Mortgage

New Jersey Attorney Details The Bankruptcy Process When Losing A House

Bankruptcy Lawyer Explains Valuation Process For Mortgage Modification In A New Jersey Bankruptcy Case

There are other blogs explaining when and how a mortgage may be modified in a New Jersey bankruptcy case. This blog explains the house valuation and associated issues. A mortgage may be modified in a chapter 13 and not in a chapter 7.
If the value of the debtor’s principal residence is less than the first mortgage payoff, than the second mortgage may be stripped completely from the house. Also, if the value of the debtor’s non-principal real estate value is less than the mortgage payoff, than the debtor may reduce the mortgage to the value of the house. However, under this scenario, any mortgage mortgage that is modified, must be paid, in full, through a 60 month bankruptcy plan. As a result of the difficulty to pay the mortgage’s secured portion within 60 months, such a reduction is extremely unlikely.
The main issue dealing with a bankruptcy mortgage modification is the value of the house. A request to modify a mortgage is initiated by the debtor’s Motion to Avoid or Modify a Mortgage. A valuation of the real estate must be filed with the court, to provide proof of the house’s value. The court will accept a house valuation that is prepared by a licensed New Jersey Real Estate Sales Representative or Broker. This type of valuation is named a Comparative Market Analysis or a Brokers’ Price Opinion. In addition to the valuation, the debtor must also provide a first mortgage payoff or recent mortgage statement reflecting the principal balance. If the debtor provides the proper proof of mailing to the creditor and no response is filed, the motion and request to modify the mortgage will be granted.
However, if the mortgage company or creditor files an objection to the motion, than an expert appraisal will be required. An appraisal by a licensed New Jersey appraiser, is necessary although the cost is substantially more than the sale’s rep. or broker’s valuation. Also, the appraiser should be experienced and available to provide expert witness of the house’s valuation in court. Typically, the mortgage company will provide and file their appraisal with the court. The appraisals may facilitate a settlement or a withdraw of the motion or the objection. If the matter cannot be resolved, the appraisers must testify to the valuation, with the judge making the determination of the final value.
The typical manner in which to value a house is to compare the recent sales’ prices of similar houses in the area of the debtor’s house. The appraiser attempts to obtain houses that are most similar to the debtor’s house. The appraiser will adjust the figures downward or upward depending on the differences between the debtor’s house and the comparable properties and condition of the houses. In other words, if the comparable house has more bedrooms, than the appraiser will make adjustments downward, etc. Also, the appraiser will adjust downward for  the costs of repairs.
You may contact the bankruptcy attorney in NJ., Robert Manchel, at 866 503 5655.

Lawyer In New Jersey Explains When Mortgages Can Be Modified In Bankruptcy Case

The bankruptcy code section permitting a mortgage modification in a chapter 13 is as follows:
11 U.S.C. Section 1322 (b)(2)
“…modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor’s principal residence, or of holders of unsecured claims, or leave unaffected the rights of holders of any class of claims;”
The bankruptcy laws permit a mortgage modification in a 13, under certain circumstance. The interpretation of  section 1322 (b)(2) is different when dealing with real estate that is not the debtor’s principal residence. A mortgage in connection with a non principal residence may be modified and reduced to the value of the real property. The following example explains this application. A debtor has a rental home and resides in a separate property. The value of the rental home is $100,000. The payoff of the first and second mortgage is $80,000.00 and $60,000.00, respectively.  The first mortgage may not be modified under any scenario because the house’s value is more than the first mortgage’s payoff amount. However, the bankruptcy code permits the reduction of the second mortgage to $40,000.00, which is the amount available after the first and second mortgage payoff is subtracted from the house’s value. In this scenario, the $40,000.00 must be paid through the bankruptcy plan. If the previous example related to the debtor’s principal residence, and not a rental property, the bankruptcy law would not permit any modification of the second mortgage.
The bankruptcy law permitting a mortgage modification in a chapter 13, specifically excludes the modification of any mortgage that is deemed a secured claim, in which the mortgage is limited to a security interest only in the debtor’s principal residence. The judicial case law interpreting this bankruptcy law, determined that any mortgage that attaches to any equity in the debtor’s principal residence may not be modified. This means that if any value of any principal residence is less than the payoff of the first mortgage payoff, than all junior mortgages may be completely stripped and removed from the real estate. However, if the value of the debtor’s principal residence is more than the first mortgage payoff amount, even by $1.00, than no junior mortgage may be modified, to any extent.
An example of the law’s application to a principal residence is as follows. A house with a value of $100,000.00 and a first mortgage payoff of $101,00.00, permits the debtor to strip away, completely, any junior mortgage from the house, no matter the amount of the junior mortgage payoff. However, if their is any equity available in the principal residence after subtracting the payoff of the prior mortgage, than the second mortgage may not be reduced, to any extent. For example, if the value of a principal residence is $100,000.00 and first mortgage’s payoff is $99,990.00, than the second mortgage may not be modified, to any extend. However, if the debtor’s principal residence has a $100,000.00 value and the first mortgage has a payoff of $101,000.00, than the second mortgage may be completely stripped from the house. In other words, when dealing with a mortgage modification in connection with a principal residence, it is all or nothing.
Typically, the main issue regarding such cases is the house’s value. If the mortgage company contests the value, than the debtor and mortgage company must provide an expert real estate appraisal. Please note that there are exceptions to the above law that is not explained above. Also, in certain circumstances, the debtor may be required to pay a portion or all of the part of the mortgage balance that may be “eliminated” as explained above.

The foreclosure process in New Jersey is very long compared to other states. Some time ago, the New Jersey supreme court ceased all foreclosure actions for a period of about one year. However, the one year stay was terminated and the court’s, again, permitted foreclosures to commence and continue. The stay and the substantial number of foreclosure filings caused a backlog of the the court system, the sheriff’s sale administration, and a longer foreclosure process. Presently, the backlog has diminished and the time period for the foreclosure process, from initial filing, to the sheriff’s sale, is reduced.
With few exceptions, any bankruptcy filing will stay a sheriff’s sale, if the bankruptcy petition is filed prior to the sale.
However, only a chapter 13 and chapter 11 bankruptcy case allows a person the ability to save their house from foreclosure. Unlike a chapter 7, these chapters permit the debtor to cure the mortgage arrears over a certain time period. Typically, a chapter 13 and chapter 11 debtor must meet specific financial criteria and have the capability to cure their arrears, in addition to making their future monthly mortgage payments. In the alternative, the debtor may apply for a loan modification, within the chapter 13 case.
Although a chapter 7 stops the sheriff’s sale, if the debtor is in default with the mortgage, the court will permit the mortgage company permission to proceed with the sheriff’s sale, pursuant to the mortgage company’s motion requesting same. Under these circumstances, the chapter 7 will extend the time that the debtors can reside in the property.
Robert Manchel can be contacted at (866) 503-5655 if you have bankruptcy related questions.

What happens if someone defaults on a mortgage after the loan was modified?
A person that defaults on a loan modification may be able to obtain a second loan modification. This blog assumes that the person is unable to obtain a second loan modification after defaulting on the first loan modification.
A person who falls behind with their mortgage after entering into a loan modification, may be able to save their house through bankruptcy. As I explain in my website, a person is able to save their house and stop the foreclosure action by paying the pre-filing mortgage arrears through the bankruptcy plan, in addition to paying the regular monthly mortgage payments directly to mortgage company.
The terms of the mortgage that is relevant at the time of the bankruptcy filing are the loan modification terms and not the terms of the mortgage prior to the loan modification. This means that the amount of the default relates to the amount that you are behind after the loan modification. Also, the monthly payment that is due going forward is based on the loan modification terms. Consequently, the amount that must be paid to the mortgage company through the bankruptcy plan is the amount that a person is behind since the first loan modification payment, which does not include the amount of the arrears prior to the loan modification. Also, the monthly payment that must be paid to the mortgage company, after the bankruptcy filing, is the amount that is required under the loan modification and not the amount that was due prior to the loan modification.
Please note that the first payment of the loan modification does not mean the first payment of the trial period payment.
Robert Manchel can be contacted at (866) 503-5655 if you’re at risk of losing your home.

A bankruptcy debtor may possibly eliminate a second and subsequent mortgage, while keeping their house, under certain circumstances. In the district of New Jersey, this may be accomplished in a chapter 13, not a chapter 7.
The main criteria is that the fair market value of the real estate is less than the prior mortgage payoff. See the following example:
real estate value is $100,000.00;
first mortgage payoff is $120,000.00;
second mortgage payoff is $40,000.00;
third mortgage payoff is $10,000.00.
Under this scenario, the homeowners will be able to strip off the second and third mortgage liens from the property, as the second and third mortgages are “under water”.
What happens to the mortgage debt? The mortgage debt is reclassified as unsecured debt, which is the same classification as credit card debt. The amount that must be paid towards the unsecured debt depends on numerous criteria. Typically, chapter 13 debtors pay only a portion of their total unsecured debt, pro rata.
Typically, the mortgages are not stripped away and completely eliminated until the debtors complete all of their required chapter 13 monthly payments and are granted a discharge.
Attorney Robert Manchel can be contacted at (866) 503-5655 to answer your questions regarding bankruptcy protection.