"File for bankruptcy protection and save your home?" the Sarasota real estate attorney told my friend.
My friend, a school teacher, recently came to me for help. We met at a local Starbucks. I could tell something was up. She wasn't her normal "happy-go-lucky" self. She sat there, looking down while twisting a napkin for what seemed like hours.
Finally, she admitted her husband and she were in trouble with their home and they needed help.
Turns out, her husband had lost his job 7 months ago; they were 3 months behind on their house payment; and the interest rate on their adjustable rate mortgage had just exploded.
Sarasota foreclosures destroy people's lives - I didn't want to see my friend and her family lose their home to foreclosure, especially when they desperately wanted to SAVE their home.
They had tried loan modification, but their bank seemed unwilling to help. She had called every local, state & federal agency she could find for help - no one seemed able or willing to help.
In a desperate attempt to explore all options, she asked me to go with her to talk with an attorney about bankruptcy. She had heard they might be able to FORCE the bank to modify their mortgage.
They wanted to stay in their home.
They wanted to modify their mortgage; they could afford a modified house payment; they wanted to stay in their home.
There we sat, in this attorney's office listening to him suggest a controversial strategy for saving their home. Attorney suggested my friend and her husband could file file for bankruptcy protection and save their home.
In his words, bankruptcy would "...strip away the 2nd lien holder and force the 1st lien holder to reduce principal debt and modify their mortgage."
He added, "Your mortgage lender is secured up to the value of the property. Chances are, your property value is LESS than your first mortgage, let alone the 1st and 2nd together. A Chapter 13 (will) 'strip' away the second lien, allowing you to modify your first mortgage, making your monthly payment more affordable. The second lien holder is treated as an unsecured creditor and knocked off."
Not the first time I'd heard or seen this strategy mentioned or applied. When banks choose (for whatever reason) not to work with people - even when working with property owners serves a bank's best interests as well - many property owners are choosing the courts (and bankruptcy) to force the banks to comply.
Now, do you see why this strategy is very controversial? My friend's immediate concern was doing anything necessary to save their home, even if it meant filing for bankruptcy.
Bankruptcy (whether Chapter 11 or 13) comes with its own long-term challenges. No doubt, you need to talk with various bankruptcy attorneys and you need to understand this strategy is controversial.
More and more people are overcoming embarrassment to fight to save their homes against brain-dead bankers who (for reasons beyond me) choose not to mitigate further financial loss. By now, it's FACT that foreclosing & eventually selling a property later LOSES a bank and its investors many $1,000s more than modifying & keeping people in their homes.
Why then do property owners have to take drastic action to FORCE banks to help?
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