Every day, homeowners across the Commonwealth of Virginia discover that their mortgage company has started the foreclosure process.
In 2017, mortgage companies started 14,091 foreclosure proceedings in Virginia. Often homeowners are behind in their payments for reasons outside of their control, such as illness or job loss. They may want to stay in their home, but they don’t know how to do it. Some may want to leave their home but worry about the implications of a foreclosure on their credit report or on future tax debt. This column addresses the options available when faced with the possibility of foreclosure.
Homeowners who want to stay in their homes have limited options after the mortgage company has started the foreclosure process. They can call their mortgage company to try to work out payment arrangements. However, usually by the time the mortgage company has started the foreclosure process, the mortgage company will not negotiate a payment arrangement. Most likely, the mortgage company will require payment in full to stop the foreclosure, and most people do not have the money to pay the entire mortgage balance in full.
Those who want to keep their homes have a second option—a mortgage loan modification. The mortgage company will require the homeowners to fill out forms and provide documents such as pay stubs and tax returns. They will review the information to decide if they will grant the request. This takes time. During this time, the mortgage company will continue with the foreclosure process. Unfortunately, the foreclosure sale date is often too soon to allow the time for the processing of this paperwork. The homeowners cannot wait. They need to act fast to stop the foreclosure.
A third option for homeowners to keep their home is to file a Chapter 13 bankruptcy. At the moment the bankruptcy is filed, the mortgage company cannot continue with the foreclosure proceedings. The homeowner’s bankruptcy attorney will notify the mortgage company of the bankruptcy filing. The mortgage company is required by the bankruptcy rules to stop the foreclosure process. The Chapter 13 bankruptcy includes a plan for how the homeowner will pay back the missed mortgage payments and stays current with their on-going mortgage payments. The plan will also provide for the payment of other secured debt, such as car loans and unsecured debt such as credit card debt. The plan term is between 36 and 60 months. Individuals facing a foreclosure should consult with a bankruptcy attorney.
Homeowners who do not want to keep their house that is in foreclosure also have worries. A foreclosure will decrease their credit score. The foreclosure sale might leave them holding a deficiency balance. The mortgage company might pursue the homeowner for payment of the deficiency. Or, they might write off the deficiency, which will result in a tax liability. In addition, the homeowner might have other financial liabilities, such as credit card debt.
A bankruptcy will eliminate the deficiency balance, if any, and prevent the tax liability. Although a bankruptcy will also negatively impact a person’s credit score, it will do so while cleaning up all of the debt owed, so that the person will truly have a clean slate.
Consulting with a bankruptcy specialist will benefit the homeowner who is faced with foreclosure or matters concerning foreclosure.
Angela (Angi) M. Haen is affiliated with Boleman Law and has practiced bankruptcy law since 2012. She is proficient in helping clients obtain a fresh start of their finances through the bankruptcy process. Haen can be reached at 757-313-3000 or by email at