Question: I filed for bankruptcy a couple of years ago. Prior to that I asked for financial assistance on my home from my lender, who did not respond. When the bankruptcy was discharged, I again contacted my lender requesting to relinquish title in lieu of foreclosure. Still I got no response. I quit making payments on the property later that year. About a year later the lender contacted me. I asked again about title in lieu of payment and was told I would need to complete a financial statement. Since my financial health had improved since the bankruptcy, I declined. I have not heard from the lender in over a year except for delinquent payment notices. Can I be held liable for any property other than the secured property when the bank finally gets around to foreclosing?
Response: A mortgaged property is a secured property (mortgage itself is the security instrument). When you file for bankruptcy, a mortgage does not become unsecured unless there is not enough equity to preserve the bank’s interest. In that case, only that portion can become unsecured (ex: mortgage $300,000; fair market value=$240,000; unsecured amount=$60,000). By signing a mortgage document, you give the bank a right to go after your home if you default on your payments. When the property is unsecured, the creditor can still go after that amount but they cannot go after your property. So, if foreclosure takes place, the bank can essentially go after you for a deficiency judgment. Consider filling out that financial statement to do a deed-in-lieu of foreclosure or a short sale. What the bank looks for is affordability of mortgage payments. Just because your financial situation improved does not mean you can pay all of your arrears back and stay current on your payments. If the property is clear of any tenants, there is a chance that the bank would accept a deed-in-lieu of foreclosure.
In the legal blog, Attorney Svetlana Kaplun addresses typical questions our firm has received from our clients, or come across from homeowners related to foreclosure, foreclosure defense, loan modification and bankruptcy topics.
The information contained in the legal blog of Attorney Svetlana Kaplun is for informational purposes only, and should not be construed as a legal advice on any subject matter. Please read our full disclaimer or contact the Law Office of Svetlana Kaplun, P.C. by telephone at 718-444-1115 for more information.
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