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Fact or Myth; Bankruptcy guarantees a stop to foreclosure.

Posted by Jesus (Jesse) Gonzalez on February 1, 2010 at 7:17am
In an effort to disclose, let me first tell you that I am not a Bankruptcy Attorney….or any other type of Attorney for that matter. This blog is not to be interpreted as legal advice because, it’s not. For legal advice you need to speak to a law professional. This blog is just my opinion and should be consider as nothing more. In my opinion, the concept that Bankruptcy guarantees homeowners a stop to foreclosure is a myth! Let me explain why I have this opinion. First off a creditor, your bank, can petition the court to remove the stay you received as protection from creditors when you filed for bankruptcy protection. In many cases, the moment the bank learns you filed for protection, they run to the court and ask for the stay to be lifted. So, why would a court ever agree to this course of action suggested by the bank? A simply reply, is because the bank has the right to ask and have their request considered fairly among the evidence provided to the court. It also depends greatly on what type of bankruptcy protection you are under, if it’s Chapter 7…..most likely the bank’s request to lift the stay will be granted and that’s because Chapter 7 bankruptcy isn’t designed to protect you from foreclosure, sad but true. If you want a much better chance at protecting the home from foreclosure, you may want to consider Chapter 13 which puts you on a repayment plan and allows you to pay off your debts over time and therefore, gives homeowners a better chance of protecting the home however, either way….nothing is guaranteed. Now, just because the bank request the stay to be lifted, it doesn’t necessarily always mean it will be. The truth of the matter is, your Attorney will have arguments to the court, on your behalf, to keep the protection in place but, even then, nothing is guaranteed. My point is, just because the bank request the stay to be lifted and just because your Attorney is going to argue against it, nothing and, I do mean nothing ever guarantees you will be able to stop foreclosure. It simply boils down to a variety of conditions such as, hardship, skill of the Attorney and the willingness of the court. Unfortunately, many times the homeowners’ walk away wishing they never started the process from the beginning. Ultimately all bankruptcy protection does is buy you some time. You will ultimately still find yourself across the table negotiating with you lender trying to save your home. Only this time, you are also having to pay Attorney fees. A Short Sale may be a better option.
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Posted by Jesus (Jesse) Gonzalez

Jesse Gonzalez is a highly accomplished and respected real estate professional with a wealth of experience in the industry. With a career over 15 years, Jesse has established himself as a leading real estate sales and marketing expert.

As a licensed real estate agent since 2005 and a broker since 2008, Jesse has a comprehensive understanding of the complexities of the market. In 2013, he founded his firm, Liberty House Realty, LLC demonstrating his entrepreneurial spirit and commitment to delivering exceptional service to his clients.

Jesse's expertise extends beyond traditional real estate transactions. He obtained his Registered Appraisal Trainee in 2019, providing him with valuable insights into property valuation and market analysis. Although he decided to focus primarily on sales, his appraisal background gives him a unique advantage in understanding the intricacies of property values and trends.

With a dedication to excellence, Jesse consistently achieves outstanding results for his clients. Last year alone, he closed over $20 million in sales and received the prestigious Sapphire Award from his local association, recognizing his exceptional achievements in the industry.

Beyond his successful career in real estate, Jesse is passionate about education and personal growth. He is completing his undergraduate degree in Forensic Psychology, with plans to attend Law School in the fall of 2024. Jesse's ambition is to become a real estate litigator, focusing on real estate consumer protection law and advocating for the rights and interests of homebuyers and sellers.

As the owner/operator of the nation's largest social network for REO professionals, <a href="http://www.REOProNetwork.com">www.REOProNetwork.com</a>, Jesse has positioned himself as a thought leader and industry influencer. Through this platform, he fosters collaboration and knowledge-sharing among REO agents, attorneys, asset management firms, and other professionals in the field.

With a commitment to professionalism, integrity, and providing a personalized experience for his clients, Jesse Gonzalez is a trusted advisor and a driving force in the real estate industry. Whether assisting clients with buying or selling properties, he consistently goes above and beyond to exceed expectations and ensure successful outcomes.

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Comments

  • Bob Southard February 11, 2010 at 3:24am
    The bankruptcy would relieve the homeowner from any future liability on the debt. The mortgage company could not seek a deficiency. If the seller is doing a short sale then it is important to also negotiate for no future liability. Otherwise the seller can still be on the hook for the shortfall. Then what is the advantage of the short sale?

    It can be complicated especially of there are other debts beyond the mortgage. It is a very good example of why we dont give legal advice.
  • CJ Oliver February 7, 2010 at 1:33pm
    To further complicate matters it varies from state to state based on the foreclosure laws not the Fed. bankruptcy laws. Judicial, non judicial etc. Sometimes the trustee can release the property for a short sale and often it requires a hearing and at least 30 days to get a ruling once a contract is offered. Then the lender & judge have to agree to whatever it is.
  • Steve Tucker February 4, 2010 at 4:26am
    Let me add one more comment vis a vis the short sale aspect of all this. Keep in mind that even a short sale doesn't necessarily release the seller of all monetary obligations on the mortgage. It only releases the security for the debt by removing the lien on the house so that it can be sold to the buyer with clean title. However, in many states the bank can still pursue the balance of the loan even though they've agreed to allow the seller to do the short sale. This "deficiency" (the amount between the balance on the mortgage and the short sale price) must be taken care of at the short sale closing (by having the bank release the seller of the deficiency amount); otherwise, it doesn't make much sense for the seller to go through the trouble of the short sale, since they'll still owe the balance of the loan to their lender and therefore the seller's financial issues will persist. Some states don't allow deficiency judgments, but most do.
  • Steve Tucker February 3, 2010 at 11:26am
    SraM: I haven't personally seen the situation you describe, but Bankruptcy does not discharge liens on property. Therefore, after the bankruptcy discharge, the 2nd lien (as well as the first) remains on the property and, therefore, if a short sale were then to occur, the same situation I described below would likely occur.
  • Sara Mehrpouyan CDPE February 3, 2010 at 9:38am
    Right but have you seen this to be in true in the case where the 2nd has been charged off after bankruptcy?
  • Jesus (Jesse) Gonzalez February 3, 2010 at 7:10am
    Hi SraM,

    Steve's answer is spot on.
  • Steve Tucker February 3, 2010 at 7:06am
    SraM: Yes, in most cases the 1st lienholder throws some kind of bone to the 2nd lienholder in a short sale. The 2nd lien needs to be removed or the short sale will fail. Therefore, it's somewhat in the 1st lienholder's interest to offer a payoff amount to the 2nd lienholder. It's usually a tiny fraction of the amount owed on the 2nd lien, but it's better than nothing. It's often a matter of significant contention between the 1st and 2nd lienholder and oftentimes the 2nd lienholder won't, in fact, take what's being offered, causing the entire transaction to fail.
  • Sara Mehrpouyan CDPE February 2, 2010 at 1:28pm
    Right but what I'm asking is if the 1st mortgage would be willing to give some of the proceeds to a "collection agency"?
  • Jesus (Jesse) Gonzalez February 2, 2010 at 1:22pm
    Who the loan is with....doesn't really matter to me. I have negotiated with collection agencies, HOA and even a pay day loan place. I tell them they can settle for X.Y.Z. or this thing goes Chapter 7 and they get nothing, most all the time, they settle.
  • Sara Mehrpouyan CDPE February 2, 2010 at 12:55pm
    Continuing on my previous post- I'm talking about a home equity that has been charged off and is now with a collection agency (after bankruptcy)
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