Many people are struggling with their mortgage payments and some will fall in to foreclosure. I have compiled a to-do list.
1. Don't panic, but take this seriously. If you do nothing or wait until it is too late you will lose your home. Here in Central Florida mortgage foreclosures are usually 3 1/2 to 4 months in length.
2. Respond to the Summons. True, you do not have a defense, you owe the money and you are behind, BUT it is still a good idea to file a response requesting that notice be sent to your home. Send the original to the Clerk of Court and a copy to the foreclosure attorney. Do this because then they have to send notice and you will know when the sale date is. You can't always depend on a Foreclosure Vulture" to tell you they are buying your house on Tuesday, well not if the market is bad. The larger foreclosure firms are good about sending notices even if no response and a default judgment is entered, but this is only a courtesy, not a right.
3. Be careful about the short sale. Hungry realtors will try to talk you in short sale where the mortgage company allows you to sell the house for less than is owed.
Yes, it will stop the foreclosure but you risk having to pay taxes on the windfall you received on the debt the mortgage company wrote off. If you file bankruptcy later, the taxes owed for the short sale would be a priority debt and nondischargeable.
4. Be careful about the magic refinance that will save you. Fine, try it, but, there are things to consider: What is the new rate? Is it adjustable? Is there a balloon payment? Will there be an escrow to handle the taxes and insurance? How much is the mortgage broker charging you? The other issue is timing. Will it close and fund before the sale? I have seen cases where people lost houses waiting for the refinance that never came. Note: when you file a Chapter 13, you get to keep your existing mortgage and terms, you get a chance to catch up.
5. Selling the house. If you can, great, but in a bad market you may wish to file the Chapter 13 and sell the house at a better price when the market is better or when your house is no longer a "bargain/steal" because of an impending foreclosure. Note: for best results it is wise to spend 36 months or more in the Chapter 13 plan as you can pay the unsecured creditors the percentage assigned at Confirmation. Selling the house to pay off the plan before then will require paying the entire amount of unsecured claims.
6. Quit Claiming to investors. I wouldn't do it. If you chose this option make sure you know the investor and can trust him or her.
7. "I am working with the mortgage company." That is all well and good, but unless you have the money to reinstate or have received an order from the court stopping the sale, it is not stopped no matter how many packets you fill out or how many voice mails you leave your mortgage case worker. If the sale is two weeks away and nothing is changing you need to consult with a bankruptcy attorney. I have seen surprised people lose there home to foreclosure trying work with the mortgage company.
8. Save money to pay the bankruptcy attorney. You have not paid the mortgage for X number of months, surely you can stash $1,000 or more the get the Chapter 13 started to stop the foreclosure. I can not speak for all attorneys, but I will not take a Chapter without at least $1000 down.
9. Contact the bankruptcy attorney at least two weeks prior to the sale date. It will make things smoother for the attorney, you, the mortgage company and the courts. It is customary to charge extra for emergency filings. Make sure you gather all the documents required and complete the Credit Counseling Certificate. If you pay by check (I prefer cash or money order), I will take it to your bank and it if it is not good, I will not file and if you don't fix it I will not retain you and will bill you, have your new attorney (if you can find one) notice me of your bankruptcy filing.
10. Face reality. If you cannot afford the mortgage even if you were caught up, you will need to downsize your housing cost. In a Chapter 13 you will have to make the regular mortgage payment according the terms of the mortgage, pay the arrears and foreclosure costs. The bankruptcy attorney fees and the trustee has a 6% fee on every dollar in the plan. The Chapter 13 payment will be higher. If you can't pay the regular mortgage, how can you pay more in a 13 plan?
11. Consider surrendering the home in a Chapter 7. When you file a Chapter 7, the automatic stay goes in to effect and the sale is stopped and can not be rescheduled until relief of stay is sought in Bankruptcy Court. The process usually takes about two months and gives you time to get a rental deposit together and move so you can rent and relax.
12. If you don't file and the sale has occurred, you have 10 days to vacate before the eviction.