Chicago Bankruptcy Lawyer Blog

Let’s talk a bit about the sub-prime crisis, shall we? I know -- what a depressing topic. But for a great many homeowners, the sub-prime crisis has had some effect on them, one way or another. If it’s only touched you peripherally (say with a reduced property value), then you’re very lucky. But if you’re not so lucky, well, all is not lost -- “all” being your home.

This past Monday, according to a press release, Fannie Mae sent a signal to U.S. banks and lenders that the “solution” to their housing loan problems was not in property foreclosures, but in short sales or modifications of the interest rates on the loans or the terms of the loan. In case you’re wondering, Freddie Mac had already made the same commitment late last month.

Given that “good news,” plenty of homeowners with a mortgage loan guaranteed under the Fannie Mae or Freddie Mac loan programs probably believe that they can at least breathe a little bit easier, because of the augmented incentives that the mortgage servicing companies have been offered.

The reality is far different from the belief, though. It’s far easier and quicker for the banks to continue to foreclose on your property, even while you’re trying to negotiate in “good faith” with them. Before you know it, your house is no longer your house, and you’re out on the street. Nice try on your part, though.

So, what about that “short sale” option that they mentioned in the press release? You may have heard the expression “short sale” but weren’t entirely sure what it was. Well, in a short sale, a potential buyer of your property can make an offer on your house for less than the loan amount outstanding, and the bank (hopefully) agrees that it will take the lesser amount and releases you from your indebtedness. Done deal. Except that you no longer own the house. Not so good.

If you want to keep your house, and I’d expect that you do, you need to be a little proactive and you had better move quickly. Provided that you’ve got a regular and steady income stream, your only real option is to consider Chapter 13 bankruptcy. In a Chapter 13, the foreclosure proceeding initiated by your lender is stayed or halted, as are most collection proceedings against your property. In a way, the Chapter 13 is a modified loan agreement, but of your own design. What you are doing, in essence, is proposing a repayment plan over the next three to five years that works for you, given your financial situation. If the Chapter 13 petition is approved by the courts, the lender isn’t allowed to hound you for repayment under the original agreement; they must accept your court-approved terms.

Once the Chapter 13 is approved, and your loan is restructured, it is up to you to keep your payments current or else you can still lose your property. It is up to you. Think fast.

Good luck.

-- Debt Diva for DebtStoppers