How to Protect Your Assets in a Foreclosure

Take action quickly before someone like this begins taking your assets in foreclosure.

Protecting assets --- particularly real estate --- during foreclosure can be extraordinarily difficult, especially if the underlying asset of the home has declined in value more than the outstanding amount owed on the mortgage. Mortgages are secured forms of debt. This means that the lender reserves the legal right to repossess and sell the assets of the borrower until the debt has been satisfied. There are some legal methods and negotiating techniques that can be used to protect assets during foreclosure, however, but all of them have costs and benefits.

Instructions

Bankruptcy

1. Collect your financial information and review it in preparation for filing either Chapter 7 or Chapter 13 bankruptcy to protect your assets in foreclosure. Bankruptcy will usually wipe out much of your cash savings, but will protect your home, eliminate most of your debts, and likely protect a vehicle that you use to commute to work. Chapter 7 bankruptcy is an immediate liquidation of all debts. Chapter 13 is a negotiated arrangement with creditors that may involve debt repayment over an extended period of time.

2. Hire a bankruptcy lawyer to advise you on bankruptcy preparations. Even just filing for bankruptcy can place a halt on attempts to collect your assets, even during foreclosure. Regardless of whether your bankruptcy is successful or not, filing will provide you with some additional time to salvage your finances and negotiate alternative agreements with your lenders.

3. Complete the bankruptcy process in a state court. The exact laws on bankruptcy differ from state to state. Consult your lawyer or research the laws on your own to learn more of the details. If you're successful, you will likely retain your home and other significant properties, although it will damage your ability to borrow money for years into the future.

Forbearance and Negotiation

1. Apply for foreclosure forbearance with your mortgage lender. This consists of writing an extended letter to the lender explaining how and why you became delinquent on your mortgage, as well as a detailed, concrete plan for how you intend to become current on your mortgage again. Valid reasons for having become delinquent on payments include medical emergencies, family troubles (like divorce), or job loss. Having a stable job or some other source of income will increase your chances of success. If the bank accepts your application, they may freeze your mortgage, reduce the balance, or temporarily reduce the payments.

2. Negotiate a mortgage modification --- either temporary or permanent --- with your lender. If you can credibly demonstrate that you might be able to pay the mortgage in the future once again, the bank will be more likely to work with you.

3. Uphold any new agreements that you work out with your lender to avoid foreclosure proceedings beginning again. Banks will tend to work quickly against you if you miss payments on a re-negotiated mortgage

References

• Nolo: How Bankruptcy Can Help with Foreclosure
• USCourts.gov: Bankruptcy Basics

Resources

• Read this Article in Spanish
• ForeclosureFish: Do You Qualify for Mortgage Forbearance?
• FTC.gov: Mortgage Payments Sending You Reeling?