Keeping You in Your Home...What Homeowners Need to Know About Bankruptcy & Foreclosure Defense

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Bankruptcy can be used as a tool in foreclosure defense.  The mortgage foreclosure process is being used by mortgage lenders against homeowners that are unable to keep up with high mortgage payments in this economical environment when homeowners find their home’s value is less than the mortgage payment, and also less than what homeowners can sell the property for to a buyer. Homeowners are learning it's to their advantage to hire a bankruptcy/foreclosure defense attorney or law firm against the mortgage lenders attorney.  It is important for homeowners to understand that if they are about to be sued for foreclosure, or have already have been sued for foreclosure not to waste any time in getting to an attorney's office.  First of all, it is important to select an attorney with specific experience in not only litigation, but also in such areas as mortgage law, real estate law, title insurance law, and especially bankruptcy law.

Phase One: Collect Foreclosure Documentation

In phase 1, the first thing after being sued for foreclosure and selecting an attorney is for the homeowner to take copies of the complaint and summons, that was served by the process server, to the attorney's office.  It may be helpful to bring copies of the homeowner’s entire mortgage closing file for each outstanding mortgage that remains on the subject real estate.  The attorney will take this information from the homeowner to formulate a legal document or documents called an "answer, affirmative defenses, and counterclaims" against the mortgage lender/plaintiff.  Specifically in Florida, foreclosure defense attorneys can draft and file a "motion to dismiss the mortgage lenders complaint" against the homeowner if there are legal deficiencies contained in the mortgage lender's complaint that will allow for the case to be dismissed in the homeowner's favor.  This procedure, if used, is prior to the foreclosure defense attorney filing an answer, affirmative defenses, and counterclaims.

Phase Two: The Discovery Process

The next phase (phase 2) of the state foreclosure lawsuit is called the discovery phase.  This is the largest and most time-consuming phase of any lawsuit.  During this phase, foreclosure defense attorneys at state court level, use various tools such as interrogatories which are written questions, depositions, which are verbal interrogations under oath, request for production, which is requiring documents and other things, to be presented to the defense attorney on behalf of the homeowners, and requests for admissions, which are written statement to be admitted or denied by the lender, on behalf of the homeowners.  This process, and the above phase 1 process can take a considerable amount of time and can keep the homeowners in their property well exceeding a year in some cases.  During this time of phase 1 and phase 2 of the foreclosure defense lawsuit is important for the foreclosure defense attorney, with the assistance of the homeowners, to contact the mortgage lenders through the plaintiff's attorney to work around other options and explore various types of loan modification.  Some examples of loan modification can be forbearance, deed in lieu of foreclosure, short sale, reduction in principle, reduction in interest, and refinancing.

Near the end of all phases of the foreclosure lawsuit and if none of the attempts for loan modification are successful then, it is important for the homeowners to have preplanned and educated themselves on the various chapters of consumer the federal bankruptcy law through their bankruptcy attorney.  The two consumer chapters of bankruptcy are Chapter 7, which is a complete liquidation of unsecured debts, and chapter 13, which is a re-organization of consumer debts.

Federal Bankruptcy Protection Laws

It is important for the homeowner to understand that bankruptcy law is federal law that trumps and supersedes the state foreclosure law suit against them and their home.  The lender’s goal in foreclosure is to regain possession of the homeowner’s home and acquire what's called a deficiency judgment against the homeowners if the lender is not able to resell the home to satisfy the outstanding mortgage balance.  In that instance, the homeowner will still owe on the mortgage or mortgages but not ever possess the property/home.  In federal bankruptcy law, the instant of bankruptcy is filed in federal court, section 362, of United States Code, Title 11, protects the debtors or homeowners from any further state court foreclosure proceedings as the initial bankruptcy process gets underway.  This is important, because the bankruptcy process can stop a home from being foreclosed upon, stop a foreclosure judgment being rendered against the home, stop a home from being sold in a foreclosure sale, stop a home from being repossessed by the bank, stop the homeowners from being evicted from their home, and also stop any other state court or collection proceedings by not only the mortgage lender, but by any and all creditors included in the estate of the homeowners in their bankruptcy case. 

How a Bankruptcy can Help During Foreclosure

Bankruptcy is a very important tool, when used in concert with the other tools of foreclosure defense and it becomes very powerful in three ways.  The first of these three ways is that the process gains a considerable amount of time for homeowners to explore little modification or other options with the lender and it brings the lender to the bargaining table to bargain in good faith. Secondly, the process keeps the homeowner in occupancy in a Chapter 13 and in possession of their own home during this process as along as the Automatic Stay is in place and under the protection of the federal bankruptcy. Thirdly, as the bankruptcy process proceeds it relieves the homeowners/debtors from any deficiency judgment ever being collected against them for any outstanding mortgage(s) and all other debts too.  This final point is extremely important for homeowners to understand.  Many homeowners believe that they can merely walk away from their home and let it be foreclosed upon and that the problem is solved.  Nothing could be further from the truth!  Not only would the homeowners in that example, lose possession of their property but the lenders could/would continue to pursue the homeowners for a judgment left over on their outstanding mortgage against them that could result in several hundred thousand dollars or more that the homeowners would be required to pay as it accrued interest over the years and continued to destroy their credit for a house they no longer possessed nor owned!!

It is important for homeowners to be proactive and educate themselves early about their options in the foreclosure process and in the bankruptcy process with their experienced attorney.  It's been said that knowledge is power, but it's more accurately true that correct and timely knowledge is much more powerful.  Seek your attorney’s advice early and help him help you stay in your home and get rid of your debt!


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