Foreclosure Defense – Saving Your Home With Chapter 13
By Steven A Leahy
Foreclosure is the process necessary for a mortgage lender (i.e. mortgagee) to take possession of a property because the borrower (i.e. mortgagor, homeowner) defaults on a contractual obligation to the mortgage lender, usually a default in payments. In Illinois, Mortgage foreclosures are governed by the Illinois Mortgage Foreclosure Law (IMFL) 735 ILCS 5/15-1101 et seq. (2013). There are at least three alternatives for a homeowner to defend against a foreclosure, litigation strategies, loan modifications, and Chapter 13 bankruptcy. This article will discuss the third alternative, Chapter 13 bankruptcy.
Illinois is a judicial foreclosure state. That means the mortgage company must file a mortgage foreclosure complaint with the court in the county where the property is located, and go through litigation in order to receive permission from the court to conduct a public sale. Under the IMFL, the homeowner has a period of redemption, during which the plaintiff (mortgage company) cannot sell the property. Redemption is the period of time that the mortgage company must accept full payment from the homeowner, instead of proceeding to the foreclosure sale. The period of redemption runs seven (7) months from the date of service of the summons to all defendants, or three (3) months from the date of entry of a judgment of foreclosure, whichever is longest.
Recently, we reviewed how foreclosures work in general and the IMFL in particular. When a defendant is served with a Complaint to Foreclose Mortgage, the next steps are crucial. Most foreclosure cases are never defended in court. Instead, homeowners contact their mortgage company (or mortgage servicing company) in order to work out an agreement. Usually, the homeowner is seeking a loan modification. While loan modifications can be a good remedy, what most don’t understand is, obtaining a loan modification may take many months. Sometimes, so long that it limits the homeowner’s other options to save their home.
Because loan modifications may take a long time, homeowners may look past the best option to save their home – Chapter 13 bankruptcy. If a homeowner files for protection under Chapter 13 of the bankruptcy code before the judicial sale occurs, the home may be saved, if the circumstances are right.
For example, a family may find themselves several months behind on their mortgage payments, due to a temporary job lay-off. Once the lay-off is over, the debtor can return to paying their regular monthly mortgage payments. But, because they are behind in payments, the mortgage company will not accept regular monthly payments unless the family can bring their mortgage account current. Chapter 13 will allow that family to pay the arrears over 60 months and require the mortgage company to accept the regular monthly payments while they are in Chapter 13. In this way the family can avoid foreclosure of their home.
The key factor is the size of the past due payments, plus legal fees and late charges (arrears). The longer it has been since a mortgage payment was made, the greater the arrears, and the less likely a workable chapter 13 plan can be proposed. If the loan modification takes too long, by the time the homeowner is denied a loan modification a Chapter 13 plan may be unworkable. Let’s put some numbers in my example.
Let us assume the homeowner’s monthly mortgage payment is $1,700.00, and the family has $30,000.00 in credit card debt. If the homeowner is 5 months behind in their mortgage, the arrears may reach $12,000.00 ($8,500.00 in past due mortgage payments + $3,500.00 in legal fees and late charges). A Chapter 13 plan may work if the plan pays 100% of arrears to the mortgage company and 10% of unsecured claims ($30,000.00 in credit card debt). The plan’s monthly payment would be around $270.00 ($12,000.00 + $3,000.00 + Trustee fees / 60 months), plus the regular monthly mortgage payment of $1,700.00: for a total of $1,970.00 monthly.
Now, let’s assume the homeowner is 15 months behind in mortgage payments. The chapter 13 plan payment would be around $500.00 per month ($25,500.00 + $3,000.00 + Trustee’s fees / 60 months). Add the plan payment to their regular monthly payments, and the number jumps to $2,200.00 per month.
In this example, the original mortgage terms are in effect. However, just because a homeowner files for protection under chapter 13 bankruptcy, doesn’t mean the homeowner can’t also seek a loan modification. So, if saving your home is the most important goal, Chapter 13 may be the best option.
If you are facing foreclosure, you should take action. You need an attorney to help you sort through your options and choose the best remedy. Never hire a firm to help you with your foreclosure unless the firm is experienced in helping homeowners with all the possible remedies, loan modification, short-sales, deed-in-lieu, consent foreclosures, and bankruptcy. Before you do anything, you should give me a call. We can discuss all your options. Opem Tax Resolutions & The Law Office of Steven A. Leahy, PC (312) 664-6649. Call NOW to set up your FREE Consultation.