Part 4 in a series on how we help people in underwater homes
When I talk to someone who is going into foreclosure, I ask them if they want to save their house, and 9 out of 10 people say “yes.” So usually the best way to do that is by way of a loan modification, which was part one of this series. And if that doesn’t work, chapter 13 becomes the next best bet.
Oftentimes, particularly when a person has been turned down for loan modification, their house payment is either unaffordable, or their Chapter 13 payments would be unaffordable due to how far behind they are. And they are often so far upside down that there is little chance they will get back into a positive equity scenario for at least five to ten years, even assuming that real estate has bottomed out and will start appreciating at a reasonable rate again, which I think it has. One thing I like to do, is to go to zillow.com to get an idea of the rental value of a person’s house to compare that to their mortgage payment and see what they could rent a comparable home for.
I can’t tell you how many nice people, good people with families, who have come to me as their last hope to save their house, that I have had to feel like the grim reaper & tell them it isn’t worth saving. Sometimes, it breaks their heart. But usually, they say “Yeah, I thought you’d say that, I kind of figured that already, I only told you I wanted to save the house because I wanted to see what you could do.”
So one thing we can do, particularly when there are other unsecured debts and/or a second mortgage, is to time the filing of a chapter 7 bankruptcy right before the sheriff sale. That has the effect of canceling the sheriff sale, in which case the mortgage company either needs to wait until the bankruptcy is done, usually in about 90 days, or else they can go back to the bankruptcy court to get permission to recommence foreclosure, which is called a motion for relief from stay. There will eventually be a new sheriff sale, which is at least 3 to 6 months later, and it’s not too uncommon where it takes another 9 to 12 months before there’s a new sheriff sale. After that new sheriff sale date, the homeowner still has six months to remain in the house during what is called redemption period. If the homeowner had previously filed for a postponement/extension of the sheriff sale, they are only supposed to get a five-week redemption period after the new sheriff sale, but most local law firms are giving them a whole new six months after the final sheriff sale, even if there was a prior postponement.
When we utilize this strategy, we can often keep a person in their house for at least 12 to 24 months, sometimes even more than that, without making any payments. During that time frame, the homeowner is often in a position to start saving their money so that they have a cushion and down payment for their next housing situation — if you have $5-10,000 and are able to pay that in advance on a rental, you have some negotiating leverage. Or possibly even use that as a down payment if you are able to find a house with seller financing, i.e. a contract for deed.