In our last blog two weeks ago we talked about major mistakes that many of the mortgage lenders made in the past few years in documenting mortgage loans and foreclosures. These lenders cut corners and likely broke the law—sometimes in more than one way. In some cases you may be able to leverage those mistakes into getting your home mortgage lender to give you better terms on your mortgage. Today’s blog shows how some of the tools of bankruptcy can help you do this.
Changing the terms of a mortgage has traditionally been extremely difficult to do—in bankruptcy court or anywhere else. Make no mistake, it still is, for a whole bunch of reasons. By way of example, even with many millions of dollars of governmental support, a series of mortgage modification programs have been duds, helping vastly less homeowners than intended. Because of an intricate web of law and finance, mortgages have generally been a take-it-or-leave-it proposition: either live with your mortgage terms and hang on to your home, or fail to do so and lose it.
It has taken earth-shattering events in the housing market to change this, even a little bit. Although bankruptcy is still usually not going to be a magic bullet, if used correctly, and in the right case, it may provide just enough help to save your home. Here are some of the ways it could do so:
1. Bankruptcy buys time. Exactly how much time depends on each situation. It stops a foreclosure, sometimes only for a few weeks, sometimes for many months or even years. Your bankruptcy filing can buy time to finish processing a mortgage modification, which usually takes several months to complete. And it can give you more time to sue or negotiate with your lender for better repayment terms.
2. Bankruptcy immediately eases financial pressure on you. If you need to accumulate funds to pay for an attorney to fight your mortgage lender, writing off much of your debt may be the best way to do so
3. Bankruptcy may be able to get rid of your 2nd or 3rd mortgage so that you can finish fighting and negotiating with your 1st mortgage. The complications of junior mortgages often get in the way of reasonable settlements with your 1st mortgage. In the right circumstances a Chapter 13 case can “void” a junior mortgage, often leaving you in a much better position for suing and/or settling with your first mortgage.
4. Bankruptcy often provides a better place to fight your mortgage holder. It is a court specially designed to deal with disputes between creditors and debtors. The bankruptcy court was early to see some of the abuses by mortgage lenders and has been in the forefront in addressing them.
5. Even if your mortgage holder was not involved in legal shenanigans, the regular bankruptcy laws give you some major advantages, even if you do not need to or decide not to sue the mortgage holder.