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Foreclosures - What are your Options?

Source – West Coast Woman article

Everyone from small business people to manufacturers, truckers, builders, laborers, realtors, mtg broker, homeowners, renters and investors are affected as a result of the downturn in the home building industry.

There are a few alternatives available to avoid defaults and Bankruptcy. I will share with you my experience and provide some examples. When an alternative is not available, Bankruptcy may be the answer after weighing all the options under the law.

Many debtors are served a summons when the foreclosure process begins. Typically the defendant has 20 days to answer the summons. If the debtor can answer the summons or hire someone to answer it for them, as opposed to ignoring the summons, this can buy them 30-90 days before the process starts again. Depending on the economy and collection law firm, it may buy the homeowner a year or more. Often times, the debtor is temporarily experiencing a set back and can borrow the funds from a friend or family member to get caught up on their mortgage. Sometimes the debtor is waiting on a refinancing possibility or a pending sale of their home. Answering the summons affords the debtor time to weigh their options and think of possible solutions.

A chapter 13 Bankruptcy will allow the debtor to pay the arrearage on their mortgage over a period of 3 –5 years. However, two important changes under the Bankruptcy Reform Act may have an impact. If a debtor has lived here 2 years they quality for Florida exemptions. If they have acquired their homestead within 1215 days they are entitled up to 125K equity in their homestead. If they have acquired that property before that or transferred the funds from a previous home within Florida, all the equity is exempt. This was Congress’s way of closing the mansion loophole. So the time, in which the debtor acquired the property, when they became a resident of Florida and how much equity is in the home are important questions to answer.

When a debtor owns more than one property it is important to look at when they purchased the properties and the amount of equity in each property. The debtor may consider moving into a home with the most equity under Florida law and claim it as their homestead. The homes that have little or no equity can be surrendered in the Bankruptcy process and the deficiency amount discharged. This is easier than it sounds. Most folks are not only financially invested in their homes, but psychologically and emotionally as well.

Now the question becomes - what if the debtor is unable to save their homestead or one of their investment properties? When do they stop making payments? In other words, if there is not any equity in the home is it wise to try to hold on to the home? Many of my conversations lately focus in when it is time to fish or cut bait. People are very attached to their home and it is painful to conceive the thought of giving it up. It breaks my heart when I see people go through their entire savings and retirement funds to save their home if it is not worth saving. A lot of debtors are not aware of what assets are exempt under Florida Law. The more information a debtor has, the better able they are to weigh their options before it is too late. Timing is extremely important. For example, most Retirement funds are exempt under Florida law and protected assets. The debtor who is unable to make their mortgage payments and know foreclosure is around the corner; have to ask themselves if it is worth pouring water into a sinking ship? It does not make sense for debtors to drain assets, such as retirement accounts, if they are exempt under Florida law.

This is much easier said than done. Many people are concerned when they will have to be out of their house. They need time to save up for rent, first and last months security deposit. Reverting back to my prior option, by answering their summons they can buy time to save up this money and scout around for a rental. The good news is rental prices are extremely reasonable now.

The same line of thinking goes for small business owners. Many in our area are suffering the after effect of the hurricane season. They rebuilt their business and in the meantime lived off of credit cards in hopes their business would come back. Likewise, builders, contractors, carpenters, construction workers have to ask themselves the same tough questions-How far do I go to try to save my business? It is a difficult decision. They are often at a loss of what to do with their inventory, suppliers, vendors, customers, etc. Business owners need to know when to close their doors, notify their suppliers, vendors, customers, landlord, etc. Often times a Bankruptcy is the best alternative and an attorney can help guide the business owner through this difficult process.

Many people in Florida invest in multiple properties. Investors are now finding it difficult to rent their properties, close on their properties and flip them. I often hear, “All of my properties except one or two are doing very well. If I can just hang on until it sells…” Other times the investor is sickened to hear their builder or contractor has gone belly up. Going back to the Fl. homestead exemption. There are situations where the investor may opt to move into the home that has the most equity and make it their homestead. Once again there are numerous things to take into consideration in weighing whether or not this is desirable and feasible.

My experience has been that mortgage lenders are not doing short sales or deeds in lieu of foreclosures like they used to. These strategies seem to be a thing of the past. Many of my clients complain that their mortgage lenders will not work with them or even talk to them when they are struggling financially.

Bottom line - there are times when a person has to bite the bullet and file a bankruptcy. Nobody wakes up to the day looking forward to utilizing this last resort. Bad things can happen to good people and there is a remedy. It is our right to file Bankruptcy under our Nation’s laws. I would like to point out that Chapter 7 and 13 bankruptcy filings in our Middle District of Florida for the months of January through April have almost doubled. Last year’s year to date total (YTD) Middle District Bankruptcy filings January thru April was 4223, this YTD total January through April is 7261. My educated guess is that this could be for a few reasons.

Due to the number of foreclosures.
There was a natural lull in January and February of 2006 because so many debtors filed before the Bankruptcy reform act was passed in October of 2005.
Many debtors were unaware that filing a bankruptcy was still an option.

Based on all the people that I have met with, the real estate market and foreclosure proceedings are currently responsible for the majority of debtor has to file. Furthermore, Sarasota Clerk of Court foreclosure numbers have tripled since last year. In March of this year, the Sarasota Clerk of Circuit court processed 98 foreclosures as compared with 26 for the same period a year ago. Effective May 1, 2007 the Clerk’s web site will offer a calendar of scheduled foreclosure sales with a link to the case docket under the “What’s New” section of the clerk’s homepage. The calendar will list all schedules sales by day and allow the user to navigate to the case docket information. This is another helpful tool homeowners can use to find out how much time they have to file a Bankruptcy before the sale of their home. Often time’s debtors have no idea when the actual sale will happen and they feel lost, scared and confused in the process. The mortgage lenders will not talk them and the debtor’s don’t know where to turn. Now they can simply go to the Karen Rushing’s Clerk of Circuit Court or go on line for the information.

You Need Your Home - Your Home Needs You

Many people are unable to make their mortgage payments these days to no fault of their own. Some are experience a loss of job, health spouse or higher mortgage rates, property taxes, home owner dues.

There is little sense in having people without a home and a home without their owner and someone to take care of it. What can you do? Please Read the following options:

Contact your lender and ask for the work out dept.
Consult with a Bankruptcy attorney.
Consult with a real estate attorney
Visit the following web sites and get educated:
Have an attorney answer your summons and this will buy you time.
Try to do a Deed in Lieu of foreclosure with the lender.
Attempt a short sale.
Buy enough time until the market comes back and then sell the home.
Keep in mind with a short sale the mortgage debt relief act will help you if the home you sold in a short sale was your homestead.

Here is a list of things you should think twice about:

Dipping into your retirement funds.
Dipping into protected college education funds
When you begin to take cash advances or do balance transfers to make ends meet this is an indication it is time to seek professional advice .Robbing Peter to pay Paul is a slippery slope.

Some of the things you want to consider in deciding whether or not to keep your home are:

-Where do I want to be in 2 years, 5 years, and 10 years?

-Is my mortgage fixed or adjustable? If adjustable when will it adjust and how much?

-Is my home in a desirable neighborhood that will prosper with time?

-What are the property taxes on my home? Will they increase?

-If I fall behind in payments, will I be able to catch up in a month or two?

Most people today are in homes that have little or no equity. By answering a summons the person can stay in the home for quite a while and then save up for first, last months rent and security deposit. Turning on utilities at a new location is expensive. Moving is expensive. This time allows you the opportunity to take care of the home, plan ahead and save money.

When you do find a place to rent let me know who the landlord is and I can look to see if the property is in foreclosure. These are all things to consider when you are behind on your Mortgage payments.

The Importance of a Credit Report

Our firm strongly recommends that each of our clients filing for bankruptcy obtains a credit report for the reasons listed below. If you are married, we recommend obtaining credit reports for both you and your spouse.

Obtaining the credit report helps us get accurate creditor names, addresses, types of debt, balances due, and account numbers.
Through your credit report, we may find creditors whom you have overlooked. For a debt to be discharged, it must be listed in your bankruptcy pleadings, so it’s important that we find out about all debts.
Credit reports can alert us to judgments against you.
Credit reports can alert us to liens against your property, and the need to seek lien avoidance under 522(f), thus helping you protect your property in some cases.
We may find out about co-signers to some of your debts, which are important to list in a bankruptcy.
If you are married, there may be surprising items on your credit report or your spouse’s, and the reports can help us determine whether you should file individually or jointly.
We may find out about debts created be a former spouse, who may have forged your signature to obtain credit.
Credit reports can alert us to mistakes on your credit record. The report will list the names and addresses of all three major credit bureaus that you can contact to correct any mistakes or provide updated information.
Credit reports often contain the named and addresses of collection agencies representing creditors, and we can notify these collection agencies about the bankruptcy so that collection efforts stop.
If the IRS has a tax lien on your property, the credit report will alert us so that it can be dealt with properly.
Knowing what is on your credit report can help you get credit approval for important purchases after your debts are discharged.

Not every creditor reports debts to a credit bureau, so your credit report will not list all debts. You should be sure to let your attorney know about all debts you are aware of.

Don't be Afraid to Ask

In years past, bankruptcy filings were mainly due to a loss of job, a loss of health or a loss of spouse due to death or divorce. This year Bankruptcy filings have doubled in our district. This increase in filings is in large part due to the unemployment rate, housing industry, high fuel prices and the economy in general.

The folks I come into contact with are extremely proud. They work hard, pay taxes, raise families and pay their bills. They are extremely proud. Given the rise in bankruptcy filings they word of mouth has gotten out and people are more apt to be proactive than they were in the past. Often times they will consult with a lawyer and have high credit ratings have not missed a payment on credit cards, mortgages, medical bills or other debt. They know they are walking a tight rope though and the bottom is soon going to fall out. The debtor wants to pay their bills but will not hang on for very long. They may have exhausted their IRA’s. Retirement funds, children’s college funds, liquidated all their assets and fear the worst-they will miss that first faithful payment to a creditor. The creditors will begin to call them, default notices will arrive in their mailbox, a process server will deliver a summons to their front door and they will end up in Court. Some fear jail.

They want to know how the foreclosure process works, what to expect, can they stay in their home? How long until they must leave?

Our Forefathers wrote the US Constitution with the intent not to have debtor’s prisons. Bankruptcy is a remedy afforded to us when there is no alternative. Nobody wants to file a Bankruptcy; it is used as a last resort. Life is a marathon and we never know what will hit us. A loss of job, illness, divorce or foreclosure can send someone into financial ruins and psychological despair. People want to know the ‘rules’. What assets can they protect? What debts are non-dischargeable? Where do they turn? What do they pay or not pay? What is a summons? Should they or should they not pay their credit cards? What do they tell their creditors? Must they appear in Court for hearings? What is legal and what is not? What is ethical and what is not? Do they pay their property taxes even if they have to let their home go? What is a judgment and what are the consequences?

Most people who are filing bks today have fallen prey to the economy and the housing market. It is a vicious cycle. They rob peter to pay Paul by living off their credit cards and taking cash advances until the market turns. Some wait until the credit cards are cut off and the well is dry. Others are proactive and do not want to wait until that point. They want to plan and time things accordingly. They want to do the right thing and protect themselves at the same time.

The Hardest Phone Call You'll Ever Make.

Picking up the phone to call a Bankruptcy Attorney is painstakingly difficult for most people. When People come to my office for a free consultation, they sit down and say, “I can’t believe I am sitting here!”

People that come to see me usually fall into two camps. Both camps have worked hard their entire life, paid their bills, taxes, possibly fought for our country and want to do the right thing. Given the rise in Bankruptcy filings the word of mouth has gotten out and people are more apt to be proactive than they were in the past.

One camp is those folks who are not late on a single payment and have a perfect credit score. They want to pay their Mortgage, Home equity line, credit cards and Medical bills but will not hang on for very long. They are at a fork in the road, when do they fish OR cut bait? How does one do this? It feels so unnatural not to pay bills.

The other camp involves people that have found it too painful to even call an attorney for help. They have been putting off addressing debt issues for a while in hope that things will turn around for them. . They may have exhausted their IRA’s, retirement funds, children’s college funds, liquidated all their assets. The creditors begin to call them, default notices will arrive in their mailbox, a process server delivers a summons to their front door and they don’t have a clue where to turn or what to do next. Some fear jail.

Our Country has been inflicted with an economic virus. Florida has been hit especially hard. Who knew we would be experiencing the highest unemployment rate in 13 years; the housing crisis, rise in property taxes/insurance, the downfall of Mortgage Lenders, banks going under, gasoline going up, pensions being revoked, Medicare being reduced all at the same time.

Making the decision to get educated is liberating and scary at the same time Knowledge is power. Power is control and helps people noodle their way through a difficult economy. Making major decisions like deciding whether to fish or cut bait on your mortgage payments is mind-boggling. Next comes the decision of how to go about it. Timing and strategy is critical. They need to know the consequence of a foreclosure, short sale, and deed in lieu of foreclosure. They need to know what property is exempt.

Newsflash

Looking for an Experienced Sarasota or Venice Bankruptcy Attorney? Call Sherry Ellis Today 941-351-7800 (Sarasota) or 941-488-4889 (Venice)