore, the entire foreclosure process can take up to a year.  The process just described is if you decide not to defend the foreclosure case.  If you hire a state court attorney and try to defend the foreclosure, the process may take significantly longer, but ultimately will cost more in attorney fees for your state court lawyer and for the foreclosure attorney’s attorney fees if your defense is unsuccessful.  Even if you do not hire a lawyer to defend you in the foreclosure process, it could take up to a year for the foreclosure process to end.  Once the foreclosure process ends, the state court will set a sale date.  A bankruptcy can be filed at any time before the sale date to stop the foreclosure sale from happening.  The bankruptcy automatically stops the sale.  The bankruptcy attorney will notify the foreclosure clerk of the bankruptcy filing, and the sale will not move forward.    Filing a bankruptcy may be able to stop the state court from proceeding to the sale of the property because all foreclosure proceedings must stop once the bankruptcy is filed.  This is the law.  Even if you don’t want to keep your property, the foreclosure process will end until the bankruptcy court allows the state court to proceed.  If you want to keep your property, the foreclosure will automatically stop, and you will be able to cure any amounts you are behind by filing a Chapter 13 bankruptcy. There is nothing the state court foreclosure attorney can do about the filing of the bankruptcy once it has been filed.  The same goes for the state court judge. 

How can we help in a Foreclosure?

A bankruptcy can be filed at any time before the foreclosure sale.  Once the bankruptcy is filed, the foreclosure action in state court is immediately halted.  The sale cannot take place.  That is the main immediate benefit of filing for bankruptcy.  Section 362 of the United States Bankruptcy Code has a provision called the Automatic Stay.  This provision prevents any creditor from even attempting at attempt to collect a debt.  So they cannot write you letters or call you.  All lawsuits must stop, including foreclosures.  It doesn’t matter if you file a Chapter 7 or a Chapter 13.  The collections and lawsuits must immediately stop.  This provision is no joke for lawyers or creditors.  They can be held in contempt by the bankruptcy court if there is a willful violation of the Automatic Stay.  Attorney fees may be awarded, and if the violation causes you damages, you can be awarded damages to reimburse you for any damages you might incur because of the creditor’s willful violation of the Automatic Stay.  The Automatic Stay will remain in effect in a chapter 7 case until the case is closed or the secured creditor moves for relief from the Automatic Stay.  The relief from the Automatic Stay can only be granted if you have security for the loan, like a house or a car.  A Chapter 7 only deals with money, so if the motion for relief from the Automatic Stay is granted, the creditor can only repossess the car if you are behind, or continue the foreclosure lawsuit if you are not keeping the property.  Motions for relief from the Automatic Stay are usually not filed in a Chapter 7 case.  In a Chapter 13 case, if you are keeping the property, there is a repayment plan that gets filed with the court.  If you have a Condominium Association or Homeowners Association and /or a second mortgage and/or a third mortgage, they all can be stripped off in a Chapter 13 if there is no equity in the property after the payment of the first mortgage.  Sometimes, you can even attempt to modify your mortgage in bankruptcy.  The odds of a successful modification through bankruptcy is much greater than outside of bankruptcy because there is a portal which shows which documents you have sent.  They bank cannot say they didn’t receive something like they do when a modification is attempted outside of the bankruptcy.

There are very few valid defenses to a state court foreclosure lawsuit.  However, there are some statutory defenses that a good lawyer will be able to advance. These valid defenses are sometimes successful, and if your attorney wins in the foreclosure action, you may be entitled to reimbursement of your attorney fees.

This depends on the volume of foreclosure cases that are pending before the court.  Not every state court judge hears foreclosure cases.  The normal time for a foreclosure case to get to the sales date is about one year.  Because there are so many foreclosure cases pending right now, it may take significantly longer than a year to get a sale date. If you are represented by a lawyer in the foreclosure action, it may take significantly longer to get to the end of the foreclosure if you are unsuccessful in the foreclosure case.

If you have no equity in the property, and you don’t have the money to keep the property, while the foreclosure is pending you don’t have to pay your mortgage payment.  After the property is sold at the foreclosure sale, you can file for Chapter 7 or Chapter 13 bankruptcy, and not be responsible for any debt to the mortgage company.

Once you get behind on your mortgage payments, your credit will take a hit.  The longer you are behind on your mortgage the worse your credit will get.  Once the foreclosure is filed, the mortgage company usually doesn’t report anything more to the credit reporting agencies.  Once a bankruptcy is filed, your credit score may actually go up because you are doing something about your bad credit.  There are ways to increase your credit score to the 700’s within two years after a bankruptcy if filed if you learn the right way to fix your credit.

Generally, if you are not represented by an attorney, you will not have to appear before a state court judge.  Everything will be done without your input.  If you do have a lawyer, you may have to attend a deposition before the foreclosure attorney and a hearing before a judge if your case goes to trial.

There are several ways to sell your house if you are in foreclosure.  The first is to sell it at a short sale.  That means to sell it for less than what is owed on the mortgage.  For that, you will need to get approval from the bank.  They will do an appraisal, and if the sales price is reasonable, they will allow you to sell the house for less than what is owed.  You will not have to pay them any money if they allow you to sell the property in a short sale.  You can also sell your property in a regular sale, and keep any excess money you get from the sale as long as you pay the bank in full.

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