As many Bank of America mortgage holders hoped for the freeze on U.S. home foreclosures last longer, it thawed out rather quickly providing much less relief to struggling homeowners than anticipated. On Monday, the mortgage giant announced they will resume foreclosure activity on more than 100,000 homes in 23 states next week, citing their legal right to foreclose on homes in default despite claims that documents previously used were hastily processed.
GMAC Mortgage has also announced that it too will be resuming foreclosures once documents are correctly prepared. Analysts are anticipating that other lenders will be working to correct document processing problems and follow suit quickly.
The Bank of America move comes two weeks after the bank announced a freeze on foreclosure activity until they could get a handle on how deep the problem really is. After an audit of the foreclosure cases in question, a spokesperson told the Wall Street Journal that every foreclosure case the bank had examined was justified and that the issues brought up by Foreclosure gate, such as “robo-signers who didn’t read documents before signing them, involved around 30,000 mortgage loans. Bank of America’s confidence in its position is reflected by the fact that they are resuming foreclosures in the 23 states which require a judge’s approval. It is still reviewing cases in the other 27 non-judicial states but foreclosure activity is expected to resume shortly in those states as well.
“The resumption of foreclosures puts many homeowners, who thought the foreclosure freeze would last much longer, in a position with few options besides filing bankruptcy or litigating”, “the major issue for struggling homeowners at this point is that getting approved on their own for either a loan modification or a refinance is unlikely if not impossible. Opting for professional help with an experienced loan modification or bankruptcy attorney just makes more sense. With changes in income coupled with declining property values the solution provided by Chapter 7 and Chapter 13 bankruptcies might be the answer. Filing bankruptcy results in an “automatic stay” which stops a foreclosure action until the bankruptcy is completed. For this reason bankruptcy attorneys aren’t surprised with the increase in bankruptcy filings nationwide.
By filing bankruptcy, preferably with an experienced bankruptcy attorney the automatic stay allows time for homeowners and their bankruptcy attorney to regroup and assess their options while the bankruptcy is in process. When Chapter 7 bankruptcy is filed all missed payments must be brought current or the lender’s foreclosure process can resume. However, Chapter 13 bankruptcy results in a court-approved payment plan which can include missed mortgage payments, interest, and fees. Homeowners who have been declined a loan modification and delinquent on their mortgage require a Chapter 13 bankruptcy in order to repay back mortgage payments over 3 to 5 years to avoid foreclosure and keep their home. Other benefits provided to homeowners by filing Chapter 13 bankruptcy with underwater equity lines and subordinated loans include the ability to wipe out these junior liens. When the value of the home has dropped below the balance due on the first mortgage, most subordinated loans can be “lien stripped” by the bankruptcy court which either eliminates the loans. A bankruptcy attorney must file a motion to “avoid the lien”.
Another words, if you have a home valued at $400,000 and two loans against it totaling $600,000, you can strip the 2nd loan if it’s deemed unsecured. Lien stripping is a true principal reduction and the best loan modification one could hope for, when property values go back up in value so will the homeowners equity position.
Whether you have been denied a loan modification, making endless trial mod payments or anticipating a foreclosure sale date, consulting a bankruptcy attorney immediately is a must. The banks continue to misinform homeowners relating to sale dates being postponed loan modifications under review and HAMP trial modifications don’t mean you’re home free. The complexity of strategically avoiding foreclosure is best navigated by those experienced with the process, like bankruptcy attorneys.
