What happens when a homeowner declares bankruptcy without dealing with a pending foreclosure?
All too often bankruptcy attorney’s push their client through bankruptcy without considering what will happen to the property they own and the looming foreclosure that could be avoided by working with us..
According to a 2013 study performed by RealtyTrac, a real estate data company, there are currently more than 300,000 zombie properties in existence.
Almost a third are in Florida, with a whopping 90,556 zombie foreclosures on the market.
So how does a home become a zombie?
It used to be that when a homeowner defaulted on a mortgage, the bank would take ownership of the home and title, foreclose on the property and recoup their money at auction.
However, in a post-crisis housing market, banks often find that attempting to sell a depreciated property, which is likely surrounded by even more foreclosures, is just not worth the time and money. Instead, they halt the foreclosure process when it’s deemed a futile effort, and move on.
The homeowner has usually moved on as well after receiving a foreclosure notice and instructions to vacate the property from the lender.
Unfortunately, because a foreclosure was never finalized, the house still belongs to the original owner whether they know it or not – and unless the lender bothered to notify the homeowner, they could be completely unaware.
According to Reuters’ Michelle Conlin, in a recent article for the Christian Science Monitor, “By walking away, banks can at least reap the insurance, tax and accounting benefits from documenting the loss – without having to take on any of the costs and responsibilities of ownership.”
So who do the costs and responsibilities of ownership fall on then? The owner, of course – and those costs accumulate exponentially the longer that person remains unaware the home still belongs to them. Expenses victims of zombie foreclosures often face include:
– Back taxes: Homeowners are responsible for paying property taxes, but victims of zombie foreclosures don’t know they are still liable for these taxes.
– Utility bills: While some utility companies will shut off service if bills go unpaid, others, like natural gas providers, will keep on charging for service every month.
– Maintenance: Zombie foreclosure owners will find themselves stuck with bills for lawn maintenance, trash pickup, graffiti removal, home repairs, and other expenses fronted by the city when their unknowingly abandoned properties begin to pose health and safety risks and violate housing code.
– Destroyed credit: In addition to expenses directly related to the zombie foreclosure, homeowners also find their credit is ruined and must deal with repercussions such as excessively high interest rates and the inability to qualify for future loans.
So the question remains, should a homeowner facing foreclosure consider waiting to to declare bankruptcy until after their foreclosure has been resolved? The answer should be obvious, absolutely.
A mortgage is a debt secured by a property and just because a bankruptcy attorney claims they can stop your foreclosure doesn’t necessarily mean that they can get you out of the foreclosure. Once the bankruptcy has completed the foreclosure process continues which means even more damage to your credit and a possible deficiency judgment for the balance remaining after the property has been sold at auction. A short sale gives you the one and only opportunity to negotiate that debt away. Even if the lender wants to pursue a deficiency judgment against you for the balance or request that you sign an un-secured promissory note payable over 20 years. You could actually end up with a bankruptcy, a deficiency judgment and a foreclosure on your record. All of which could be avoided by doing a short sale.
Even if a lender asks you to sign a promissory note, that debt is now un-secured and can be discharged in a bankruptcy filing.
If you are upside down with negative equity then we can help.
Contact us so that we can put you in touch with one of our Qualified Agents so that we can help you get a fresh start in life today.
Here is an Interesting Article on the Subject
Warning- Bankruptcy will not avoid a foreclosure!
If you or your client is considering a Bankruptcy to avoid foreclosure please consider downloading the flyer below.
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President and Acquisitions Manager
Real Estate Liquidators