We often receive calls from homeowners facing the unthinkable: their home is going to foreclosure. Depending on the chapter, bankruptcy can stop foreclosure, but timing is important.
Foreclosure is the forced sale of a home by a lender after the homeowner defaults on the loan. In some cases, if the property is worth less than the balance owed, lenders can not only foreclose, they can obtain a judgement against the homeowner for the deficiency balance.
This can wreak havoc on credit reports and make it more difficult for people to find housing in the future.
Foreclosure in Arizona
In Arizona, the foreclosure process can either be judicial or non-judicial, depending on whether there is a Power of Sale clause in the deed. Most foreclosures in Arizona are non-judicial, meaning the entire process happens outside of court.
Upon a default, homeowners will start to receive past-due notices and increasingly aggressive calls from the lender. If the homeowner doesn’t bring their account current, the lender can record a Notice of Sale in the county where the property is located. After 90 days from the date the Notice of Sale is recorded, the property can be sold at auction.
If you are behind on your mortgage payments, you should not wait to get help. Contact the lender and explain your current financial situation. You might be granted an extension and get your late fees reduced or even eliminated.
If you cannot catch up on your payments and your lender will no longer work with you, don’t wait around for the Notice of Sale before taking more aggressive action. You should consult with an experienced bankruptcy attorney who can explain all options available to you and determine the best solution for your particular case.
The Arizona Department of Housing also has several resources available, including free counseling, a foreclosure hotline, and affordable housing if you need a place to live.
Chapter 7 vs. Chapter 13
If you need to file bankruptcy, chapter 7 bankruptcy can stall a foreclosure as long as you haven’t filed bankruptcy within the last twelve months.
But if you cannot catch up on the mortgage, the home can still be foreclosed either during the bankruptcy (if the lender successfully lifts the automatic stay) or after the bankruptcy. If your home is worth less than the mortgage owed, your liability on the deficiency balance can be discharged.
Chapter 13 bankruptcy can enable debtors to avoid foreclosure altogether by curing delinquent mortgage payments through the bankruptcy plan. The United States Bankruptcy Court for the District of Arizona now facilitates mortgage modification for Chapter 13 filers.
Debtors can request a referral to the Mortgage Modification Mediation program to explore their options for mortgage modification with their lenders. In some cases, second mortgages and junior liens can be stripped.