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Dayton, Ohio Bankruptcy Attorneys - Cope Law Offices

Dayton Bankruptcy Attorney Personalized Debt Relief Solutions If you are overwhelmed by debt, you may feel as though no one can help you. However, there is help available, and the sooner you take advantage of it, the sooner you will find debt relief solutions. Speaking with a knowledgeable bankruptcy attorney is an easy first step …

Mortgage

January 7, 2020 by Russ Leave a Comment

Think Twice Before Reaffirming Mortgage Debt

There’s no one size fits all answer, but the general rule when it comes to reaffirming mortgage debt in bankruptcy is “don’t.” Reaffirming mortgage debt is great for the lender. For the bankruptcy petitioner though, reaffirmation of mortgage debt generally leads to increased future risk and increased attorney fees. In other words, there’s little or no upside for most homeowners.

What is a Reaffirmation Agreement?

When you reaffirm a debt in bankruptcy, you waive the protection you would otherwise receive through the bankruptcy discharge, and agree to remain personally liable for the debt. Many people who want to keep their homes or other property that serves as collateral for a debt don’t see a problem with reaffirming. After all, they are planning to continue to make payments. So, it seems like it won’t make much difference if they’re legally required to do so. 

However, life doesn’t always go as planned.

The Number One Risk of Reaffirmation

When debt is discharged in bankruptcy, the bankruptcy petitioner is no longer personally responsible for that debt. Therefore, if a homeowner files bankruptcy, does not reaffirm the debt, and receives the discharge, he or she is no longer liable for the outstanding balance and the mortgage. Of course, a homeowner who wants to keep the property must continue making payments–the lender can still foreclose on the property if the homeowner defaults or stops making payments. However, foreclosure will be the mortgage holder’s only remedy.

On the other hand, if mortgage debt has been reaffirmed, the homeowner remains personally liable for the debt. In that situation, if the borrower falls behind on debt payments, the mortgage holder may foreclose as in the reaffirmation example above. However, with the reaffirmation, the mortgage lender can also personally pursue the borrower for any remaining balance.

Here’s how that plays out for real people in bankruptcy:

Imagine that Debbie and John each file bankruptcy. Each owns a home worth $150,000, and is carrying $170,000 in mortgage debt. In other words, Debbie and John are each $20,000 “underwater” on their mortgage debts. 

In bankruptcy, Debbie reaffirms her mortgage debt. John does not.

Several months after bankruptcy discharge, each falls on hard times, and becomes unable to keep up mortgage payments. Both mortgage lenders foreclose, and both homes sell at auction for $40,000 less than the outstanding mortgage balance.

Debbie’s and John’s circumstances are identical, except that Debbie reaffirmed and John did not. John loses his home, but because his mortgage debt was discharged in bankruptcy, is not personally liable for the deficiency balance. The mortgage holder receives the proceeds of the sale, and that is the end of the road.

Debbie also loses her home. However, because she reaffirmed, her story doesn’t end there. Debbie is still personally liable for the loan. That means the mortgage lender can continue to pursue collection action against her, even sue her for the deficiency balance. Since it has only been a matter of months since Debbie received her bankruptcy discharge, it will be years before she can file another Chapter 7 case and discharge the remaining mortgage debt. In the interim, she may face aggressive collection actions , wage garnishment, and even seizure of property or bank accounts.

In short, the decision to reaffirm may have cost Debbie tens of thousands of dollars, and years of additional financial stress. 

What is the Upside to Reaffirming Mortgage Debt?

While some bankruptcy petitioners who own their homes want to reaffirm mortgage debt, the benefits are fairly limited. For example, if a bankruptcy petitioner keeps the house and continues to make payments without reaffirming, mortgage lenders typically will not report those payments to the three major credit reporting agencies. Therefore, the bankruptcy petitioner loses the value of those on time payments as a tool for rebuilding credit after bankruptcy.

There may be other minor inconveniences associated with not reaffirming. For example, some mortgage lenders will stop sending monthly statements. That means the borrower must take responsibility for ensuring that appropriate payments are made in a timely manner without a reminder.

However, it is difficult to see how these minor benefits could be worth the risk associated with continuing personal liability.

The Cost of Reaffirmation

Many bankruptcy clients question the additional attorney fees associated with a mortgage reaffirmation. Of course, the main reason that we discourage most clients from entering into a mortgage reaffirmation agreement is that it puts the benefits of the bankruptcy at unnecessary risk for very little return. When the bankruptcy filer is adamant about pursuing reaffirmation, however, that service is not included in our standard bankruptcy flat fee. That’s because a mortgage reaffirmation requires considerable additional work on the part of a bankruptcy attorney.

It is often difficult to get the lender to execute a reaffirmation agreement. In addition, bankruptcy law requires the attorney to make a determination as to whether or not the debtor can afford to reaffirm. If the bankruptcy lawyer takes responsibility for assuring the court that he or she has determined in good faith that the debtor can afford to reaffirm, the court will typically approve the reaffirmation agreement without hearing. However, it is rarely in the debtor’s best interest to reaffirm mortgage debt. And, if the attorney opts not to sign off on reaffirmation, then a hearing before the bankruptcy court is required.

The bottom line is that we generally discourage reaffirmation of mortgage debt. Any bankruptcy petitioner who chooses to move forward with reaffirmation must carefully weigh the increased risk of significant future liability and the increased time and expense in the bankruptcy process.

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Filed Under: Mortgage

December 3, 2016 by Russ Leave a Comment

Should I Refinance My Mortgage?

SjpiThe holidays are coming up and cash is tight for a lot of us. Plus, a new year is about to start. That makes it a good time to think about reorganizing our finances and finding ways to spend less and save more. That may mean cutting back on restaurant meals or movies. It may mean really taking advantage of coupons and deals. Those smaller changes can really add up – but what about your big bills?

For most folks, a mortgage is the biggest bill every month. You can’t use a coupon to lower it, but there is a way to make those payments easier: refinancing.

What is mortgage refinancing?

When you first took out your mortgage loan, you had to agree to a number of aspects of your loan. Most importantly, you picked a “term,” or a length of the loan. Most commonly, that’s 30 years. You also agreed to an interest rate. That may have been a fixed rate, which means you pay the same rate every month. Alternatively, you may have agreed to an adjustable rate. An adjustable rate mortgage (ARM) has an interest rate that changes every month based on certain factors in the market. That’s an advantage when rates drop, but can leave you with unexpectedly high payments when rates rise.

The terms you chose may have made sense at the time, but times (and rates) change and you may want to adjust those factors to make your payments easier. That’s where refinancing comes in.

There are two main types of refinancing: rate-and-term refinancing and cash-out refinancing. With rate-and-term refinancing, you renegotiate the original agreement with your lender. That may mean shortening or extending the term of the loan, which allows you to pay it off faster or make smaller monthly payments over a longer period of time. It may also mean changing your ARM to a fixed rate mortgage to take advantage of low rates. Cash-out refinancing means taking out an entirely new mortgage for more than your current mortgage. For example, say your current mortgage balance is $100,000. You can take out a new mortgage for $120,000 and use $100,000 to pay off your old mortgage. Then you take the remaining $20,000 in cash.

Should I Refinance?

As with most financial questions, that depends on your unique circumstances. Refinancing costs money! You’ll typically have to pay:

  • A mortgage application fee of up to $500
  • An appraisal for $200-$700 (so the bank knows the value of your home and can decide how much to lend)
  • A loan origination fee of 1 – 1.5% of the value of the new loan (if you want to refinance $100,000 of mortgage loan, you’ll have to pay $1,000 – $1,500)
  • Title search and insurance of $600 – $1,200 (to ensure that you actually own the home and protect against problems with the title)
  • Local recording fees, which vary by area but can cost several hundred dollars

You may also have to pay the fees associated with your particular mortgage loan. And more importantly, your amortization will start over. “Amortization” refers to how you pay off interest and principal over time. Your earliest mortgage payments are mostly interest payments, since you pay the interest rate on the entire loan every month plus a certain amount of the principal. By the end of your loan, you’re paying a small amount of interest and a large chunk of the principal. So, remember that a refinance means a whole new amortization schedule. That means you may end up paying more interest over the long run.

So how do you decide if a refinance is right for you? You’ll have to do a little bit of number crunching. First, take your original mortgage and figure out how much it’s costing you. Essentially, you’re looking at your monthly payments and also your total interest payments over time. Then, talk to your lender (and potentially other lenders) about refinancing. Ask them about their fees and ask them to give you an amortization schedule for a new loan. You can compare your current monthly payments and your total interest payments with those from a new loan. If it’s cheaper to refinance, then refinance!

Sometimes that math can get complicated, especially if you’re already behind on your mortgage payments. At that point, it’s worth it to talk to a financial adviser (your lender will have advisers) or an attorney to determine whether you qualify and how a refinance will affect your monthly payments and your loan overall.

The Bottom Line

Mortgage loans are expensive – period. A home is the largest purchase most people will ever make. So it’s worth the time and effort to consider your loan and make sure you’re getting the best possible deal. If you’re having trouble making those payments every month, a refinance may help ease the pressure on your budget.

If you’re behind on your mortgage and refinancing isn’t an option or won’t lower your payments enough to let you make ends meet, you may want to consider other debt management options. Contact us today for a free case evaluation and consultation to learn about your options.

 

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Filed Under: Mortgage

July 26, 2016 by Russ Leave a Comment

How to negotiate with your mortgage loan servicer

If you fall behind on your mortgage or other significant financial obligations, one of the first important steps you can take is to talk to the lender about your situation. There are several different things you need to have ready in order to do that. If you’re having trouble making the payments, contacting the lender sooner rather than later will give you the most possible options. Many loan servicers (organizations who look after your loan) have expanded options available to borrowers and it’s worth calling the servicer to ask, even if your request has been turned down previously.

Servicers are receiving plenty of calls, so be persistent and patient if you’re not able to reach your servicer on the first try. There are multiple options available to individuals who are struggling to make their mortgage payment.

Making Home Affordable Program

You may qualify, for example, for a loan modification under the ‘Making Home Affordable‘ modification program if you meet the following criteria:

You obtained your mortgage before January 1, 2009, you owe a less than $729,750 on your first mortgage, your home is your primary residence, you can’t afford your mortgage payment due to a financial hardship like medical bills or a job loss and your payment on your first mortgage is more than 31% of your current gross income.

In the event that you meet these qualifications, contact your service provider. Some of the information you will need to provide to your loan servicer should be prepared before you call the loan servicer directly. This includes:

  • Your most recent tax return
  • Your mortgage statement
  • Details about your savings and other assets
  • The before-tax income of your household
  • Account balances and minimum monthly payments and credit cards
  • A hardship affidavit explaining your circumstances
  • Monthly payments on other debts like car loans or student loans

Tips and Options for Avoiding Default and Foreclosure

If you are not eligible for the “Making Home Affordable” modification program, you still may have other options to protect your house. If you’ve fallen behind on your payments, there are multiple foreclosure prevention options with a loan servicer. These include:

  • Forbearance, in which your mortgage payments are suspended or reduced for a period you and your servicer agree to. At the conclusion of this time, you must begin making your regular payments in addition to a lump sum payment, or partial payments, for a number of months in order to bring the loan current again. This could be an option if you have suffered a temporary loss of your income like you might experience if you suffered a disability and are currently unable to work.
  • Repayment plan. In this option your servicer gives you a fixed amount of time in order to repay the amount you are behind. The mortgage arrearages are added to your regular payments, and spread out over time. This could be an option if you have missed only a few payments. Keep in mind that Chapter 13 bankruptcy may be a better option in this scenario.
  • Reinstatement. If the problem paying your mortgage is temporary, you may wish to pursue reinstatement. This means you would pay the loan servicer the past due amount plus any penalties and late fees by a date you both can agree to. This would be a lump sum payment, paid all at once, to bring the loan current.
  • Selling your home. Depending on the specifics of the real estate market in your geographic area, you may be able to sell your home to give you some of the funds you need to pay off the mortgage in full. Some lenders will allow for a short sale, where the home’s sale price will not satisfy the mortgage, i.e., you are “underwater” on your home.
  • Loan modification. In this situation you and your loan servicer agree to permanently change one or more of the terms of the mortgage contract to make the payments easier for you to keep up with. This could mean extending the term of the loan, adding this payment to the loan balance or reducing the interest rate.
  • Personal bankruptcy may be considered a last resort option. However, it can be a good opportunity for you to start afresh if you are overwhelmed with the prospect of trying to get caught up. A bankruptcy will show up on your credit report, however, many people we work with are able to regain good credit within a couple years. It’s also important to keep in mind that a period of delinquency will usually already have harmed your credit. When a credit score has already taken a hit, there is very little downside to filing for bankruptcy.

Before throwing in the towel and giving up, make sure you reach out to your loan servicer to get more information. It’s unlikely that you’re the first or last person to request these details and there are probably many programs available to help you. You never know until you ask. You may be able to avoid more serious actions like foreclosure simply by asking your loan servicer if alternatives are available. Getting back on track and being able to make a deal with the loan servicer can relieve some short-term pressure and help you keep your house, too.

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Filed Under: Foreclosure, Mortgage

March 9, 2016 by Russ Leave a Comment

What Factors Influence Your Mortgage Interest Rate?

Mortgage Interest RateIf you are like the majority of people interested in purchasing a home, you probably have questions about how to obtain the lowest possible interest rate. Your interest rate can have a significant impact on the amount you pay for your home, so it’s worth doing some research ahead of time to learn how to keep it as low as possible.

Unfortunately, the process by which your interest rate is determined can be complicated and isn’t always transparent. However, there are some major factors that will definitely affect your rate. This isn’t an exhaustive list, but it’s a good starting point:

1. Home Location

Some lenders price their loans differently by state and even by neighborhood. State laws determine the foreclosure process and may affect their ability to collect if you default. In addition, homes in some areas are worth more and homes in up-and-coming areas may be considered less risky by your lender. by the same token, homes in rural areas or low-income areas may be riskier. In fact, some lenders won’t offer loans in those areas at all.

Talk to your real estate agent and loan officer to see if there are any details you should know before you start house-hunting in a particular location. You’ll need to balance the area you want and can afford to live in against the likely impact on your interest rate.

2. Credit Score

Your credit score is one of the most important factors used to determine your interest rate. It helps to predict how reliable you will be in paying off a loan. Your credit score is ultimately calculated after an analysis of your credit report which shows all credit cards, payment history, and loans attached to your name.

With a higher credit score, you will be able to get a lower interest rate. Before you begin your mortgage shopping process, get your credit report so that you can see what your score is and identify and fix any errors. Look for areas that may be impacting your score, such as past-due accounts, and work to get those areas back on track.

Bear in mind that changing your credit score quickly is challenging. It’s better to take a long-term approach to it and implement strategies to improve your credit rating months in advance or even longer. Waiting a few months while your score improves can save you thousands or even tens of thousands of dollars on your home down the road.

3. Loan Amount and Home Price

The total cost of the home minus the down payment is the amount that you will need to borrow for the mortgage loan. You’ll pay a higher interest rate if you’re taking out a very large or very small loan.

When you start shopping for a home, you may be approved for a mortgage higher than what you need. You certainly do not have to take the maximum, particularly if you find your dream home in a more-affordable bracket. Talk to your loan officer about your budget and the amount you plan to borrow and shop around for a lender that will give you the best deal.

4. Down Payment

If you put down a higher down payment, your interest rate will typically be lower. That’s because lenders see you as a lower risk when you have a higher stake in the property. Putting down 20% or more will give you the best results as far as your rate goes. Just like improving your credit score, it may well be worthwhile to wait a little longer before purchasing a home if it means you can make a 20% down payment.

Note that not all lenders will require a down payment of 20%; some programs allow you to put down just a few percent. However, your rate will be much higher.

5. Interest Rate Type

Interest rates may be adjustable or fixed. A fixed interest rate won’t change over time – you agree to it up front and it stays the same over the course of your loan. An adjustable rate will typically be fixed for an initial period and then increase or decrease based on the market. With an adjustable rate loan, you’ll usually be able to get a lower initial interest rate. However, that rate could increase significantly down the road if the market moves up. If you have an adjustable rate loan and the market drops, you  may want to consider refinancing and switching to a fixed-rate loan to lock in that lower rate.

6. Term of the Loan

Shorter-term loans typically will have lower interest rates and lower costs over all but lead to higher monthly payments. Many home loans have 30-year terms, but you may be able to get a term as low as 15 years. You’ll need to balance the loan term against your budget and what your lender is willing to offer.

7. Type Of Loan

There are several different categories of mortgage loans, including VA loans, FHA loans, and conventional loans. The rates of each type of loan can vary significantly. Some are subsidized by the federal government to ensure access to loans and support home ownership among certain populations. If you qualify for these loans, be sure to compare them to traditional loans to make sure you’re getting the best deal possible.

The Bottom Line

There are a lot of mortgage loan options out there and many factors that can affect your interest rate. Before you start seriously shopping for a home, take a comprehensive look at your finances and the neighborhoods you’re considering to get a sense of what kind of interest rate you can expect to pay. The rate you’re offered may vary a lot by lender, too, so make sure to shop around and see what different lenders can offer.

Happy house hunting!

 

 

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