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Archive for the ‘curing mortgage arrearage’ tag

Additional Charges and Curing Your Mortgage Arrearage

October 28th, 2019 at 7:00 am

Resolve disputes with your lender in Chapter 13 about 1) additional fees and charges, and 2) whether you’ve cured the mortgage arrearage.  

Last week we described a Chapter 13 procedure to force mortgage lenders to resolve mortgage accounting disputes. This procedure focuses on changes to the monthly mortgage payment amount during the case. These are often just the normal contractually mandated changes arising from adjustments to the mortgage interest rate, and in property taxes and homeowners’ insurance. You and your lender need to be on the same page on the monthly amount so that you can stay current. Because of the importance of this, Rule 3002.1 of the Federal Rules of Bankruptcy Procedure provides an enforceable way within Chapter 13 for you to timely learn about mortgage payment changes and to efficiently resolve any related disputes.

This Rule also addresses two other practical problems about mortgage accounting:

  • Determining the appropriateness of fees or charges a mortgage lender wants to add to your mortgage debt
  • Determining at the end of a Chapter 13 whether you have in fact fully cured the mortgage arrearage

Determination of Fees and Charges

During the course of a Chapter 13 case, a mortgage lender may add what it considers to be a contractually appropriate fee or charge to the mortgage balance. Common examples include residence inspection fees, late charges, and the lender’s attorney fees. Rule 3002.1 (c) requires the lender to give an itemized notice of any such fee or charge. It must provide this notice within 180 days of incurring the fee or charge. It’s served on you, your bankruptcy lawyer, and your Chapter 13 trustee.

Then either the trustee or you have a year to dispute the fee or charge. The bankruptcy court then determines “whether the fees, expenses, or charges set forth in the notice are required by the underlying agreement or applicable nonbankruptcy law to cure a default or maintain payments.” Rule 3002.1 (e).

Determination of Final Cure of the Mortgage

Chapter 13 effectively gives you up to 5 years to pay, or “cure,” any amount of your mortgage that you’re behind on. But what if you don’t know how much you need to cure because of miscommunications or disputes with your lender? You get to the end of your case believing that you’ve cured the arrearage but your lender says you haven’t.

Rule 3002.1 (f) of the Federal Rules of Bankruptcy Procedure addresses this. After you complete your Chapter 13 plan payments the trustee gives notice that you’ve done so. This notice goes to you, your bankruptcy lawyer, and your lender within 30 days after you’ve completed payments. Then within another 21 days the lender responds, stating whether you’ve cured the arrearage and are current on monthly payments. “The statement shall itemize the required cure or postpetition amounts, if any, that the holder contends remain unpaid as of the date of the statement.” Rule 3002.1 (g). Then both you and the trustee have another 21 days to ask for a bankruptcy court determination about these issues.

If your lender fails to provide the required information it is subject to sanctions. The court can award you “appropriate relief, including reasonable expenses and attorney’s fees caused by the failure.” Rule 3002.1 (i)(2).

Resolve Mortgage Accounting Disagreements

October 21st, 2019 at 7:00 am

Chapter 13 gives you valuable power to force your mortgage lender to be up front about how much you owe, and to efficiently dispute the amount. 

 

Catching Up on Your Mortgage over Time

A Chapter 13 case gives you the power to catch up on your home mortgage(s) over an extended period.  This “adjustment of debts” type of bankruptcy can give you up to 5 years to catch up.

This power is found in the U.S. Bankruptcy Code language allowing you to cure “any default within a reasonable time.” Section 1322(b)(5). That amount of time is interpreted to mean, in most circumstances, the length of your Chapter 13 payment plan. Most payment plans are between 3 and 5 years long. If you need more than 3 years, usually you can extend your plan longer, up to 5 years.

The Mortgage Accounting Challenge

If you fall behind on your mortgage it can be ridiculously difficult to get accurate information from your lender about the amount you owe. If you don’t have accurate information, you can’t fulfill your desire and responsibility to cure the arrearage.

This problem is aggravated over the course of the case when the mortgage payment amount changes over time. This could be from normal changes in the interest rate, property tax and insurance, or the addition of fees.

You can’t cure the arrearage or maintain monthly payments if you aren’t timely told the amounts you owe. You can’t efficiently dispute the stated amounts if the lender does not respond in good faith.

This accounting confusion had been a serious problem for millions of homeowners trying to save their homes. In 2011 a new procedure was created within Chapter 13 to efficiently resolve mortgage accounting disputes. It’s contained in Rule 3002.1 of the Federal Rules of Bankruptcy Procedure. It gives you the power to force your lender to work with you to determine how much you owe.

How the Procedure Works

The procedure focuses on changes to the ongoing mortgage payment amount.  You can’t catch up on the arrearage if that arrearage increases because you’re not paying the right monthly payment. 

Your lender “shall file and serve on” you, your bankruptcy lawyer, and your Chapter 13 trustee “any change in the payment amount.” This includes “any change that results from an interest rate or escrow account adjustment.” This notice must be given “no later than 21 days before a payment in the new amount is due.” Rule 3002.1(b) of the Federal Rules of Bankruptcy Procedure.

You or your lawyer can object to the change in the lender’s notice. You must do so before that new payment is due. If you don’t object on time, the lender’s payment change goes into effect.

If you do object, the bankruptcy judge determines whether the lender’s proposed new amount is appropriate or not.

This procedure forces the lender to be up front about changes in how much you owe. It allows you to dispute those changes, and to get a quick court determination about who is right.

 

Keeping Your Home through Chapter 7

May 13th, 2016 at 7:00 am

Chapter 7 usually lets you retain your home if you are current (or not too far behind) on your mortgage payments (& other home-based debts).

 

Whether you can keep your home when filing a Chapter 7 “straight bankruptcy” mostly depends on two questions: 1) Are you current or close to current on your mortgage and other debts against your home, and 2) Is the equity in your home protected by the applicable homestead exemption?

Today we focus on your mortgage. Upcoming blog posts will hit other possible kinds of liens against your home, and then the homestead exemption.

Chapter 7 in General

When it comes to your home, Chapter 7 is designed for more straightforward situations with your mortgage and other home-related debts.

Under Chapter 7 if you want to you can generally keep possession of the collateral that is securing any of your debts. You just need to be current or at least close to current on that secured debt.

Whether the secured debt is a vehicle loan, furniture purchase contract, or home mortgage, if current or almost current you would usually be able to keep the vehicle, the furniture, or the home.

(Under most Chapter 7 cases you can usually also get out of owing anything on such secured debts by surrendering the collateral to the creditor. But today we’re focusing on keeping collateral, specifically your home.)

If Current on Your Mortgage

Do you want to stay in your home, are current on your mortgage payments, and will be able to keep up those payments after writing off all or most of your other debts? Then your home and your mortgage will very likely proceed through a Chapter 7 case smoothly without any change.

Compliance with Other Mortgage Requirements

You also need to be in compliance with other conditions of your mortgage contract. Two of the most common problematic ones involve keeping current on homeowner’s insurance and property taxes.

In most mortgage contracts, falling behind on either of these is considered a breach of the contract. So not being current on insurance or property tax constitutes separate legal grounds for foreclosure even if you’re current on the mortgage payments themselves.

This makes sense. If there’s no insurance in effect, your home could be destroyed in a fire and your mortgage lender would have virtually no collateral protecting their debt. If the property tax entity forecloses on the home, the mortgage lender would be foreclosed out along with you.

Often your monthly mortgage payment includes an “escrow” amount covering the homeowner’s insurance premium and property taxes. If so, then as long as you’re current on your mortgage you’re also current on these other obligations.  But sometimes the “escrow” payment only covers one of these, requiring you to pay the other on your own.

If Not Current on Your Mortgage But Not Too Far Behind

Even if you ARE a few months behind on your mortgage payments, you may still be able to file a Chapter 7 case. It depends.

A Chapter 13 “adjustment of debts” may be the better option if you are behind on your mortgage payments. It can also be better if you are behind on insurance or property taxes, have a second mortgage, or have other liens on your home, such as from income taxes or child/spousal support.

But a Chapter 13 case takes SO much longer than a Chapter 7 one—usually 3 to 5 years instead of about 4 months. It has other potential disadvantages as well. So you have some incentive to try to file a Chapter 7 case if you can.

In a Chapter 7 case your mortgage lender will almost for sure require you to catch up on any missed payments. Usually you will have to make your regular monthly payments PLUS enough extra each month to pay off the arrearage within a certain length of time. Usually you will be given no more than a year or so to catch up.

So, you and your attorney need to look closely at your after-bankruptcy budget to figure out how much you could afford to pay extra each month towards catching up. Hopefully since you’re no longer paying the debts being writing off in your Chapter 7 case you’ll be able to pay enough.

How Much Time to Catch Up?

How many months you’d have to bring your account current would naturally determine how much you have to pay in catch-up payments each month. And how much time your particular lender will allow depends on its policies and on your particular circumstances.

Your attorney, who deals with mortgage lenders about such matters every day, likely has experience with your lender and will counsel you about this.

Also, you may qualify for a loan modification—a re-writing of the mortgage terms. The balance is never reduced, but the missed payments could perhaps be wrapped into the new modified mortgage. Then you would no longer have to catch up on the missed payments, but just pay the new mortgage payments going forward. Again, ask your lawyer about the modification option.  

If You Can’t Afford to Catch Up Fast Enough

The reason that Chapter 13 can be a better way to save your home is that it gives you much more time to catch up on late mortgage payments. It can usually buy you as much as 5 years.

Plus as mentioned above Chapter 13 can help with other home- related debts, such as second (or third) mortgages, property taxes, and income tax liens.

Our very next blog post will address how Chapter 13 buys you more time if you need it.

 

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