If you are behind on the mortgage payments on your home or your home is in foreclosure, you generally have four options:
- Try to sell your home.
- Surrender your home to your mortgage company.
- Get a loan modification from your mortgage company.
- Save your home by filing a Chapter 13 bankruptcy which allows you to pay any past-due mortgage payments over time.
Selling Your Home
It may be the case that you simply cannot afford to save your home. You may not be able to make the monthly mortgage payments due to job loss, lay-off, sickness, disability, or divorce. In this case, your only option may be to sell your home. This is generally an option only if you can sell your home for enough to pay off your mortgage in full and cover any closing costs.
What about a short sale?
In many cases, homeowners cannot get enough from a sale to pay their mortgage in full or have a second mortgage on their home which also needs to be paid in full from the proceeds of a sale. There may be other liens on the home such as tax liens.
Many homes are now underwater. They are worth less than what is owed on them. In these cases, homeowners may consider a so-called short sale of their real estate. Under a short sale, you sell your home for less than what is owed on it. Before you consider a short sale, you should talk to an attorney.
There are major disadvantages to a short sale. The most obvious disadvantage is that in most cases you still owe the difference to your mortgage company. For example, you owe your mortgage company $100,000 but they only receive $80,000 from a sale. In that case, you will still owe your mortgage company the difference of $20,000.
In another example, your mortgage company may be paid in full and receive $100,000 from a sale but you have a second mortgage on your home in the amount of $20,000 that does not get paid. You still owe your second mortgage company the $20,000.
There may be good reasons for a short sale. The point is that before you take this course of action, you should talk to an attorney and fully understand if this option is the best one for you.
Surrendering Your Home
Selling your home may not be an option. Your home is underwater, the mortgage company will not agree to a short sale or loan modification. You simply cannot afford to make the monthly mortgage payments.
In these cases, you may have no choice but to surrender your home to your mortgage company. You move out of your home. Then, notify the mortgage company so that they can take possession of the property.
What happens in a foreclosure case under Maine law?
If you fall behind on your mortgage payments, Maine law requires that your mortgage company initiate a foreclosure proceeding in Court against you. This is referred to as a judicial foreclosure. The process begins with you being served with a foreclosure complaint. In most cases, a deputy sheriff serves you in hand at your home or work with the complaint. Once served, the mortgage company files the complaint in Court.
A foreclosure case must go through a number of stages.
You have 20 days to answer the complaint. The mortgage company has to obtain a foreclosure judgment from the Court. A 90-day redemption period must pass from the date of a foreclosure judgment. The mortgage company must conduct a foreclosure auction after notice is published in the newspaper.
This is the general procedure under Maine law. If you own real estate in another state, please consult an attorney in that State. In Maine, it can take a mortgage company up to six months to get a foreclosure case through the Court system from filing the complaint to conducting a foreclosure auction.
Should I answer a foreclosure complaint?
If you are surrendering your home, you do not have to answer a foreclosure case. The mortgage company obtains a foreclosure judgment against you and auction off your home. Remember that under Maine law you still owe the balance to the mortgage company if the home is sold for less than what is owed on it or there are other liens on the home such as second mortgages that do not get paid through the auction sale.
In most cases, this forces you into a Chapter 7 bankruptcy to discharge the deficiency or other liens. If you are trying to save your home, you may want to answer the foreclosure complaint. You may have valid defenses to the foreclosure action or you may simply want to buy yourself more time to obtain a loan modification or file a Chapter 13 bankruptcy. When served with a foreclosure complaint, consult an attorney to decide which option is best for you.
What about a deed in lieu of foreclosure?
A mortgage company may ask you to do a deed in lieu of foreclosure which means that you sign a deed transferring your interest in your home to the mortgage company. There may be some valid reasons to do this. However, in most cases, there is no direct benefit to you in doing this. Consult an attorney before you sign such a deed to determine the appropriate course of action for you.
When must I leave my home?
You can always voluntarily leave your home at any time. If you do, notify your mortgage company so they can go in and secure your home. Absent a voluntary surrender, a mortgage company cannot force you to leave your home without filing a foreclosure complaint in Court against you, obtaining a foreclosure judgment against you, and allowing the 90 day redemption period to expire.
In other words, you can remain in your home while a foreclosure case is pending against you. Under Maine law, the 90 day redemption period must expire before you can be forced to surrender possession of your home. In many cases, the mortgage company allows you to stay in the home up to the foreclosure auction. As set forth above, this is about six months after a foreclosure complaint is filed against you.
What are my options to save my home?
As set forth above, if you do not want to keep your home, you can either try to sell it or surrender the home to your mortgage company. If, on the other hand, you want to try to keep your home, you can try for a loan modification or file a Chapter 13 bankruptcy.
If you are behind in your mortgage payments, facing foreclosure, and what to save your home, you can try to obtain a loan modification from your mortgage company. The loan modification process is not easy. There are many demands placed upon you by the mortgage companies such as lengthy applications and requests for numerous documents.
Clients told us that paperwork generally gets lost or misplaced by the mortgage companies resulting in a denial of a modification and requiring that the process begin anew. Trial modifications generally precede permanent modifications. Not all mortgage companies offer modifications and not all modifications are approved either temporarily or permanently.
A loan modification may end up making your situation worse, not better. Modifications also do not reduce the amount that you owe. It simply re-writes your existing loan balance by reducing your interest rate (either temporarily or permanently) and extending the length of your loan. There have been success stories but there have also been a lot of failures.
If considering a loan modification, you need to be persistent with your mortgage company and realistic about the outcome. For example, you may after modification still be unable to afford to save your home. Your home may still be worth less than you owe on it. If pursuing a loan modification, talk to an attorney before you sign the modification so that you fully understand the impact that a modification has on you.
Chapter 13 Bankruptcy as an Option
There are cases where bankruptcy may be your only option to save your home. A Chapter 13 bankruptcy stops the foreclosure process if you can propose a viable plan to the Court. Under a Chapter 13 plan, you must begin making your mortgage payments as they become due.
You cannot re-write the terms of your mortgage in a Chapter 13 case. You must make your monthly mortgage payments under the terms of the existing mortgage as they become due. Also, you must cure any pre-filing mortgage arrears over a maximum term of five years.
For example, if you are $20,000 behind in your mortgage payments, you must pay this amount into a plan over a maximum of five years. There are also administrative costs to consider such as the fees of the Chapter 13 Trustee. In Maine, the Trustee works on a commission basis and gets 10% of the gross amount that you pay into a plan. You also pay additional attorney fees into your Chapter 13 plan.
One big advantage of a Chapter 13 case is that you can strip off wholly unsecured second mortgages. For example, if you have a first mortgage in the amount of $100,000 and a second mortgage of $25,000. You can strip off the second mortgage as long as your home is worth no more than $100,000. If you have any equity in your home, you cannot strip off your second mortgage.
The biggest problem in saving your home in Chapter 13 is one of feasibility. You must be able to afford your monthly mortgage and plan payments. If you have a mortgage payment that you cannot afford and you cannot afford to pay the mortgage arrears over five years and afford to pay the other costs of a Chapter 13 plan, this form of bankruptcy may not help you. Talk to an experienced attorney to see what option is best for you.
Is it too late for me to file Chapter 13?
If the real estate is your principal residence, you can file a Chapter 13 case right up to the real estate auction. However, if an auction has already taken place, it is too late for you to file. You no longer own your home. Therefore, keep track of what happens in your foreclosure case and your deadlines.
What if I own real estate that is not my home?
If you want to save real estate that is not your home such as your business property, you must file a Chapter 13 bankruptcy within 90 days of a foreclosure judgment. After that time, it will be too late for you to save your home from foreclosure.
What is my next step if I am facing foreclosure?
The answer to this question is simple. You must consult an attorney! No two cases are the same. You need to know your options. This article only gives you a general outline of the process and procedure. Call us to set up an appointment. We can review the facts of your case with you and see the best approach for your situation.
Contact Us for a Free Consultation
Contact us by e-mail. Call us at 207-942-4697 or toll-free at 877-900-9857 to set up a free consultation. This article does not substitute legal advice from an attorney. Every person’s situation is unique. It is important that you hire an attorney to help you avoid the many pitfalls that can occur in bankruptcy.