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How Long Can I Stay In My Home After I Stop Paying The Mortgage

494 days.

That’s according to an article in the Chicago Tribune, May 22, 2011.  This figure was pulled from RealtyTrac, who tracks foreclosures from the filing to the sheriff’s sale.  Bottom line: you can stay in your house at least a year.

The problem:  What if a deficiency judgment is entered against you?  Then you’ve gotten rid of your house, but still need a bankruptcy to get rid of the deficiency judgment.

Falling home prices have caused many people to choose to default on their home. It is good idea to see a qualified bankruptcy attorney to see if you are “judgment proof” or will the target of a deficiency judgment.

Citation to Discover – The Hearing you Never Want to Miss!

Oftentimes, client’s will come into my office with a stack of bills, primarily credit cards and several unpaid default judgments.  However, the court hearing that usually makes them come in an deal with the bills and unpaid judgments is the “Citation to Discover.”  The real name for this hearing should be “Garnishment Alert – You’ve got about one month until 15% of your gross paycheck starts to disappear.”

So what is a “Citation to Discover?”  Put simply, it is a hearing that demands your presence to learn about all of your assets and your place of employment.  Unlike simply seeking a garnishment, a “Citation to Discover” seeks to also learn about the location of your bank accounts and any other assets you may have.

What’s the result of not showing up?  A body attachment, which is a nice way of saying a warrant is out for your arrest, so that you can appear at this hearing and explain why you are in contempt of court…for not showing up at the scheduled “Citation to Discover” hearing.

So if you show up, what happens:?  You tell the creditor the location of your employer/s and your bank account/s.  Depending on the size of the unsatisfied judgment, all of your bank accounts will be emptied and the remaining balance of the unsatisfied judgment will be taken as a garnishment.  A garnishment is 15% of your gross income until the judgment is satisfied.

What if I already have two other garnishments occurring?  No Problem, the court simply allows the first two garnishments to complete.  Then when those judgments are fully paid, your new garnishment starts automatically.  In effect, you always see 15% of your gross pay deducted for garnishments all of the time until all three unsatisfied judgments are paid off.

Conclusion:  You should always show up at a “Citation to Discover” hearing.  You should meet with a bankruptcy attorney about one to two weeks before the hearing to determine whether a bankruptcy is good alternative to being garnished.  You should also consult with an attorney regarding any balances that you have in your bank accounts because shortly after your testimony at a Citation hearing, all balances in your accounts will be taken by the creditor just before the garnishment starts.

Chapter 13 Bankruptcy is a great solution to the “Citation to Discover” Trap.  Let’s say you have no savings, are already in a garnishment and now face the prospect of two more garnishments.  In this situation, you already are putting out 15% of your gross income towards the garnishments.   Most Chapter 13 plans only pay out 10% to unsecured creditors – that’s all creditors with all of your debts discharged in five years or less.  In a garnishment you pay 15% and not all of your debts are cleaned up.  Chapter 13 is less costly and globally solves all of your debt issues.

Short Sale Tips & Strategies

Short Sale Tips & Strategies

Since the decline in real estates price began in approximately 2008, more and more people have been seeking to do short sales.  So what are they?

A Short Sale is simply a sale of real estate where the purchase price is too low to fully pay off the lender.  Therefore the lender is “shorted”.  When you sell real estate, you have to provide clear title to the buyer.  To do this all of your mortgages (lenders) have to be paid off along with taxes and any other encumbrance on title.

A typical example of a short sale with one lender.

Sale price of home:  $150,000
Mortgage Payoff:     $150,000
Costs of Closing     $25,000
Deficiency:               $25,000

*In this case, the seller will request that the mortgage (lender) allow the seller to pay only $125,000 of the $150,000 owed to get a release of mortgage at closing.  The lender then chooses whether to collect the $25,000 deficiency or write it off.  Typically, the lender will write off the deficiency and sell it to a third party who will try to collect the deficiency by filing a lawsuit and obtaining a garnishment against the seller’s wages.

Bottom line – in this case, the short sale got rid of the house but left the seller with a deficiency of $25,000 owed to the lender.  A great result if only getting rid of the house was the goal.  Typically this is people who are moving a long ways away and make enough money to pay off the deficiency.

A more typical example is:

Seller has lost his job.  Seller is in foreclosure.  Seller wishes to sell his house before the house if taken at a foreclosure sale.  Pre-2008; oftentimes the house would be sold for enough money to satisfy all of the lenders foreclosure costs and balance owed.  Post 2008 this is not the case.  Today, a seller will often take a 40% loss against the value of their home in 2006.  This means that the following example happens often:

Sale Price:               $200,000
First Mortgage         $210,000
Second Mortgage     $80,000
Closing Costs:          $25,000

In this case, the seller sold the house.  The first mortgage lender agreed to allow the second mortgage to be paid $2500 and the first mortgage lender received $172,500 ($200,000 – $25,0000 – $2500).

Here is the effect to the seller:

1)  The foreclosure is dismissed with a satisfaction and no judgment on seller’s record
2)  Second Mortgage Lender is still owed $77,500 which they can collect themselves or sell for collection
3)  The First Mortgage Lender is still owed $37,500 PLUS $25,000 in costs of foreclosure and arrearages.

What happens nexts:  Most often the seller is given a chance to pay off these deficiencies or is sued by the lenders for the deficiency.  The deficiency judgments are good for 25 years in Illinois with proper renewal.  Therefore, without bankruptcy or settlement, the deficiency is paid off at 100% plus 9% interest per year using the maximum garnishment which is 15% of the sellers gross income.

Bankruptcy is an imperfect solution, but is often used in a catrastrophe like the example above.  Assume that the seller makes $75,000 a year.  Has a family of four and credit card bills of $40,000.  Bottom line, the seller has over $125,000 in debt to pay off on a salary of $75,000.  You couldn’t pay this off in 100 years.  It is in this situation where a bankruptcy discharge of the debt is helpful.  It is also helpful for retirement, because retirement savings are exempt in bankruptcy.  With your debt under control it is easy to start saving for retirement.

In conclusion – what is the niche for a short sale – it is great for someone who really needs to get rid of a property and is not necessarily concerned about a deficiency judgment.

Can I get a waiver of a deficiency judgment – you can if your attorney remembers to ask for this and is successful in these negotiations.

Why on earth would a lender waive a deficiency?  The best answer is – if they know that the seller is insolvent and doesn’t have assets and/or income to pay they will usually waive the deficiency if the lender is receiving more money than if they were in a foreclosure sheriff’s sale.

Home Prices Take A Tumble In 2010 – Short Sales, Deeds In Lieu & Deficiency Judgments – NLO Nelson Law Office

Home Prices Take A Tumble In 2010 – Short Sales, Deeds In Lieu & Deficiency Judgments – NLO Nelson Law Office  It is hard to believe that between 1950 and 2008; home prices rarely climbed less than an average of 8% return.  In some years there might be no appreciation and in other years, double digit gains. The figures are hard to pin down, but if we can believe it, between 2009 and 2010 home prices in Chicago dropped 20%.  Think about it.  It’s crazy.  We’ve been told for years that these investments can’t fail and the prices never go down.  Do you remember the phrase – “better get in now before prices go up”.  The failed housing market or bubble burst has ruined realtors, loan officers and most importantly home owners who could barely afford and really weren’t qualified to buy a home.

Right now most experts believe foreclosure filings will peak in 2012 and decline thereafter.  Most experts are calling for another 15% drop in prices in this year with a flat period for many years thereafter.  What is troubling is the similarity between the great depression and our present situation.  Many people are chronically unemployed with no unemployment benefits and our government is surprisingly silent.

For our firm, we are seeing far less Chapter 7 bankruptcies where people are coming in with fees.  We think it is because people are heavily in debt, without income and just wanting to clean things up before they head back to work.  For most people it means waiting to file a Chapter 7 until just after you have been at a job for about 4 months.  This is about the lag time between starting a new job and garnishments catching up to you.

For people looking to avoid a bankruptcy but wanting to get out of their property, a short sale can be great.  The problem traditionally has been that lenders intentionally stalled to cause failures and force foreclosures.  Now, lenders are softening up as they find they can be more profitable in a short sale.  One thing you may have noticed,  nothing involved is done to benefit the borrower or preserve creditworthiness or home ownership – this is strictly an attempt to improve profitability.

A deed in lieu of foreclosure is where a borrower asks the lender to take back the property by allowing the owner to sign over the over property via deed and avoid having the bank file foreclosure.  In the old days, the property would often be sold by the bank at a price high enough to pay off the mortgage and the borrower simply walked away from a house he or she didn’t want.  Today,  lenders won’t even consider a deed in lieu unless you have failed to sell your home (for any price) for six months or sometimes a little less.   Often times, someone will buy the house as a short sale instead of having the bank take the house back through a deed in lieu.

What’s disturbing is that most borrowers face a deficiency judgment…. so what’s this.  Well, basically it’s like a credit card debt that often is $80,000 or more and most lenders SELL IT at 2 cents on the dollar to a collection agency that sues the borrower and garnishes their wages forever.  Does this sound bad?  Yes.  Unfortunately, this is exactly what is sending many good families into bankruptcy and I can’t think of a way that my clients can avoid it.

We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code. CALL 877-GO-GO-NLO (877-464-6656) FOR A FREE BANKRUPTCY CONSULTATION TODAY! SATURDAY APPOINTMENTS ARE AVAILABLE.