Homeowners trying avoid foreclosure in California these days are as common as cash out refi's were 5 years ago. With so many Californians under employed and upside down on their mortgages it's no wonder 1 in every 4 homeowners are trying to avoid foreclosure one way or another. We used to be able to just do a cash out refinance or home equity loan to pay off our credit card debt or catch up on our bills. Now, there's no equity or stated income loans to refinance.
The Governments loan modification program (HAMP) is not working as expected, and homeowners who thought they were getting mortgage relief through Trial Modifications are still searching for options to avoid foreclosure. The state and federal agencies have encouraged homeowners trying to avoid foreclosure to just contact their lender directly for a loan modification, but the lenders are overwhelmed and understaffed.
Many of our clients come to us to file a emergency chapter 13 bankruptcy to stop foreclosure at the 11th hour. It's unfortunate that so many have been left out in the cold by their mortgage servicers and left trying to avoid foreclosure with bankruptcy at the last minute. After all, how did these people get into this situation? One day living the life; the next, struggling with their mortgage trying to avoid foreclosure.
Who is to Blame?
We use to think these people were just irresponsible, but by researching their situation a little closer we are finding the lenders and mortgage servicers partly to blame. Apparently, the lenders are just losing files, not returning calls, miss informing their clients, and throwing them into foreclosure during trial modifications. This is not the way to help someone trying to avoid foreclosure save their home, and the stories are all starting to sound the same. The perception these struggling homeowners have from their lenders is that once they get a trial loan modification, the coast is clear and they one step closer to avoiding foreclosure. This is far from the truth. The fact is every month that goes by in a trial mod, the loan balance grows and the foreclosure timeline continues. If avoiding foreclosure is what these people are trying to do they should have consulted a bankruptcy attorney early on and looked into chapter 13 bankruptcy.
When to Turn to Bankruptcy Law
While filing chapter 13 bankruptcy is not what most people want to do, it will help eliminate debt and avoid foreclosure. Let's face facts, most of us are simply not making what we use to, and living expenses have increased dramatically over the past 2 years. Many of us have run up our credit card debt and borrowed money to pay bills, leaving us in a bind. Debt relief through bankruptcy has been around since the Constitution, and avoiding foreclosure with a chapter 13 bankruptcy is common practice these days. Not only will a chapter 13 bankruptcy help you avoid foreclosure and wipe out a good portion of your unsecured debt, you can eliminate a 2nd mortgage lien if it's upside down.
Another word, you don't necessarily just file chapter 13 bankruptcy because you are trying to avoid foreclosure, you file chapter 13 because it's a good way to eliminate debt and 2nd mortgages. As bankruptcy attorneys we see it all; the good, the bad, and the ugly. It's getting pretty ugly out there with the rate of foreclosures, bankruptcy filings and short sales. The same Realtors who talked these people into buying homes with toxic mortgages are now talking them into short selling their homes. The problem is, if a homeowner refinanced or short sells an investment property their looking at receiving a 1099 from the lender and having a huge tax implication.
By filing bankruptcy you can eliminate the 1099, avoid foreclosure, and keep your home or walk away without having a huge tax liability.