Today there are many families who feel that they should just walk away from their property. Their property has lost it value. They ask themselves why continue to pay for a house that it is not worth the amount owed on the mortgage. There are others who think that it is not worth keeping their house because there are two mortgages on their property. I write to inform you that there are ways in which these families may stay in the property, and reduce the amount owed on the property; thus reducing their mortgage payments, making worthwhile to keep the property.
Bankruptcy court offers the best way to reduce your mortgage payment, reduce the amount owed on the mortgage, and/or remove the second mortgage from the property all together.
Lets suppose that the Smith family has a house in which they owe the bank $150,000, while the property is worth only $100,000. In addition the Smiths have a second mortgage in the amount of $40.000.00. In essence the Smiths are upside down by $90,000.00.
By filing for bankruptcy, and filing the proper motion, the Smith family may petition the bankruptcy court to remove the second mortgage. The Smith family has to demonstrate to the bankruptcy court that the house is worth $100,000. This will be accomplished by having the house appraised. The appraisal will show the court the current value of the property. As the value of the property is at or below the amount owed on the first mortgage, the second mortgage has become unsecured. Because the second mortgage has become unsecured, once the Smith family receives their bankruptcy discharge, the second mortgage will be removed as a lien from the property. Done! The Smith family has removed the $40,000 owed on the second mortgage. This goal may be achieved with the Smith family filing a Chapter 7 or Chapter 13 bankruptcy.
If the Smith family wants to reduce the $50,000 amount owed to the bank, thus go from owing $150,000 to $100,000, this goal may be achieved by filing for bankruptcy under Chapter 13. What needs to happen?
After filing bankruptcy under Chapter 13, the Smith family will begin making monthly payments to the bankruptcy trustee. (At the very minimum the payment made to the bankruptcy trustee will include the mortgage payment and trustee fees.) The Smith family would then file a Motion for Mediation and make their monthly payment plus an additional mediation fee of about $300.00. The bankruptcy court then will order the bank to attend mediation. Prior to the mediation the Smith family must provide the bank with:
1. copies of three months of their bank statements
2. copies of three months of their paystubs
3. copy of the completed forms provided by the bank
The bank and the Smith family will then attend mediation. The court has ordered it! The bank will attempt to modify the loan in many ways. The bank may adjust the interest rate, and/or the bank may even reduce the loan amount to the current value of the property. Thus, the Smith family may have their mortgage modified, reducing the total amount owed and/or their monthly payments. Done!
Many bankruptcy attorneys will be upset with me as I am making it sound too easy. It is easy, but there is a lot of work that needs to be done and it must be done correctly. If the work is done correctly, then it’s that easy!