For all of the 26 years I’ve been offering Indiana bankruptcy help, a big part of that has been helping stop foreclosure. Of course, as I’ve been explaining in these Bankruptcy in Indiana articles for five years now, bankruptcy and foreclosure are governed by two totally different sets of laws. Still, whenever clients visit one of our five Zuckerberg bankruptcy law offices, among all the issues they want to discuss with us, almost always one of those issues is their fear of losing their home.
There are four general categories of settlements that can take place between homeowners and lenders:
This is where the fact that I’m one of the few Certified Consumer Bankruptcy Specialists in the state comes in handy; my years of experience help me negotiate mortgage modifications with my clients’ lenders (even when the bank employees themselves are not trained on all the new option!).
The idea is that the lender either reduces the interest rate or lengthens the repayment period. Why would the bank be willing to do this? They do not want a bunch of empty, abandoned home properties to manage; it’s often more economical for lenders to compromise on the terms of the loan and keep the homeowners in the homes.
The homeowner catches up on the arrears by making a somewhat larger payment each month (or sometimes, a balloon payment at the end of the term.) As one of my Columbus bankruptcy attorney colleagues explains, this is a good alternative when a debtor has fallen behind due to a job loss, but is now back working and can make the payments.
Deed in lieu of foreclosure:
This is a tactic to “buy time”. The bank takes over the deed to the property while the homeowner remains in the home. That “rest period” allows homeowners to work with lender to come up with a possible repayment or catch-up payment plan.
This is actually the least favorite from the point of view of an Indiana bankruptcy attorney. In a short sale, the bank agrees to allow the homeowner to sell the home for whatever price they can get for it (even if that is less than what is owed on the mortgage) and to accept those proceeds at closing. The homeowner loses the home but gets out from under the burden of the mortgage.
Why is this my least favorite? Under the new bankruptcy laws of Indiana, mortgage lenders can pursue the borrower for the deficiency balance (difference between the sale price and amount still owed on the mortgage).
For the past four years, all through the housing downturn in Indiana, I, along with the Anderson, Indianapolis, Bloomington, Richmond and Columbus bankruptcy lawyers who work with me, have been offering help with foreclosure prevention, using every one of these four techniques to help stop foreclosure.
But, even where we've been successful in helping “save” a client's home we often can't help thinking that filing Chapter 13 bankruptcy in Indiana might have actually left the client better off.
Categorised in: Bankruptcy Indiana
This post was written by Mark Zuckerberg