Options to Avoid Foreclosure in New Jersey: Not Just Bankruptcy
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Options to Foreclosure in NJ
Not every foreclosure is the same and neither are the solutions. What may work for one family may not be available to another. How your foreclosure is resolved depends on the specifics of your situation. If you have equity in your home, you will find that there are more options to resolving your foreclosure situation. Just the other day, we helped a family refinance their home, pay off their bills including garnishment and get an interest rate that was roughly half of what they currently had.
Their situation is not unique but does not apply to everyone. They had bought their home in 2013 at $290,000 and now it was worth almost $500,000. They had more than 50% equity in their home and were not yet late on payments because of the COVID foreclosure moratorium. One spouse had lost their job and now was employed again. It turns out they didn’t really need our help except in introducing them to a mortgage broker. Other attorneys were trying to force them into bankruptcy, but we looked at their whole situation before making a recommendation. We didn’t make any money, but the family got to keep their home and were happy to have someone tell them the truth.
Refinancing versus Loan Modification
Refinancing is when someone pays off their old loan with a new loan. This is normally only an option for people with good credit and or not behind on their payments. Having a lot of equity in the home also helps. In a refinance, normally the interest rate can be lowered, and or the person can cash out some of the equity in the property. In many cases, the monthly payment can be lowered or the length of the term of the loan can be lengthened or shortened depending on the situation of the borrower.
A loan modification is normally only for people that are behind on their mortgage. We will never tell anyone to stop making their mortgage payments so they can qualify for a loan modification. This can be a recipe for disaster. We have helped families that were told this. In some cases, people were turned down for the loan modification and now bad credit because of bad advice. Some loan servicers just demand the back payments to be made with the late fee payments tacked on instead of offering a loan modification
However, when people qualify for a loan modification, a significant payment reduction in the monthly payment can happen in order for a homeowner to keep the property and pay less going forward. The loan modification process can be overly complicated, appear to make no sense, and be tedious in that it feels like the same documents are requested a thousand times. Loan modification can be done by itself or in conjunction with bankruptcy.
If a homeowner does not want to ultimately keep the property, a short sale or cash-for-keys option may be the best alternative. In cases where debts are overwhelming, bankruptcy may be appropriate. Below are some of the most common methods by which we resolve foreclosure matters.
Common Solutions to NJ Foreclosure
Loan Modification: Modify your current mortgage to reduce monthly payments and add arrears into the principal of the mortgage or you may be offered a possible principal reduction or deferment where the entire arrears or a portion of the arrears is added to the end of the mortgage as a balloon payment.
If you have failed to get a loan modification in the past, let us review your paperwork to see if there is a way to appeal or reapply for a loan modification. If you prepaid your loan modification and did not get the results you wanted, you may have been scammed, and we can fight to try to get your money back.
We have run across scam companies and even attorneys that did not follow NJ laws for a loan modification. It costs you nothing for us to review what had previously happened.
Mortgage Forbearance: This is a temporary solution. You basically ask your bank to let you skip payments for a set amount of time. Under the Cares Act anyone with a federal loan and who was impacted was able to skip payments for almost 18 months. At the end of the forbearance, the missed payments will need to be paid back. How they are to be paid pack will vary based on your circumstances.
Short Sale: When you are approved for a short sale you will be allowed to sell your property for less than you owe on the property. You normally are not allowed to sell this to a family member or a close friend as the bank is not making the full amount of money that it planned, as is cutting their losses. The bank pays your closing, your legal costs are covered and you get to avoid having a foreclosure on your record, and in some cases, you are given money to assist in moving out of the property.
Short Payoff: When the bank agrees to let you pay off the loan for less than what is owed on the loan. This is a method rarely talked about because if most people could afford to pay off their loans, then the bank would want the full amount, however, we have seen banks take less money to avoid legal Headaches. (Difference between short sale and short payoff.)
Deed-In-Lieu of Foreclosure (Cash for Keys): You work with the bank to turn over the property to the bank. Homeowners sometimes are given money for relocation expenses covered and cash incentives. Normally if the bank sees a way that cash for keys makes sense for them, the homeowner may be leaving a pot of money on the table that they could go after sometimes in the form of a sale.
Bankruptcy (Ch. 7, 11, and 13): The different types of bankruptcies that may suit your specific situation requires an attorney to analyze what the property is worth, and your long-term goals. When all other options fail, bankruptcy can eliminate personal liability for most of your debts, give you more time to catch up on arrears, and can even help you get a modification and reduce the principal on the loan.
Chapter 20 Bankruptcy: Chapter 20 is not technically an official title, however, it is when one person files a chapter 7 bankruptcy to get rid of all of their unsecured debt and then files a chapter 13 bankruptcy to then only have to pay towards unsecured debt such as a home. By getting rid of unsecured debt, it is normally easier to develop a chapter 13 payment plan to pay back arears on a home. Loan Modification in Bankruptcy (Ch. 7, 11, and 13): Even if your loan modification has failed in the past when the bankruptcy court oversees the process, they make may have a different tune. Banks do not want to have to explain to a judge why they would deny a loan modification that makes sense, and the banks cannot play the game of “we never got that document.”
NJ Foreclosure Defense Strategies
If you are determined to fight your bank in NJ Chancery Court, you have a strict timeline to adhere to, and you need to be able to use the court to your advantage. Veer Patel, a NJ Foreclosure Defense Attorney, lays out the options on this webpage.