Navigating The Severity Of Foreclosure Proceedings

The severity of foreclosure proceedings in the United States is shaped by several factors, primarily the amount of arrears and the number of liens on the property… 

Arrears

A mortgage arrear is simply when a debtor is behind on or falling consistently short of their mortgage payment. The amount of arrears will greatly dictate the terms of your repayment. Of course, the amount of the arrears, in some cases, is as much as the mortgage balance itself before missed payments – and we have had clients who have been more than 10 years in mortgage arrears for different reasons.

Curing Arrears

The process of curing arrears is to provide a plan to bring debtors current overtime or from a sale of a property. Typically, these arrears will be paid back through a Chapter 13 bankruptcy plan over the course of five years, usually in monthly installments. Alternatively, arrears are sometimes paid via a Chapter 11 bankruptcy plan, for which there is no hard and set limit regarding repayment.

Under either bankruptcy filing, you would need to propose a plan that includes enough disposable income to make mortgage payments that are going to be paid directly to the lender in addition to making the Chapter 13 or Chapter 11 plan payment.

Liens

It is essential to know whether or not there are liens on a property because several different types of liens can impair a house. The most common liens include:

• A Deed of Trust
• A Voluntary Lien
• A Judgment Lien or Abstract of Judgment

Lien Stripping

As the terminology indicates, lien stripping is simply the process of stripping a lien off a property. How is this possible? Suppose the property in question is a primary residence, and the value is less than the amount of the more senior liens. In that case, the junior lien can be stripped off.

For example, consider a property worth $1,000,000 with a first mortgage of $800,000, a second of $250,000, and a third of $100,000 that is upside down. In this instance, the senior liens equal $1,050,000 and there is no equity supporting the property. As a result, the most junior lien, the $100,000 mortgage, can be stripped off in Chapter 13 or Chapter 11 bankruptcy.

In fact, any lien that is in an amount over the property’s value can be stripped down in bankruptcy. Continuing with our example, the $100,000 mortgage can be stripped off, and the $250,000 mortgage reduced by $50,000. What’s more, a lien can be stripped off in bankruptcy if it was recorded less than 90 days before the bankruptcy filing, regardless of the equity position.

Additionally, judicial liens can be stripped off to the extent that they impair an exemption to which the debtor is entitled. Debtors are entitled to an exemption of $626,000. If there is a first lien of $500,000 and a second judgment lien, the second judgment lien can totally be stripped off of a property that is worth $1,000,000. This is because the second judgment lien compares to the homestead exemption to which the debtor is entitled.

For more information on the Severity Of Foreclosure Proceedings In The US, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (408) 295-5595 today.