For a lot of people, owning a home in the Bay Area is simply out of the question, financially. For others, home ownership is a battle that can be difficult to win. People often struggle mightily to get their first home and sometimes purchase a home with a financial plan that must work out. If something goes wrong, then there is no savings that can help people get through the bad times. Medical issues, job loss, divorce or even a death in the family can all cause our financial plan to blow up in our face.
If you fall behind on your mortgage by more than 3 months, then the bank will issue a Notice of Default, which gets recorded in the County Recorders’ office where you live. At this point, one can almost predict that there are other debt problems as well. If you have missed your house payment, my guess is that you are behind on several other bills as well. There are several options you may consider, but something is going to have to be done or the bank will make their next move, which is to foreclose on your property.
You can apply for a loan modification. This can help with your home, but it can do nothing for any other debt. This process can also put you down a path of faxing over the same documents 400 times to the bank while they claim they never got any. This process has also become more difficult lately as the real estate market has bounced back and the banks would actually rather foreclose.
You could sell your home. The market is back and perhaps there is some equity in your home. It appears to me, however, that selling your home under the looming foreclosure deadline is not the best way to go in many instances. Buyers are savvy enough to know you are under a deadline and that if you do not sell, you are going to get nothing. Any decent real estate agent representing a buyer is going to low ball you on their offer.
Enter Chapter 13. Chapter 13 Bankruptcy can do amazing things for people who find themselves behind on their mortgage. A Chapter 13 stops the foreclosure process. Chapter 13 can offer you time to catch up on the amount you owe. That is why it’d be great if you considered a bankruptcy after receiving the first Notice of Default. For those who are too far behind on their mortgage to , the Bankruptcy Court in the Northern District has implemented a new program to help people in Chapter 13 to work with their banks on a modification.
If you do not want to fight to catch up on your home, or fight for a modification, then a Chapter 13 does provide you the time you need to sell your home. The difference would be that you are in control of when this asset will be sold. You get your leverage back. Filing a Chapter 13 can give you time for your home to appreciate in value and let you sell at the top of the market on your own terms, rather than under the gun of pending foreclosure.
All in all, Chapter 13 is a tool that can be used by people who are struggling with their mortgage payments. If you are behind on your home, do not give up. You could be walking away from tens of thousands of dollars by giving up without using every avenue available to you.