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We are six months in arrears with our mortgage payments. We…

We are six months in...
We are six months in arrears with our mortgage payments. We applied for a loan modification with our current lender in October 2017 and were informed late last week our loan modification was denied back in January (did not receive written notification of this decision) - found out receiving notification from a debt collector. Our current lender advised me late last week they do not offer refinancing (only service the loan). We have owned our home since June 2005. We were able to keep current with our mortgage payments (1st TD) through August 2017; the 2nd TD defaulted in November 2012. My husband is currently employed with same employer for 9+ years; I'm currently unemployed looking for work. We have approximately $150,000 equity in the house. We are seeking to refinance and want to keep our home. Please advise our options. Thank you..
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Answered in 10 hours by:
2/28/2018
Alex J. Esq.
Alex J. Esq., Attorney at Law
Category: CA Real Estate
Satisfied Customers: 16,913
Experience: Experienced Licensed Attorney
Verified

Hello. My name is Alex.

Thank you for your question.

I will be happy to provide you with information you are seeking for educational purposes only.

I am not permitted to tell JustAnswer.com what to do or say in their specific situation or list all of the legal rights / legal options that might potentially apply in any specific situation, as such legal advice can only be provided by your local attorney, upon review of your entire case.

I can however, provide you with a general answer,if you have a legal question for me?

Thank you.

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Customer reply replied 4 months ago
Pleases advise what options are available to us to avoid foreclosure. Thank you.
MCSmith
Category: CA Real Estate
Satisfied Customers: 2
Experience: Attorney at Self Employed
Verified

You may be able to save your home if you file a Chapter 13 bankruptcy. Chapter 13 allows you to make payments over 5 years if your payment plan is approved. File the petition before the sale date and send a notice of the bankruptcy filing to the trustee handling the sale. Do not wait until the last day. If necessary, file a skeletal petition and file the remainder of the documents within 14 days.

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Customer reply replied 4 months ago
That is an option to consider. Thank you.Would we be able to refinance the first on the house?

Normally, the lender will not agree to refinance while you are in bankruptcy. However, the Chapter 13 payment plan may provide affordable payments for five years. If you find new employment and your finances improve, you may request dismissal of the bankruptcy and pursue a refinance. In the meantime, bankruptcy is your best option.

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Customer reply replied 4 months ago
Can you explain how the Chapter 13 payment plan works. Would it be best to get a loan modification on the 2nd to the bring that loan current and then file Chapter 13? Will it be up to the lawyer representing up to provide the court with a payment plan to pay toward the 2nd on the house. Will the families' monthly obligations be included with the payment plan? In other words, is there a schedule that is followed for food, electricity, heating, cell phone bill, internet, car payment/insurance, water bill, cable bill, medical bills/co-pays, house repairs, etc. Thank you.

During your first meeting with your Chapter 13 attorney, you will be asked to fill out forms detailing your monthly expenses, debts (secured and unsecured) and all income. The attorney, with the help of very sophisticated software, tell you whether you are a likely candidate for a successful Chapter 13. Regarding the 2nd, I do not advise you to bring it current. It appears that the 2nd has been patiently waiting to get paid since 2012. Your biggest concern is the 1st. Normally, a lender will file an NOD after 3 months delinquency. Now that your modification has been denied, an NOD will be recorded or may have already been recorded. The NOD is a red flag warning you that the foreclosure process has begun, a process which takes about 111 days to complete. If you have not received the NOD in the mail, ask your realtor to contact his or her title company to check for any NODs. The sooner you meet with the bankruptcy attorney, the better. If you do nothing, or get bad advice, there is a high probability that you will lose your home by foreclosure.

MCSmith
Category: CA Real Estate
Satisfied Customers: 2
Experience: Attorney at Self Employed
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Customer reply replied 4 months ago
In one conversation with a potential BK attorney (not sure if I understood what he told me correctly), I was advised to have the attorney negotiate a loan modification on the second to bring the loan current, then file Chapter 13 to reorganize the property debt. The goal would be to strip the second in Chapter 13. If the first goes into foreclosure (while the loan modification is negotiated on the second) then file an appeal on the denied loan modification to stall for time (knowing the loan modification will be denied). A financial restructure will be approved by the court for five years. After five years the only debt remaining would be the first. Does this sound reasonable or correct? Then I was thinking the current terms on the first are not affordable. How does this loan get modified if the loan modification has already been denied. Now I'm confused. Thank you.

It is possible to strip away a junior lien in Chapter 13 after 5 years of timely payments under the plan. However, 5 years is a long time and your circumstances may change dramatically. I believe the 1st poses an imminent threat which can be mitigated, at least temporarily, by bankruptcy. If your plan is not feasible, the bankruptcy trustee will file a motion to dismiss or convert to Chapter 7. If that happens, you cannot allow a conversion to Chapter 7. You must dismiss and you may have to sell your house. If push comes to shove, controlling the sale and receiving the proceeds may be the best you can do. On the other hand, if you get a new job, your finances may improve to the point that you will qualify for a modification. Also, there is a program called Keep Your Home California which may provide the ultimate solution. In the meantime, block the trustee's sale with Chapter 13.

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Customer reply replied 4 months ago
You indicated we should focus on the first. The loan modification on the first was denied by the investors, in other words, the lender was not willing to amend the interest rate or the amount of the monthly payment. The current monthly payment is not affordable - this is an ARM loan. It's my understanding Chapter 7 covers unsecured debt only. So how would Chapter 7 benefit us with the first? We cannot refinance the first because the second is in default. Could this be why the attorney advised me to negotiate the second to be current then file Chapter 13? There would be equity in the house once the second is stripped.

If you have equity that you want to preserve, do not go near Chapter 7. I only mentioned Chapter 7 because the Chapter 13 trustee may try to force you into Chapter 7. Please forget Chapter 7 -- your equity will be wiped out. It appears that the 1st is playing hardball and it is my belief that the 1st will proceed with foreclosure unless you take action now. Regarding equity, you said you have $150,000 in equity, but now it appears that there is no equity unless the 2nd is stripped. So, stripping the 2nd would be an added benefit of filing Chapter 13.

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Customer reply replied 4 months ago
Is the only way to strip the second by negotiating a loan modification on the second to become current then filing Chapter 13?

I have never heard that the 2nd must be current in order to strip. Normally, stripping is allowed when there is not enough equity to secure the junior lien, so it is deemed to be an unsecured debt. Also, remember that there is no lien stripping until the 5 year period is over. That is a long time. Your life may change radically in the meantime and you may find other solutions to these debts.

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Customer reply replied 4 months ago
If a loan modification is negotiated on the second, won't this lender realize the 1st is in default? What is the success rate completing Chapter 13 5-year payment plan? How do you qualify for a 3-year plan?

It is unlikely that the 2nd will negotiate a modification knowing the 1st is in default. The 2nd may require you to bring the 1st current before discussing modification. Very few debtors complete the plan because they cannot maintain the payments or their circumstances change over 5 years. However, the automatic stay of bankruptcy provides some temporary relief which may allow enough time to either find a source of funds to negotiate with creditors or find a buyer for the residence. The important point is to stop the foreclosure and buy time until you find a solution.

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Customer reply replied 4 months ago
I understand your reasoning. However, why wouldn't the 2nd negotiate and get five years of payments? Isn't this better than no money on the defaulted loan?Then would filing Chapter 7 be better? It appears we will lose the equity either way.

If you are in Chapter 13 and your plan is approved, the 2nd will normally be required to accept the terms of repayment. Your comments are a little confusing because I cannot tell if you mean negotiating prior to filing or after filing bankruptcy. In Chapter 7, your home becomes property of the estate and is controlled by the BK trustee. The Chapter 7 trustee will fire-sale your home and you will be on the street. In Chapter 13, you are a "debtor-in-possession" and you have some control over your fate. Stay away from Chapter 7 unless you want to be homeless.

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Let me clarify one point. If your house is "upside down", meaning that you owe more than it is worth, the Chapter 7 trustee may abandon the house to you, which means it is no longer an asset of the estate. This is one possible strategy in Chapter 7 if you are absolutely certain there is no equity. However, you will still be faced with foreclosure, so it does not solve your problems. Chapter 13 can provide a long-term solution.

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Customer reply replied 4 months ago
Sorry about being confusing. I was under the impression a loan modification would be negotiated on the 2nd before filing Chapter 13 (but not positive). Since both loans are defaulted, would filing Chapter 13 first be best? Who negotiates the terms on both loans? My thinking is to stall for time to allow me to secure stable employment within the next 90 days or less to show sufficient income to sustain the 5-year payment plan. And, yes, I understand the 5-year payment plan will be challenging and unpleasant. The goal is to save the house. Five years is a small price to pay to get our finances straightened out.

I really don't see how a loan modification on the 2nd is possible when the 1st is in default. You need to file Chapter 13 and get your plan approved.

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Customer reply replied 4 months ago
Even with both loans being in default there is about $50,000 equity. We can't touch the equity until the loans are current. It appears Chapter 13 is our only choice. Thank you for clarifying

$50,000 is a very modest cushion of equity. Leave it alone and stabilize the 1st & 2nd.

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Customer reply replied 4 months ago
Please clarify stabilize the 1st and 2nd. By filing Chapter 13? Can we file Chapter 13, get the loans modified and then stop or cancel Chapter 13?

Yes, the Chapter 13 plan will stabilize your loans and your finances in general. Once you are in bankruptcy, your lenders may be willing to negotiate, specially the 2nd if there is a chance they could take a loss in foreclosure. The 1st is less likely to negotiate if they are fully secured.

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Customer reply replied 4 months ago
How will Chapter 13 reduce the principle and/or payments if the 1st is fully secured?

I doubt the 1st will agree to reduce principle. However, you may get some relief on the payments under the plan. At a minimum, you will buy time until your circumstances change or you decide to sell your home. The important thing is to stop the foreclosure sale which I believe is imminent from the information you provided. It is almost impossible to get title back once the property is sold to a bona fide purchaser at the foreclosure trustee's sale.

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Customer reply replied 4 months ago
If we get relief on payments (extending the terms, reducing the interest) would this payment plan become permanent? Or just during the 5-year payment plan?

The lender may agree to continue with the terms under the plan, but is not required to do so and will no longer be under the jurisdiction of the BK court once the case is closed. This is not a question I can answer with any degree of certainty because we do not know what the economy will look like in 5 years.

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Customer reply replied 4 months ago
When we complete the 5-year plan, we would have the equity back in the house, correct?

Again, it depends on the economy in 5 years. If the economy remains strong, you should have plenty of equity.

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Customer reply replied 4 months ago
Thank you, MCSmith. You have been extremely professional and patient in answering all of my questions. May I reach out to you if additional questions come to mind. You far exceeded my expectations. Thank you again!

Yes, I will be available for further questions if necessary. However, a competent Chapter 13 lawyer should be able to take it from here. If you don't mind, please rate my service. Thanks, Michael

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