Foreclosure and Bankruptcy What Should Homeowners in Maryland Know? Presentation at Washington County Community Action Council Ayodeji Badaki, Esq. February 18, 2016 This presentation is for informational purposes only and is not intended as legal advice Tel: | web: |

Outline Foreclosure Basics Key Topics Mediation The Sale Date Bankruptcy Basics The Automatic Stay Ch7 and Ch13 Lien Stripping Where Bankruptcy and Foreclosure Intersect Questions Tel: | web: |

Foreclosure Basics – Key Topics Default: Refers to the date Homeowner missed Homeowner mortgage payment. Note that the customary 15 day “grace period” does not necessarily mean Homeowner not in default. Notice of Intent to Foreclose: The Notice of intent is a letter sent to the homeowner stating that the lender intends to start the foreclosure process. It will come with valuable information about housing counselors, possible alternatives to foreclosure, and a loss mitigation application. Order to Docket (120 Days after Default):The Order to Docket is a set of documents that are filed with the Circuit court in which the property resides that begin the court record of the foreclosure. With the Order to Docket, the lender must provide either the preliminary or final loss mitigation affidavit. Tel: | web: |

Foreclosure Basics – Key Topics Loss Mitigation: Loss mitigation is the negotiation process that Homeowner and Homeowner servicer go through to avoid foreclosure. Through this process, homeowners can apply for a loan modification. The loss mitigation process is separate from the formal foreclosure process. The lender is allowed to continue taking steps towards foreclosure until Homeowner successfully send a completed loss mitigation application. Once they receive that, they must stop going forward with the foreclosure. Loss Mitigation Affidavits A loss mitigation affidavit is a sworn written statement, stating that the lender has examined the homeowner’s mortgage file and current information for possible foreclosure alternatives. The lender can send a Preliminary Loss Mitigation Affidavit, or a Final Loss Mitigation Affidavit. The preliminary loss mitigation affidavit state that the lender has not finished analyzing the homeowner’s mortgage file. The final loss mitigation affidavit states that the lender has completed their examination and sees no alternative to foreclosure. 28 Days Between Preliminary and Final If the lender sends the preliminary loss mitigation affidavit with the Order to Docket, they must wait 28 days before they can send the final loss mitigation affidavit Tel: | web: |

Foreclosure Basics – Mediation Request for Mediation: Included with the final loss mitigation affidavit will be the mediation request form. This is a homeowner’s ONLY guaranteed opportunity to request mediation for their foreclosure. The homeowner only has 25 days from the mediation request form to send it in with the $50 filing fee. Once they receive that, they must stop going forward with the foreclosure until after the mediation. The mediation must take place no later than 60 days after the homeowner sends the mediation request. The Office of Administrative Hearings will send a letter stating the time, date, and place of the mediation. Tel: | web: |

Foreclosure Basics – The Sale Date When the sale of the home can occur depends heavily on whether the homeowner elected to go through mediation and when which loss mitigation affidavit the lender sent with the Order to Docket. 45 or 53 Days: WITHOUT Mediation: If the lender sent the final loss mitigation affidavit with the Order to Docket, they can schedule the sale of the home no earlier than 45 days after receipt of the order to docket. If the lender sent the preliminary loss mitigation affidavit with the Order to Docket, they must first send the final loss mitigation affidavit 28 days later and then can schedule the sale of the home 25 days after receipt of the final loss mitigation affidavit. This means that the sale can be scheduled no earlier than 53 days after receipt of the order to docket, if the preliminary was sent. 15 Days: WITH Mediation If the homeowner elected mediation and no agreement was reached, the lender can schedule the sale of the home no earlier than 15 days after mediation. Notice of Sale: Regardless of when the sale happens, the lender must provide notice to the homeowner. This notice comes in the form of a letter called the Notice of Sale. This letter must be sent to the homeowner between 30 and 10 days before the sale. Tel: | web: |

Foreclosure Basics – The Sale Date The sale of the home marks a termination of many options that the homeowner may have: Lender no longer has to engage in Loss Mitigation (i.e. the don’t have to offer Homeowner any more options to keep Homeownerr house!) Ratification and Eviction process can begin (i.e. they can begin the process of throwing Homeowner out!) Homeowners no longer have a right to raise certain issues in court to argue that the sale was improper (Bates v. Cohn). This means even if the bank did something wrong and the foreclosure sale should not have happened, Homeowner can not raise those issues in court after the sale. Lender/Servicer can begin the process of pursuing any Deficiency Judgment. It is therefore important to act before a sale happens. This is where Bankruptcy may need to be considered! Tel: | web: |

Bankruptcy Basics – The Automatic Stay Once Bankruptcy Petition Filed, Instantly Creates a Court Order called an “Order for Relief” (automatic stay) that Requires Creditors to Stop All Collection Efforts Stops Foreclosure sale (if filed before the sale date) Stops Garnishments Stops all Collections Calls and Letters If Debtor Had 2 or More Dismissals Within 1 Year of New Filing, No Automatic Stay Creditors Can File Motion to Lift Stay Under Certain Circumstances and if Court Grants Motion, than Collection Efforts for that Creditor Can Commence If Homeowner Had a Prior Bankruptcy Dismissed within 1 Year of Re-filing Another Case, Automatic Stay is Limited to 30 Days and Homeowner Must Motion the Court for Longer Stay Tel: | web: |

Bankruptcy Basics – Chapter 7 Homeowner Retains Exempt Assets and Eliminates Dischargeable Debt Liquidation of Most Debt All Non-Exempt Assets Surrendered for Liquidation and Distribution to Creditors Must Complete Pre-Petition Credit Counseling within 180 Before Filing Must Complete Post-Petition Financial Management Court Before Discharge Most Pre-Petition Debts are Extinguished at the Time of Discharge Generally Tax Debt, Student Loan Debt and Child Support Aren’t Dischargeable Remains on Credit for Up to 10 Years from the Date of Filing Can Only File Every 8 Years Usually Have a Discharge Within 4-6 Months of Filing Car Could be Taken by Creditors if Creditor Requires a Reaffirmation Agreement and Homeowner Fails to Sign Reaffirmation Agreement If Homeowner want to Keep Most Secured Debt Including Home, Must Stay Current on Payments Tel: | web: |

Bankruptcy Basics – Chapter 13 A Reorganization of Debt as Opposed to a Liquidation of Debt Must have Pre-Petition Credit Counseling Within 180 Days of Filing Must have Post Petition Financial Management Class Prior to Discharge All or Portion of Debt Paid Off Over a Period of Time Usually 3-5 Years, Chapter 13 Plan Cannot Last More than 60 Months Must have a Means of Regular Income or Assets to Fund a Chapter 13 Plan Used By Homeowners Who Have missed several payments on their home and Want to Keep this Property Opportunity for Homeowner to Be Creative When Crafting a Chapter 13 Plan Must Show Bankruptcy Court that Homeowner has Enough Income and Assets to Pay Monthly Expenses, Stay Current on Secured Debt that Homeowner Wishes to Keep, and to Pay Chapter 13 Plan Payment Tel: | web: |

Bankruptcy Basics – Lien Stripping Homeowner Might Be Able to Reduce Mortgage Payments in a Chapter 13 Plan through a “Lien Stripping Motion” If the Homeowner’s Home is Worth Less than What is Owned on the First Mortgage, Second Mortgages and Junior Liens on the Property are no longer secured by the Home, Homeowner Maybe Able to Strip off 2nd and Junior Liens Junior Liens Must be Wholly Unsecured Motion to Avoid Lien Must be Filed in the Chapter 13 Bankruptcy If the Court Grants the Motion, the Junior Liens will be Treated as Unsecured Homeowners and the Payments Maybe Significantly Reduced Tel: | web: |

Where Bankruptcy and Foreclosure Intersect A Bankruptcy Filing Stops a Foreclosure Sale! Working with servicer but unable to reach a resolution before foreclosure sale is to occur May provide time to assess options to determine whether home can be kept or not. May Provide Options to Keep the Home If homeowner has assets and income that could fund a Chapter 13 plan that would repay arrears amount and make regular mortgage payments over a period of 3-5 years. Through lien stripping, may be able to reduce or eliminate the amounts that would ordinarily have to be paid on junior mortgages. Tel: | web: |

Where Bankruptcy and Foreclosure Intersect It is a good idea to consider Bankruptcy even if Homeowner Cannot Keep the Home! Filing chapter 7 could stop sale, allow homeowner to remain in property without having to make mortgage payments while the bankruptcy is pending and provide a significant amount of time for homeowner to explore other living options. A chapter 7 could also discharge any amounts that the creditor could have obtained as a deficiency. Help eliminate other accumulated debt and provide homeowners with a fresh start. Tel: | web: |

Questions? Contact information Ayodeji Badaki, Esq. The Badaki Law Firm, LLC. 223 North Prospect Street, Suite 310 Hagerstown, MD Tel: (240) Fax: (877) (240) (877)