As a Massachusetts bankruptcy lawyer, clients, or potential clients, who are facing the prospect of foreclosure, often consult us. They want to know their rights and what options they have. Usually they want to keep their home. And they can often do so by keeping their mortgage current and discharging their credit card debt. If you can make the mortgage payments but not the credit card payments, you may be able to protect your home and qualify for a chapter 7 bankruptcy. Our Massachusetts bankruptcy and consumer blog is here to give some guidance.
Some want to walk away from their home; they are too far behind in making mortgage payments, the payment amount or interest rate is too high, or the house is just too much. Often the mortgage company forecloses and does not go after folks for the difference between the foreclosure sale price and the balance on the mortgage, if any. However, the difference between the foreclosure sale price and the remaining amount on the loan can be taxable as a “gift” by the federal Internal Revenue Service. This is not true, however, if you discharge that amount in a Massachusetts bankruptcy. If you have no other debts, it may be worth the cost, however, if you have significant unsecured debts, such as credit card debt, a Chapter 7 bankruptcy in Massachusetts may make sense in giving you a fresh start.
There are other options such as “deed in lieu of foreclosure” and short sale. Often these make sense, however, generally not if someone is filing bankruptcy in Massachusetts.
Massachusetts foreclosure law has been challenged a great deal lately. In Bank of New York v. Bailey, 460 Mass 327 (2011) the Supreme Judicial Court said that foreclosing lenders and their attorneys must have proper documentation to prove title before proceeding with a foreclosure. There were a series of cases decided by the Supreme Judicial Court and the Land Court that requires lenders, especially those lenders who where not the original lenders, to prove that they had proper mortgage documentation to get clear title. See US Bank Association v. Ibnez, 458 Mass. 637 (2011)
Massachusetts credit scores are often a concern of our clients. Our general advice is that if someone is being foreclosed, they should try to pay all other bills, especially credit card bills. A foreclosure drops a credit score about 100 to 140 points, but, by paying the other bills, you can rebuild your credit score. While a foreclosure will likely stay on your credit report for seven years, if you stay current with other debt obligations, your score will not take as big a hit. Of course, if you have a foreclosure on your credit report, you are not likely to get the best interest rate. You may, however qualify for a loan if you can show that a hardship caused the foreclosure; you are even more likely to qualify if you can make a significant down payment toward the new home.
Fannie Mae, the federal lender which buys mortgages on the secondary market, prevents any government financed loans for at least seven years. However, this is only if the default was when you could have paid. Documentation that shows the family emergency, loss of job, or similar circumstances surrounding the default and foreclosure, would help.