Foreclosure is the procedure by which a mortgage company repossesses a house against which it has a lien. The mortgage lender loans out money to the borrower and secures the loan against the real estate, called a “mortgage”. When the borrower (the homeowner) defaults in payments, the mortgage company starts a legal action to repossess the property. This legal action is called foreclosure.
One way that a homeowner can stop a foreclosure action is by filing a Chapter 13 Bankruptcy. A Chapter 13 Bankruptcy allows the homeowner to make payments to the mortgage company that cover the homeowner's current monthly mortgage obligation plus an additional amount to catch up the arrearage over the length of a Plan that can extend up to 60 months. So for example, if the homeowner had a mortgage payment of $1,000 per month, and the homeowner was $6,000 in arrears on his mortgage, Chapter 13 Bankruptcy would allow him to spread out the $6,000 arrearage over up to 60 months at no interest. $6,000 over 60 months with no interest comes out to $100 per month. Therefore the homeowner would have to pay a minimum of $1,100 per month over 60 months in a Chapter 13 Plan, $1,000 of which would cover homeowner's continuing monthly mortgage payment and $100 of which would be used to catch up the arrearages. On month 61, when the bankruptcy is over, the homeowner's mortgage would have been brought current.
In order to save a house in Chapter 13, the homeowner must file his bankruptcy prior to the foreclosure sale. It can be the same day as the foreclosure sale, so long as the bankruptcy is filed before the specified time of sale. A foreclosure sale must occur at a specified time on a specified day, for example March 30, 2012 at 10:00 a.m.. So long as a Chapter 13 Bankruptcy is filed prior to 10:00 a.m. on March 30, 2012, then the foreclosure sale is set aside and the homeowner can proceed with his Plan to save his home.
In the event the homeowner decides not to save his home, then under real estate law in the State of Michigan he would have six months after the sale before he must vacate the premises. This is called the “Equity of Redemption Right”. If the homeowner's property sits on more than three acres of land, then the homeowner would have one year after the foreclosure sale before he must vacate the premises. The only way the homeowner does not get his six month/one year Equity of Redemption Right is if he voluntarily elects to vacate the premises earlier. In the event the homeowner elects to abandon the property, he would then be liable for the difference between what he owed on the mortgage at the time of the foreclosure sale and what the house sold for at foreclosure. This is called the “deficiency balance” and could be quite significant. In such a situation, it is generally recommended that the homeowner file for Chapter 7 Bankruptcy, if he so qualifies, to eliminate the deficiency balance. Of course, there may be other factors that could prevent the filing of a Chapter 7 Bankruptcy. For example, the homeowner might have too high of an income to be able to do a Chapter 7, or the homeowner may have filed a previous Chapter 7 within eight years. Bankruptcy law only allows for one Chapter 7 Bankruptcy every eight years from the date of filing. If the homeowner is not eligible for Chapter 7, he can always elect to file a Chapter 13 to pay back some or all of the deficiency balance. The homeowner might elect to do this to prevent his wages from being garnished by the mortgage company. The garnishment in such a situation could well exceed the monthly Plan payment required in a Chapter 13 Bankruptcy.
Contact the foreclosure law attorneys of Joseph L. Grima & Associates P.C. to assist you if you are facing the possibility of losing your Grosse Pointe Farm, St. Clair, Clinton Township, or other surrounding area home or other property because you can no longer afford payments.