In New Jersey, foreclosures remain active and is a judicially involved process. Depending on the county where you reside, it can take upwards of twelve (12) months or more to complete a foreclosure from the time of service of the foreclosure complaint to the date of the sheriff sale. So while you have some time until you will be removed from the property by way of a foreclosure complaint being filed, it is important to speak with legal counsel early on and learn your rights.
If you no longer wish to own the property and do not want to try to save the home from foreclosure, you still need to be aware how the foreclosure can impact you following the sheriff sale. A lender can choose to sue you personally for any and all sums still owed to the lender following the sheriff sale. This is often referred to as a deficiency suit. This type of lawsuit would be filed in New Jersey Superior Court in the county where the home is located. You would be provided a specific period of time to file an answer to the complaint. If you fail to do so, default and default judgment would be entered against you. Once entered against a party, the judgment is valid for twenty (20) years.
A lender could also forego a deficiency suit and provide you with a 1099C. A 1099C can be issued by a creditor who has forgiven more than $600 worth of debt on behalf of another. A 1099C is viewed by the federal government as income to which you have paid no taxes towards. This can lead to future tax issues and perhaps money owed to the IRS as a result of receiving the 1099C. You must then claim the amount forgiven as income or run the risk of an audit for failing to disclose all of your income. While this scenario looks bleak, there are two (2) different types of bankruptcy filings that could help.
A chapter 7 bankruptcy can help in a few different ways. First, the chapter 7 filing will stop the foreclosure process and provide the average person with more time in the property. Additionally, once the chapter 7 bankruptcy is completed, the lender will no longer be able to send a 1099C to you. By filing the chapter 7 bankruptcy, you will have effectively “insulated” yourself from any and all (future) negative exposure to the house. It is also my experience that most people who are being foreclosed upon also have additional debt in the form of credit cards, medical bills, personal loans and the like. The chapter 7 bankruptcy filing will take care of these debts as well.
Following the completion of the chapter 7 bankruptcy, you may wish to attempt to save the house by attempting a loan modification with the lender. Many of our clients have sought and obtained loan modifications following their bankruptcy filing. Some clients have received loan modifications following their bankruptcy filing even though they were denied a loan modification by the very same lender prior to their filing. This may be due to the fact that one’s debt-to-income ratio is in better alignment following the bankruptcy filing and ultimate bankruptcy discharge. It may also be due to the lender realizing that the homeowner is no longer on the “hook” and the lender doesn’t wish to put any more time and money into the property. For whatever the reason, I have seen a great deal of success in saving a home by filing a chapter 7 bankruptcy followed by an application with the lender for a loan modification.
For someone who wishes to save their home but aren’t otherwise able to file a chapter 7 due to excess household income or some other reason, a chapter 13 bankruptcy can be utilized. Under a chapter 13 bankruptcy you will be given up to sixty (60) months to make up all of your mortgage arrears. On the first of the month (following your month of filing) you would have to resume making your mortgage payment as if you were never late with a payment. The lender would have to accept the monthly payment from you. Once your case has been confirmed (approved) by the court, the chapter 13 trustee would begin paying the mortgage company on a monthly basis out of the funds you have to pay monthly to your trustee. At the conclusion of your chapter 13 plan, all of your mortgage arrears would be current. As with the filing of a chapter 7 bankruptcy, the filing of a chapter 13 bankruptcy would immediately halt or “stay” any foreclosure proceeding upon the filing of the bankruptcy petition.
This is a streamlined blog on what is otherwise a vast area of the law. An experienced attorney will take the time to go through each scenario and legal avenue with you to help arrive with a plan that works best for you given your surrounding facts and circumstances.
At Reinheimer & Reinheimer you always meet with an attorney who will give you his utmost attention. We realize that your home is more than just a place where you sleep at night. Rather, it is a place where you raised your family or where many fond memories and milestones were formed. At our firm you become a part of our extended family. Make the call today and allow us the opportunity to help you make the best choice for yourself and your household.