Stopping Foreclosure Without Bankruptcy

Homeowners in New Jersey and their mortgage lenders are subject to the New Jersey Fair Foreclosure Act. This is a law designed by the Legislature to allow home owners to stop foreclosure and the loss of their home by getting caught up on missed mortgage payments.

When a mortgage payment is more than 30 days late, the mortgage lender has the right to declare the mortgage in default. This means that the homeowner must pay off the mortgage or else a foreclosure lawsuit will be started to sell the home at a sheriff�s auction sale. As a practical matter, most lenders will not start a foreclosure until the borrower is three months past due in payments.

After a lawsuit is started some lenders will refuse to accept payments unless sufficient to pay off the mortgage in full. Rarely was any homeowner able to come up with the full principal, interest, legal and other fees charged by the lender. Therefore, many were forced into taking advantage of the Chapter 13 bankruptcy laws. The Chapter 13 bankruptcy plan may permit homeowner to get caught up over a 36 to 60 month period. Certainly, the homeowner who files a Chapter 13 must pay the mortgage rate of interest. Chapter 13 is a powerful, effective tool available to home owners who do not want to lose a home. It should not be entered into lightly. There is more information on Chapter 13 throughout this web site.

The New Jersey Fair Foreclosure Act requires the homeowner to get caught up in one lump sum payment including the banks interest and foreclosure costs if a foreclosure has been started. This �right� to cure may be used only once ever 18 months. If the full cure payment is made the lender must tell the court where the foreclosure action was filed. This should result in the foreclosure being dismissed. The mortgage is then reinstated as if no missed payments or a default in the mortgage had ever occurred.

The New Jersey Fair Foreclosure Act does not say that a mortgage lender is prohibited from reporting the missed payments or the foreclosure lawsuit to a Credit Reporting Company. It also does not address the needs of homeowners who can�t get caught up in one lump sum payments.

Some lenders have loss control departments where the homeowner may be able to negotiate a way to get caught up outside of having to file a bankruptcy. Certainly, this is worth exploring as soon as the homeowner begins to anticipate that a payment will be missed. This catch up method is voluntary with the lender. The benefit to the home owners is that is avoids both bankruptcy and foreclosure. Certainly, this is cheaper and there is no bankruptcy filing on a credit report. It is well worth the homeowner making the phone call to the lender or the lender�s �servicing agent�.

If the home owner can not take advantage of the New Jersey Fair Foreclosure Act and can not get the lender to agree to a cure plan the homeowner can handle, Chapter 13 bankruptcy may be the best answer. It stops a foreclosure dead in its tracks. The lender must obtain the Bankruptcy Court�s permission to continue. This is not always granted. �The New Jersey Fair Foreclosure Act acknowledges that many homeowners may need to file a Chapter 13 or other bankruptcy proceeding. Section 59 of the Fair Foreclosure Act says: �

�If a debtor is successful in curing the default under a repayment plan approved by the United States Bankruptcy Court, the residential mortgage relationship between the parties is reinstated, and the debtor is restored to the same position held before the default or acceleration�.

This is the goal of most Chapter 13 cases. Hopefully, home owners facing foreclosure will be able to avoid bankruptcy. While it should be regarded as the debt management tool of last resort, a Chapter 13 is both drastic and powerfully effective to keep family homes. While some people fail even in Chapter 13s and risk losing their homes, many are able to successfully complete plans and/or refinance their way out of a Chapter 13 with the approval of a bankruptcy judge.

Homeowners experiencing financial problems should carefully weigh all of their options. Bankruptcy proceedings are not always the �magic bullet� that addresses all financial problems. A Chapter 13 is an option that should be considered.