Andrews, Bongar, Starkey & Clagett: Southern Maryland Attorneys

How To Save Your Home In Bankruptcy, Divorce, or other Financial Crisis

A home is one of the most precious material possessions most of us own. Home is where we lay our head at night, and where we raise our family. It is our castle. But we all know that very few of us really own our home. The bank owns it, through our mortgage. And when we suffer a financial crisis of some kind, and cannot pay our mortgage, it puts our home at risk.

This article is about ways to save your home in a financial crisis. The rules are much different today than they were just 20 years ago. You should know your options if you are facing a financial crisis and desire to save your home. We will give you those options in this article.

There once was a time when a family had plenty of options to keep their home when they suffered a financial set back. They could get a part time job, or work overtime. They could cut back on expenses to make ends meet. They could go to the local bank holding their mortgage and work out a temporary payment plan. If a couple divorced, one spouse could afford to refinance the house into their name alone, buying out the other spouses share.

In the current economic times, those options are not available. There are no part time jobs to be had. Most of our “expenses” are actually credit card debt which must be paid or they jack up the interest rate on you. If a couple divorces, they can no longer refinance because credit has tightened so much, and neither of them can afford the house on their own. The local bank doesn’t hold your mortgage anymore. It was sold 4 or 5 times in large bundles to some faceless corporation.

With a mortgage payment eating up half of an average family’s income, the slightest financial problem can make it impossible for you to keep up on your mortgage. You can call the bank and try to work out a deal, but you are not going to speak to the loan officer or branch manager you know. You will talk to a customer service rep at some far away call center who has no power and few answers. Good luck on getting them to understand your individual situation.

Okay, enough of the doom and gloom. Let’s get to the solutions. We will begin by explaining several possible solutions. We will also explain the foreclosure process, and the timelines that apply once it begins, so you can be prepared if it happens to you.

One last word: we are calling this an “Online Seminar” because we want it to be interactive. If you have questions, you can send us an email at SaveYourHome@SouthernMarylandLaw.com and we will try to answer your question promptly. Or you can call us for a consultation. We offer a free consultation for anyone with questions about saving your home. We care about our community, and want to be a genuine help to those who need it. In January of 2009, we will begin a series of real seminars where you can see us live.

And if you would rather see and hear us on a video than read this article, click this link to see our Youtube video. It is an abbreviated version of the full article you are reading.

First Solution ? Don?t Get Scammed!

Times like these tend to bring out the scammers – those low life degenerates that lie, cheat and steal from people in trouble. There are any number of foreclosure rescue schemes, or people willing to buy your house on the cheap. We cannot possibly list them all or anticipate what new ones will pop up. Just be careful! And be skeptical. The old adage “if it sounds too good to be true, it probably is” is as true today as it ever was.

If someone approaches you with an offer that sounds too good to be true, take these steps to protect yourself: (1) Don’t sign anything without checking it out. (2) Walk away from high pressure sales tactics. If it is a legitimate deal, they will be willing to let you think things over and check them out. (3) Check them out. Go online at the Maryland Attorney General’s Office, Consumer Protection Division (www.oag.state.md.us/consumer). Or, call their hot line at 1-888-743-0023. Ask them about this offer or this company, and make sure it isn’t on their radar screen as a known scam. (4) We can help you check them out too. Bring the paperwork to us and we will tell you what we think. Remember, this will be a free consultation.

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Government To The Rescue! (or Not)

Maryland State Government has some good programs designed to keep people from losing their primary residence. But, like most Government programs, they can be complicated, confusing, and will not always do what they seem to promise. We will outline them. You should look into using them. You may qualify for the assistance being offered. If you do not, we have other options that do not require Government help.

Maryland’s Department of Housing and Community Development (DHCD) has created a special website as a one stop resource for preventing foreclosures. Go to www.MdHope.org for details. They have one plan where you can seek assistance with a counselor, who will present your options and contact your lender for you. They also have short term “gap” loans and larger refinance programs. Information on all of this is on their website, and you should go there right after reading the rest of this article. Trying to get government assistance should be your first step. (There are also new state laws making it harder to foreclose on someone. We will cover those in the foreclosure section below.)

There may soon be federal laws too. As we write this article, Congress has gone into recess and the new Congress isn’t slated to start until January 2009. It is almost certain that they will pass some new laws or new programs to help people who may lose their home. What those laws are and how they will work is anyone’s guess. The important point is - stay tuned. However, the second important point is - don’t hold your breath.

The new programs may be complicated, and may only apply to specific classes of people. Politicians like to write laws that sound good on the campaign trail, but when you look at the details they don’t really help large groups of people. Sorry if we sound cynical, but we do not want to see people letting their personal financial crisis get worse and worse while waiting on a new law to rescue them. You just cannot count on it. Hope for the best, but plan for the worst.

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What is the Protection of Homeowners in Foreclosure Act (PHIFA)?

About 10 years ago we started seeing a new business spring up called “foreclosure rescue.” This was not necessarily a scam, but you could lose your home to these people if you were not careful. If they were honest, the scheme could work. But it created a situation where dishonest people could easily take advantage of the unwilling consumer.

Although there are variations in the details, generally the scheme works this way: a homeowner who is in foreclosure is approached by a “foreclosure consultant” who offers to assist the owner in “saving their home” from foreclosure. In many of these schemes, the owner signs a deed transferring title to the property to the consultant, who agrees to lease the home back to the owner for a period of time. The consultant would pay the bank who would halt the foreclosure. At the conclusion of the tenancy, the home owner is supposed to purchase the home back from the consultant under specific terms.

In most of these schemes, the consultant obtains title to the property and collects rent from the original homeowner. The dishonest consultant may not record the deed from the seller and will simply allow the property to go into foreclosure. In other cases, the consultant refinances, taking equity out of the property, and disappears. In many cases, the end result is the mortgage doesn’t get paid and ultimately the house is foreclosed on by the original lender. Some of the schemes also involved outrageous charges for simple paperwork and procedures which the homeowner could have done at little to no cost.

PHIFA does not make this illegal. It does attempt to weed out the dishonest foreclosure consultants by requiring them to follow certain procedures and rules. If they don’t, you can sue to win back your property. Maryland courts have awarded homeowners title to their properties and compensatory and punitive damages as well as attorney’s fees in some cases. The act enables judges to award treble damages and attorney’s fees to a successful plaintiff to punish violators and discourage fraudulent practices. Moreover, violations of the PHIFA can lead to criminal prosecution and imprisonment.

This is an emerging and complicated area of the law. If you think you may have been a victim, you should contact us for a free consultation. We will need to see all your relevant documents before giving you an answer. An email question won’t work with a PHIFA issue.

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Can I Just Refinance?

With the current credit crisis, this is no sure thing. You may not be able to get a loan. But you should at least contact a mortgage broker to see if there is any way you can refinance your house and get out from under the current mortgage payment you cannot afford. The rules in this area of finance are changing daily. Don’t trust the scuttlebutt from your friends on this one. Call and find out for yourself. We can recommend some good brokers to you if you send us an email at SaveYourHome@SouthernMarylandLaw.com.

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What About Bankruptcy? How Can That Help Me?

Yes there are bankruptcy options that let you keep your house. You do not have to lose your house if you declare bankruptcy. Bankruptcy is not an easy decision to make, but it is one of your options and you should seriously consider it, especially if you have other debts. See our free legal information about the bankruptcy process by clicking here. Our firm always offers a free consultation for bankruptcy. Just call us to schedule an appointment.

If you are behind on your mortgage but want to keep your house you can file a Chapter 13 bankruptcy. The bankruptcy will stop any foreclosure proceedings. However, as soon as you file you will need to start making your regular mortgage payments. Thirty days after you file you will have to start making a plan payment to the Trustee. The Chapter 13 plan will have to repay the mortgage arrears, and pay off some or all of your unsecured debts (like credit cards) over the course of 36 to 60 months. That is the life of the Chapter 13 plan.

Compare this to the 6 months the average mortgage company offers you to get caught up. Stretching payments over 3-5 years is much easier to stomach. And while it may be, it still won’t be easy. You will be put on a tight budget and have to follow the rules of the plan. But if you want to save your home and live there for years to come, it may be very well worth it.

If you can’t afford the mortgage, have some equity in your home, but can’t afford to make your mortgage you may be able to file a Chapter 13 sale plan. In this case you are using the automatic stay to stop the foreclosure and depending on your disposable income, making some payments to the trustee while you wait for your house to sell.

As of this writing the bankruptcy court cannot modify the mortgage on your principal residence. But Congress has pledged to change this in 2009. If they do, it will make Chapter 13 bankruptcy a viable option for a lot more people. Even now, there are interesting ways to work this angle. For instance, if you have a second mortgage, and your house is worth less than your first mortgage you may be able to spin off the second mortgage and have them treated as an unsecured creditor in a Chapter 13 plan. These creative scenarios can get very complicated. You will need an attorney to make them work.

Although not a way to save your home, we really should discuss Chapter 7 liquidation and what it means. In Chapter 7 your debts are wiped out giving you a fresh start, but you are only allowed to hold onto certain assets while doing so. A great oversimplification of this rule would be that in Maryland an individual can hold onto $12,000 in assets, and a married couple filing jointly $24,000. This can include a vehicle, among other things.

If you have little or no equity in your house, and are current on your payments, but have unsecured debt like credit cards that have become unmanageable, you may need to consider Chapter 7. However you also have to pass an income test showing you don’t have the means to pay back any of this debt. If you must let your house go, you should consider looking at the fresh start that you get by filing a Chapter 7 bankruptcy.

If you do not qualify for a Chapter 7, you may still need to file a Chapter 13 bankruptcy and pay back a portion of your debts over time. It is better than paying it all back. You may also consider a Chapter 13 if you have too much equity in your house to file a Chapter 7, but have credit card debt you can’t manage. It is very difficult to provide guidelines that apply to your specific situation. You really should review your specific situation with an attorney. Our attorneys can help answer your questions in a free consultation. Just call us to set one up.

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How Does Divorce Affect These Options?

Divorce obviously causes great upheaval in one’s personal life. It almost always causes a financial crisis as well. If you are facing the prospect of divorce, you should read our free legal information “What You Need to Know About Divorce” by clicking here, and discover “What You Need to Know About Child Custody” by clicking here. You should also schedule a consultation with one of our attorneys who can advise you after hearing the facts of your own particular situation.

Divorce as a financial crisis can have long lasting effects. Most couples have set their budget depending on one joint income to pay for one house and one set of bills. When you divorce, you have that same level of income which must pay for two homes and two sets of bills. Needless to say, divorce can be the event that makes it impossible to pay for it all.

If you are facing divorce, all of the advice in this article still applies. However, there are special laws regarding divorce that you should know about, and which may affect your other options.

The general rules for co-owners of any real property are simple, and apply to a married couple. Each party has an equal right to the value of the home, and equal responsibility for the debts. So if your house has equity in it, each party will be entitled to 50% of it. However, if the house is worth less than the mortgage (an all too common occurrence today), then the parties can find themselves facing joint debt. (Note: the definition of “marital property” may affect this. See our general article on divorce.)

The most significant legal issue affecting the house is the granting of “use and possession” of the marital home to one of the spouses. When this occurs, the Court will order that one spouse has the right to live in the marital home for up to 3 years. During this time, the other spouse cannot force it to be sold. The reason for this is the children. Use and possession is usually granted to the primary custodial parent so the children do not lose their house immediately. They can maintain the same school and friends so their life remains normal. But it only lasts so long. At some point, the house will be sold or refinanced, and the proceeds split between the parties.

A very real possibility in these days of falling home values is selling the marital home for a loss. This was not common until recently. With house values going up and loose credit rules, it was common for one spouse to refinance the home in their name alone, and keep it. They would buy off the other spouse with cash or property from the divorce in order to assume their equity. Now, it may be hard for a single divorcing individual to refinance. In today’s credit crisis, that situation may get better or it may get worse. Who knows? The lack of easy credit, and possibility of owing more money than you can sell the house for, could make bankruptcy necessary for both divorcing spouses.

Before listing your house for sale, it is advisable to get an appraisal first so you can make sure you still have equity. Or, you can get a “market analysis” from a real estate agent. These don’t have the certainty of an appraisal, but can give you a good idea of your home’s likely value. We can recommend a realtor and an appraiser for you if you need them. Because we have been practicing for so long in Waldorf, we can steer you to real estate professionals with the experience and integrity to treat you honestly.

Divorce increases the problems associated with financial crisis, and complicates your options. Each individual’s situation will be unique. It is very wise to sit down with an attorney who can go over your unique circumstances and advise you appropriately. If you wish to make an appointment for a consultation, call us.

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What Is A Short Sale And Is It Right For Me?

This section will not actually help you keep your home, but may enable you to sell it without incurring a load of debt after the sale. It is called a “short sale.” If you cannot afford your house, but you cannot sell it for a profit, your bank may consider letting you sell the house for less than what you owe. This is typically referred to as a short sale. The bank would, of course, like you to bring a check to settlement to make up the shortage. But if you show them that you cannot do that, they may be willing to forgive the shortage. But not without a major string attached.

If the Bank allows you to do a short sale without paying off the shortage, they are required to send the IRS a 1099 for the amount of the write off. This is income. It is called “phantom income” because it isn’t real income in your pocket. But you pay taxes on it anyway. However, in December 2007 Congress passed a law that suspends this type of phantom income from being counted as real income on your tax return. This sounds good, but being politicians they had to make it complicated, and limited it to certain situations.

Here is the current law: Discharges in 2007 through 2009 of up to $2 million of original mortgage debt on taxpayer’s qualified principal residence is excluded from taxpayers gross income. This sounds easy, but the devil is in the definitions. Even the term “original mortgage” gets complicated. What if you refinanced to get a lower rate? Is that mortgage not “original”? What if you took out a first and a second mortgage to buy your house? The IRS has been issuing regulations on this law to clarify it. But those regulations can be changed at any minute.

As with all tax matters its best to do what we do in our business - consult a tax adviser who stays on top of the IRS and their ever changing regulations. You do not want to get rid of a mortgage problem this year only to end up with a tax problem next year. If you need a good accountant, we can recommend one. Just send us an email to SaveYourHome@SouthernMarylandLaw.com.

Short sales are difficult and time consuming. You need a real estate agent who knows what they are doing to have any chance of this working. Getting someone from the mortgage company to talk about this is hard enough, getting one to make a timely decision before the buyer walks away is even harder. Working with a bankruptcy attorney may help your bargaining position, and help you decided if the short sale is right for you.

If you are unable to do a short sale and wipe out the shortage, you may have to consider your bankruptcy options. It may be necessary to do a short sale and a bankruptcy to wipe out all of the debts from your current financial crisis.

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What Notice Do They Have To Give Me Before Foreclosure?

Just because you get a foreclosure notice, it doesn’t mean you will lose your house any time soon. Maryland used to be one of the fastest states to allow a foreclosure. New laws in 2008 changed that. Now, your lender must give you 45 days notice before filing a foreclosure action. And they cannot file an action in court until 90 days after you default on your mortgage. The lender must personally serve you with Court papers, or post them on your house (if they are unable to serve you). Then they must wait 45 days after serving you before they can sell your house at a foreclosure auction. They must publish the notice of sale in the local newspaper at least 3 times, and they must allow you to pay any overdue payments, charges, and late fees up to one business day before the foreclosure.

This means you will have plenty of notice of any pending foreclosure. You will have the time to research all of your options and secure new housing before you are foreclosed on.

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How An Attorney Can Help

An attorney can help you weigh your options according to your own unique circumstances. An attorney is absolutely necessary if you are contemplating bankruptcy or facing a divorce. At Andrews, Bongar, Starkey & Clagett, we have been practicing real estate law for over 40 years. We have been handling bankruptcies and family law for over 20 years. We know the law and the local real estate market. If you need a further consultation, please do not hesitate to contact us.

And keep in mind that we welcome your email questions on this subject to SaveYourHome@SouthernMarylandLaw.com. We will also provide a free consultation for those looking to save their homes in the current economic climate. Just call us or email us and we will schedule a time for you to consult with a local attorney who can advise you properly.

Thank you for taking time to read our online seminar. We hope it has been helpful. If you think it may be useful to a friend, please see the “Share with a Friend” button at the top right. It will assist you in sending a link to our site by your email program. But please remember this is Maryland law so it will not apply to a resident of another state.

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