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Fritz
Fritz, Attorney
Category: Bankruptcy Law
Satisfied Customers: 302
Experience:  Florida attorney with extensive experience in Chapter 7 and Chapter 13 consumer bankruptcy cases
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I am facing foreclosure on my house. Will the mortgage company

Resolved Question:

I am facing foreclosure on my house. Will the mortgage company try to sue us? Will we be facing bankruptcy or be forced to file for bankruptcy?
Submitted: 2 years ago.
Category: Bankruptcy Law
Expert:  Fritz replied 2 years ago.

Fritz :

Hi, I'd like to help you with your bankruptcy questions this afternoon.


 

Fritz :

Hi, have you been served with any papers relating to a foreclosure proceeding filed against you?


 

Fritz :

How much is the property currently worth, and how much do you owe on the mortgage(s) on the property?

Customer: Hello, my husband and I are separating and are foreclosing on our house because neither of us can afford it. We have not received any paperwork as far as I know. We stopped payments for two months now.
Customer: It is a brand new house which we owe $180,000
Fritz :

It will typically take three consecutive missed payments before a foreclosure complaint will be filed against you.


 

Fritz :

And how much do you think you could sell the property for now?


 

Customer: We separated the day after we bought it and have not paied anything towards it. This is our first home.
Fritz :

I'm very sorry to hear that.

Customer: Thank you. I am speaking to a realtor but neither of us have money for the closing costs because we put it all into buying the house.
Customer: He has spoken to one person and has told me that we will need to file bankruptcy and get a divorce even though we are trying to work things out between us.
Fritz :

You could sell the home before it goes into foreclosure.

Customer: I am now trying to gather the facts and set him straight.
Fritz :

Alternatively, maybe you could contact the lender and work out a deed in lieu or short sale.

Fritz :

Since this is a new house, I would guess it's more likely that the lender would agree to one of these options, as they can simply resell the house at relatively minimal expense.


 

Customer: What is working out a deed in lieu?
Fritz :

You would essentially sign the house back over to the lender and walk away from the property. The lender does have to agree to this, however. They can refuse to let you do this and go through the foreclosure process instead.

Customer: My husband is saying it is in our best interest to foreclose so we arnt stuck paying on a house we don't own for the next 5 years.
Fritz :

Well, there is a credit hit for the deed in lieu or short sale, but it's not as bad as a foreclosure.

Customer: Would I just have to contact the lender to set this up?
Fritz :

Plus, in a foreclosure, you will have a money judgment entered against you, part of which you may have to pay if the sale of the house does not cover the amount of the judgment.

Fritz :

Yes, typically people work with brokers or realtors to find a buyer if they want to do a short sale.


 

Fritz :

The bank would have to waive any potential deficiency to be a "short sale."

Fritz :

For a deed in lieu, you would speak with the lender.

Customer: Would they have to agree to the total amount owed or could we be stuck with having to pay a difference?
Fritz :

You could be stuck having to pay the difference, if any. This is the point at which you would start to consider filing for bankruptcy, but I think it's premature to consider bankruptcy at this point before attempting to work something out with the lender.

Fritz :

Are you "underwater" on the property?


 

Customer: What does that mean?
Fritz :

Do you owe more than the home is worth if you were to sell it on the market?


 

Fritz :

Or do you have some equity in the home?

Customer: We just bought it brand new in June so I don't think we would be able to sell it for what we bought it for. But I have a realtor looking into to that now.
Fritz :

It might be best to wait and see if you can sell the property or work something out with the lender. Maybe you can sell the property for the amount you paid for it, and everything will work out.

Customer: I believe that if we sold it, we would be stuck with the difference also. And I don't know how we would pay that.
Fritz :

The lender does not have to pursue a deficiency judgment against you if there is a deficiency after the foreclosure sale. In fact, they rarely do. But it is a possibility.

Fritz :

That being said, since wage garnishment is not permitted in Texas, it doesn't make much financial sense to sue you for a deficiency judgment unless you have fairly substantial assets.

Fritz :

So in summary, you really don't need to seriously consider bankruptcy due to this scenario until all of the following happens (if it does): 1) Lender files a foreclosure lawsuit, 2) Lender obtains a judgment and sells the property at foreclosure sale for less than the amount you owe on the mortgage, and 3) Lender files a subsequent lawsuit for a deficiency judgment.

Fritz :

If you can any of those things from happening, bankruptcy may not be necessary.

Fritz :

If you can avoid


 

Customer: So if we foreclose and there is a deficiency I could explain the situation and they could wave the difference?
Customer: Or is that if we file in lieu?
Fritz :

That's the deed in lieu.

Fritz :

But yes, you should try to explore alternatives to foreclosure, because it will hurt your credit a lot.

Customer: So if I cannot sell it, I just need to talk to the lender about the situation, file a deed in lieu, and go from there.
Fritz :

Essentially, yes. You can't force the lender to take a deed in lieu, but you should explain the situation (brand-new house, need to move out due to impending divorce, etc.) and see if they're willing to help you.

Fritz :

If the lender doesn't agree to the deed in lieu or short sale, maybe you could at least request additional time to sell the house before they file the foreclosure. Talk to them and see what they're able to offer you.

Customer: And if we file because of "impending divorce" and don't get a divorce, what would they do?
Fritz :

Nothing. Don't tell them that if it isn't true though, as that was just my assumption for purposes of explanation.

Customer: There has been divorce discussed, and is a possibility, but we are trying to work it out. We now live separately.
Customer: That is the reason however for giving up the house.
Fritz :

You can tell them you're no longer living together, that's a plausible reason why you can no longer make the mortgage payments.

Customer: So if I cannot sell the house, our best option is to file in lieu of foreclosure, and there is a chance they won't come after us for the difference because we have no assets other than the house.
Customer: And how long of a process does this usually take, do u know?
Fritz :

Right, you would request that the lender allow you to grant them a deed in lieu of foreclosure (or a short sale, if you can find a prospective buyer who isn't willing to pay the full purchase price).

Fritz :

Several months minimum, in all honesty.

Customer: So I can ask for a deed in lieu, and if they are not willing, I can ask for other options?
Fritz :

Once a foreclosure is filed, the foreclosure may take as little as 60 days.

Fritz :

Yes, that might be a good idea, as you want to avoid foreclosure if you can.

Fritz :

If you can't, you can't, but at least you'll have tried.

Customer: And bankruptcy and "forced" divorce should not be an issue?
Fritz :

Those things could be relevant later, but it makes a lot of sense to try to deal with the house first, if you can.

Customer: That's what we are trying to do. Thank you for all your help. Any other advice?
Fritz :

Thank you, XXXXX XXXXX luck!

Fritz, Attorney
Category: Bankruptcy Law
Satisfied Customers: 302
Experience: Florida attorney with extensive experience in Chapter 7 and Chapter 13 consumer bankruptcy cases
Fritz and other Bankruptcy Law Specialists are ready to help you

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Fritz
Fritz
Bankruptcy Lawyer
302 Satisfied Customers
Florida attorney with extensive experience in Chapter 7 and Chapter 13 consumer bankruptcy cases