You have now been served with a foreclosure complaint. Your head is spinning and your stomach is in a knot. What do you do? The first thing you do is to try not to panic. New Jersey is a judicially supervised foreclosure state. This means the court will preside over the case until the time of the Sheriff Sale.
While it can and will vary from county to county, most New Jersey foreclosures will take approximately one (1) year to complete. Accordingly, you will have ample time remaining in the property to determine what course of action, if any, is right for you.
You need to initially determine if you wish to “save” the house or simply try to stay in the home for as long as possible. The direction you choose will lead you to and through different avenues.
Assuming you wish to try to save the house, you may attempt a loan modification directly with the lender. An attorney who is well versed in dealing with loan modifications can help you with this process. You do not need to have any professional help you with seeking or obtaining a loan modification although you may find one to be helpful.
Contact the lender and ask them to mail or email you a loan modification package. Many times one can download or print out a loan modification package directly from the lender’s website. Once you have the package, you need to carefully complete all applicable portions of the package. The package and supporting documents such as paychecks will then need to be forwarded to the lender. As this blog does not concern how to obtain a loan modification I am not going to go into specifics on how the modification process can and will play out. Suffice to say, if you jump through all of the right hoops, the lender should offer you a trial modification. Upon making three (3) trial payments in a timely manner, you will be offered a permanent modification.
Once the permanent loan modification is signed and returned to the lender, the process will be completed. As a result, the foreclosure complaint will be withdrawn by the lender and the risk of you losing your home will be gone.
Another option that can be explored to save your home would be filing a chapter 13 bankruptcy. This type of bankruptcy will afford you up to 5 years to pay back all of your mortgage arrearages. While you are repaying the arrearages, you must resume making your customary monthly mortgage payment. The first mortgage payment will be due on the 1st of the month following whatever month you file bankruptcy within. At the end of your bankruptcy, you will be current with all arrearages. The mortgage lender must accept payments made by yourself and the chapter 13 trustee while your bankruptcy case is pending.
Upon the filing of a bankruptcy petition, the foreclosure process must stop. This is due to what is called the “automatic stay provision” found within the United States Bankruptcy Code. It means that all collection activity and lawsuits which pertain to your debts which arose prior to the time of your bankruptcy filing must stop. As long as your chapter 13 case remains open and you continue making both your trustee and post-filing mortgage payments, the foreclosure cannot and will not proceed and your home will be saved.
If you do not wish to try and save your home, you still may wish to file a bankruptcy. Assuming one qualifies, a chapter 7 bankruptcy might be considered. This type of bankruptcy does not afford you the opportunity to pay back any mortgage arrears. This wouldn’t be an issue as you don’t want to save the house anyway. However, by filing a chapter 7 bankruptcy you can be sure the lender will no longer be able to file a deficiency suit against you or send a 1099-C form to you at the conclusion of the foreclosure.
A 1099-C is the amount of debt forgiveness afforded to you by another. Any debt forgiven in excess of $600.00 can give rise to a 1099-C. In the eyes of the federal government, the amount of debt forgiven is viewed as income paid to you which you paid zero in the way of taxes towards. This could cause you quite a tax issue within your tax year in question. The chapter 7 bankruptcy filing removes this type of potential exposure.A deficiency suit is where the lender sues you for any money they have lost or have laid out of their pocket as a result of you not paying your mortgage and the resulting foreclosure.
A chapter 7 bankruptcy filing might also afford you a bit more in the way of time in your home. As with chapter 13 filing, upon the filing of the chapter 7 bankruptcy the automatic stay will stop or halt the Sherriff Sale. Counsel for the lender would then need to file an application with the court seeking to have the automatic stay lifted. This takes time and once filed, the motion will not be heard by the court until approximately one month from its date of filing.
When you are facing a foreclosure it is always best to sit down with an attorney who practices in the areas of foreclosure and bankruptcy. Learn your rights, don’t sleep on them. Ignoring the problem will not change the reality of your situation. While you have some time to act, time is not on your side in this regard. At Reinheimer & Reinheimer our bankruptcy consultations are absolutely free of charge. Give us a call and let’s explore your options together.