Currently, credible statistics show that an average U.S. household has debts of approximately $133,729. The most common type of debt is mortgages, followed by student loans. The total mortgage debt owed by an average American household is $197,445, while that for student loans is $46,459.
Often, people attribute debt to bad spending and poor saving habits. However, this is not always the case. In most cases, debt arises due to uncontrollable circumstances. For instance, your child may suddenly develop a brain tumor. If you do not have enough medical insurance, the hospital bills will pile up and, in the long run, be stuck in debt.
The leading cause of personal bankruptcies is medical bills. Medical expenses can overwhelm you when illness strikes, and you experience difficulties paying all your expenses. Regardless of why you are in debt, you may lose some of your assets if you cannot pay for them, including your home. Your home is probably one of your most valued assets. Unfortunately, your creditors can easily attach and sell it if you are unable to pay debts.
Losing your home can be one of your greatest nightmares, and you’d want to avoid it. Filing for bankruptcy can help you avoid foreclosure. But, it isn’t the only way to save your home. You can consider other viable alternatives discussed in this article. If you want to avoid filing for bankruptcy and save your home, contact the San Diego Bankruptcy Attorney for professional legal help.
Why You May Lose Your Home
You could lose your home if you don’t clear your mortgage debt. Typically, foreclosure follows unexpected bills or unemployment. For example, if your boss dismisses you, it could be challenging to remit your monthly mortgage payments. If you default the mortgage, your lender will initiate foreclosure proceedings.
Generally, foreclosure is a complicated, tedious, and lengthy process. Fortunately for you, this means you have enough time to save your home. Do not panic. If you do so, you may unknowingly fall prey to foreclosure rescue scams. The first thing to do is to take your time and understand the foreclosure process. Afterward, you can review your situation and come up with viable methods to save your home.
Understanding the Foreclosure Process
In California, there are two types of foreclosures, namely, judicial and non-judicial. Most foreclosures are non-judicial. Judicial foreclosure happens if you took out a mortgage on your home. Typically, most Californians secure their properties with deeds of trust. This explains why non-judicial foreclosures are more common than judicial foreclosures. Some people may refer to a non-judicial foreclosure as a ‘power of sale.’
In a judicial foreclosure, the lender will file a civil lawsuit at the courthouse. You will know when the lender has filed a lawsuit for foreclosure because you will be served with a court summons. If you don't respond in any manner whatsoever to this summons, the lender will win the case. Then, he/she will schedule a foreclosure sale.
You can respond to the summons by objecting. If you do so, the judge will require you to explain why you are against the foreclosure. The judge has the jurisdiction to decide whether the lender can sell your home. The process for judicial foreclosures can take several years to be completed.
On the other hand, non-judicial foreclosures do not involve the court. Therefore, they can be completed more quickly. In a non-judicial foreclosure, your creditor will send you a notice of default. This notice informs you of the date of your home foreclosure.
Your creditor will also publish a ‘notice of sale’ in the local newspaper within 90 days after receiving a default notice. Then, he/she will schedule an auction 20 days after the publication of the notice of sale. You can delay the auction for as long as 12 months to save your home.
Regardless of the type of foreclosure, there are several steps that you can take to avoid losing your home. As a general rule, you should never ignore a notice of default or a judicial summons. If you receive any of these two, you should consult a foreclosure attorney to advise you on what to do.
Also, it would help if you always stay in touch with your creditors. Let them know if you are facing difficulties making mortgage payments. Moreover, do not abandon your home. If you do so, you may not qualify for any financial programs or extensions that can help you complete your mortgage payments.
Be wary of foreclosure rescue scams. Don't speak with anyone who charges fees for modifying a mortgage loan. Be extremely careful if someone requests you to sign some paperwork quickly or transfer your home's deed to him/her.
Saving your Home
Here are the steps that you can take to keep your home:
Postponing the Auction Date
Once you receive the notice of sale, contact a foreclosure attorney right away. With his/her help, you can schedule a new auction date. This way, you will have enough time to work on your finances. When the auction date reaches, you will have already cleared your mortgage payments. You can also use this additional time to build a robust legal strategy to fight the foreclosure proceedings.
Reinstating your Mortgage
If you have money or can acquire another loan, you can reinstate your mortgage by paying the outstanding balances. However, if you have too much debt, this option may not be viable for you. Note that if you decide to reinstate your mortgage, you must complete paying the outstanding balances together with interest.
According to California’s foreclosure laws, you have three months from the date you receive the notice of default to reinstate your mortgage. If you don't, your lender will serve on notice of sale. Also, the lender may accelerate the debt.
Remember, the lender can schedule an auction date 20 days after you've received a notice of sale. By then, you may decide to postpone the auction date. Also, California’s Foreclosure Laws permit you to reinstate your mortgage within five days before the sale date.
Negotiating a Workout
If you decide to negotiate a workout with the lender, you should contact a HUD-approved counselor. With his/her help, you can:
Obtain temporary financial relief from making monthly mortgage payments
Reduce your monthly mortgage payments
Develop a plan to make up for the missed payments, including scheduling them at the end of the mortgage period or adding them to your current payments for a specific period
Lower the mortgage’s interest rate
Reduce the principal of the loan balance
Refinancing Your Home
You can apply for another low-interest loan and use it to pay off the mortgage. As a result, you will clear the mortgage debt balance. Then, you can start paying off the new loan. However, it can be challenging for you to refinance a mortgage, especially if you have a poor credit score, and the equity and value of your home have reduced.
Using the Court System
You can use the court system to fight foreclosure proceedings. To do so, you must first obtain a temporary restraining order. To petition a temporary restraining order, you must convince the judge that you will undergo irreparable harm if he/she does not stop the foreclosure. This is easy as judges know that you will lose your house if they do not issue the order.
The restraining order will last until when there will be a hearing for a preliminary injunction. This preliminary injunction stops the foreclosure until when the judge concludes the case. California civil cases take a very long time to be concluded. Therefore, obtaining a preliminary injunction is equivalent to winning your case. Typically, if you manage to obtain a preliminary injunction, the lender may arrange it with you. Note that you will be held liable for all the litigation expenses if you end up losing the case.
What if You fail?
You may have tried to save your home without success. Probably the lender did not agree to your proposed workout plan. Maybe you shied away from instituting a foreclosure lawsuit. You have a bad credit score, making it difficult for you to access a loan to refinance or reinstate your mortgage. Or, you missed out to postpone the auction date.
If you are in such a situation, then it is inevitable that you will lose your home if you do not apply for bankruptcy. But still, there are several steps you can take to ensure you achieve the best possible outcome after foreclosure.
In an auction, the lender will invite the public to bid on your property. If no one bids on your property, its title will revert to the bank. You can regain your title after the auction with a skilled foreclosure attorney in this situation. However, if a third party bids on your property and purchases it, you won’t regain the title.
You can decide to arrange a short sale. The primary benefit of a short sale over a foreclosure is that it will not negatively affect your credit reputation. Also, as the homeowner, you will have more control over the sale's outcome than what you would have during foreclosure. Short sales provide a win-win solution to both you and the bank. You pay off part of the mortgage debt, as well as protect your creditworthiness.
If you would like to arrange a short sale, you should start by contacting a real estate agent. Never make a mistake of conducting a short sale by yourself. According to California’s Real Estate Laws, only licensed real estate agents can oversee short sale transactions. Once you've hired an agent, set the listing price. We recommend you list your property at 10% below the short sale value to attract more offers. Once you receive enough offers, you can increase the purchase price.
Moreover, you can request the lender to take back the property. You will do this through a procedure commonly referred to as ‘deed-in-lieu of foreclosure.’ This procedure permits you to transfer ownership of the home to the lender. In turn, the lender will forgive your outstanding mortgage debt balance. Note that the bank will only agree to this arrangement if you do not have any other liens.
You can give up your home in some situations, but make sure you do this while having a better plan. For instance, you may decide to save any money you have left, instead of using it to fight foreclosure proceedings. Your savings will accumulate in the long run, and you can utilize them to rent or purchase a new home.
Typically, people choose to give up their homes because they believe they are no longer a good investment. Think twice before you give up your home – fighting foreclosure proceedings is usually a much better choice.
Filing for Bankruptcy as a Last Resort
Often, filing for bankruptcy is seen as a last resort to avoid foreclosure for homeowners who are too deep in debt. If you file for bankruptcy, the court will issue an automatic stay on your creditors. This automatic stay will stop the lender from continuing with the foreclosure proceedings.
You can use bankruptcy as a quick fix to avoid losing your home, especially if you’ve tried all other methods to save it, but none has worked. In California, there are two types of bankruptcy: chapter 7 and chapter 13. Below, we discuss how filing for these two types of bankruptcy can help you save your home:
Saving Your Home With Chapter 7 Bankruptcy
You can file for chapter 7 if your overall debt balance is too much to handle. Once you receive a discharge, the court will wipe out all your debts, including the mortgage loan. If you apply for chapter 7 bankruptcy, the court will sell off some of your property. Then, it will use this sale’s proceeds to repay part of your debts.
Although chapter 7 can wipe out your mortgage debt, the lender will still retain a lien. This means that he/she can still institute foreclosure proceedings after you have received a discharge.
It is not a good idea to file for chapter 7 if you do not have too much debt. When filing for chapter 7, your primary goal should be to have your debts wiped out—chapter 7 delays foreclosure. Therefore, you have additional time to pay your outstanding mortgage debt balance.
To use chapter 7 bankruptcy to save your home, you should continue making your mortgage payments. Try to keep up with the missed payments you had defaulted to make. Remember, the court will erase all your debts after discharge. This means that you will have more money to pay your mortgage. Ultimately, this will make the difference as to whether you will lose or keep your home.
Saving your Home with Chapter 13 Bankruptcy
In chapter 13 bankruptcy, the court will not sell off some of your property to repay your creditors. Instead, it is you who will come up with a suitable repayment plan. This repayment plan’s length may range from three to five years, depending on your income level. You will include the mortgage debt balance in the repayment plan. You will be expected to repay your creditors as per the plan.
Once you’ve completed making your payments, you will receive a discharge. Moreover, the court will wipe out any other debts you may have. In the long run, you will retain your home. Even if you do not obtain a discharge, you will still be able to stop foreclosure due to the automatic stay.
Find a San Diego Bankruptcy Attorney Near Me
Not everyone wants to file for bankruptcy. However, there are apparent psychological barriers like not admitting it is the only way you can save your home. Moreover, if you would like to rebuild your credit fast, it is best to avoid bankruptcy altogether. If you consult an attorney immediately after learning about the impending foreclosure, you could save your home without applying for bankruptcy. However, if you call a lawyer just before the auction date, the only way he/she can help you stop foreclosure is to file for bankruptcy. We can advise you on the best steps you should take to save your home. Call us today at 619-488-6168 for a free consultation.