What to do when you are facing forclosure. (Washington State)

Lately, there has been this craze that we are somehow over this foreclosure mess. Yes, I admit that we have had a few good months of real estate sale; real estate inventory is low compared to the number of buyers. This doe not mean that the foreclosure auction blocks are empty. Every Friday as I walk into my Everett office, I see a swarm of investors (or people who call themselves investors) standing in front of the Snohomish County Courthouse anxiously waiting to bid on a foreclosed property. It is sort of ironic because my office focuses on helping people avoid foreclosure (or get closure in the whole ordeal).

For most folks, being forced into foreclosure is a scary thing. Dealing with the uncertainty of what comes next coupled with the bank's constant reminder of the outstanding debt is not easy. Most homeowners should understand though, that help is out there.

For homeowners who are trying to save their home, I usually advise looking into applying for a loan modification. Under the Foreclosure Fairness Act (2011) that I wrote about in another post, I can require the lender to stop the foreclosure process and help the homeowner explore options. We go to mediation face-to-face with the lender's representative (or attorney) and we review documents together. We have had the lenders reduce principal balances, interest, extend loan terms, and offer other work-out solutions. Keep in mind that every situation is different and we can never guarantee results.

There are times where mediation is not ideal. For instance, to qualify for relief, the homeowner must demonstrate a "hardship". If the homeowner makes too much money (in the bank's eyes), this will automatically result in a denial of any relief. For those cases, then I usually advise filing for Chapter 13 protection in bankruptcy court. Why? The Bankruptcy Court can order the lender to stop foreclosing and listen to the homeowner. Often, it shifts the ball back into the homeowner's court. Unlike mediation or applying for a loan modification, the lender is not free to do whatever it wants once the borrower has filed for bankruptcy relief.

For homeowners who do not want to keep their home, there are a couple of options. Sometimes letting the lender foreclose is wise. Other times, it opens the door for the homeowner to become liable to a second or third mortgages. I usually advise either (1) attempt a short sale, (2) consider a Chapter 7 bankruptcy, or (3) let the property go into the auction block and deal issues as they become real. I always recommend my clients to speak to me before attempting a short sale; most folks rely on advice from their realtor when engaging in a short sale. Only an attorney can give competent legal advice. Many realtors legally cannot tell homeowners the difference between a short sale and a foreclosure--so how do people know which one is better for them?

If you are homeowner in Washington who is facing a foreclosure problem, please do not hesitate to give me call. Call me before you start a short sale (before you sign that contact to list your home).

The Pitfall of a Poorly Filed Bankruptcy

Many folks have asked me why an attorney will make a difference when filing for bankruptcy. Honestly, it might not make a difference depending on your circumstance. I've seen lots of bankruptcy filed without attorneys and they turn out just fine. On the other hand, I've seen some poorly planned bankruptcy turn very ugly for the debtors--costing the debtors everything they own and more.

Based on my experience, a simple Chapter 7 bankruptcy can run between $900 to $1,500 for attorney's fee. While that may seem a lot to folks who are scrapping the bottom, I always counsel folks against doing it themselves. The reason is because you cannot "unfile" a bankruptcy; there is no right to dismiss a Chapter 7 petition.

What happens when a creditor challenges your bankruptcy? There is a process called an "Adversary Proceeding" that is filed in a bankruptcy to challenge a debtor's right to a discharge of debts. In a nutshell, it is a lawsuit filed in bankruptcy court. These adversary proceedings are brought by disgruntled creditors who will stop at nothing to make the debtor "pay". Litigating an adversary proceeding can be costly. In some case, a well-planned bankruptcy can reduce the risk of an adversary proceeding. Win or lose, it is not unheard of to see a $20,000 to $30,000 legal bill to defend a poorly filed bankruptcy. I, personally, have actually billed this much to represent a debtor in an adversary proceeding. Most folks who are served with an adversary proceeding cannot afford to defend themselves and fall victim to frivolous challenges by disgruntled creditors.

When considering whether to go with an attorney or not, consider how much you can potentially save by going with a good attorney.