Foreclosure How To Buy

Real Estate And Bankruptcy Language

Every real estate professional who works with homeowners in default needs to know a little about bankruptcy. At the very least, you should know enough to join the conversation because bankruptcy and foreclosure often go together.

The first thing you need to tell them is that you can’t help them with the bankruptcy itself. That’s not why you’re there. You could be accused of practicing law without a license; if you’re not an attorney, don’t give legal advice.

This is about learning the difference between what a bankruptcy can and can’t do for a homeowner in foreclosure. You don’t have to become a bankruptcy expert, but you should learn just enough about a few key terms that you can be a part of the conversation if it comes up. When you can relate those terms to the foreclosure process, you will be better equipped to help homeowners explore their options and decide if they want to speak with a bankruptcy attorney.

Bankruptcy Stay: You’ve heard of a “stay of execution,” right? Same thing, different venue. A bankruptcy stay freezes all legal action by a lender to collect money or assets from a borrower. If a bankruptcy is filed even an hour before the foreclosure auction, they can’t proceed with selling the house at that auction. The stay has already given the homeowner additional time to try another solution.

Relief of Stay: When a stay is ordered by the judge in a bankruptcy court, the lender may file a motion for relief of stay. The lender is basically asking to be allowed to continue to go after the house or the money. The judge has the option to allow their request or deny their motion.

A motion for relief of stay may be justified in one of two ways. First, if the property has negative equity, the homeowner will receive nothing from the sale of the house anyway. Since there will be no proceeds from the sale to distribute among the other creditors, the court may see no point in freezing the foreclosure process. Second, the homeowner may already be in trouble with the court because they can’t keep up with their repayment plan. The court will see no point in giving most homeowners a second chance to save the house if they aren’t cooperating in good faith with the bankruptcy process.

Abandonment of Assets: In bankruptcy court, an asset is considered abandoned when its value has decreased to the point that nobody will be interested in it but the owner and its secured lienholder. One example of an abandoned asset is a home that is worth less than the mortgage debt.

Bankruptcy Discharge: At the end of the Chapter 7 or a Chapter 13 bankruptcy process, the court will declare and record that all of the individual’s debts included in the bankruptcy have been discharged, which simply means that the individual is no longer responsible for them.

Dismissal: In bankruptcy court, a dismissal means that the court has refused to discharge the person’s debts due to noncompliance. When an individual fails to cooperate with a Chapter 13 repayment plan or fails to submit any paperwork requested by the court, the judge can dismiss the bankruptcy and tell the person that they don’t qualify for debt relief anymore. In 2005, part of the bankruptcy reform laws made it harder for an individual to file another bankruptcy after a dismissal.

People who have trouble paying their mortgage are usually behind on their other bills as well. Bankruptcy can help some of them, but it might not do anything for others. Ask a colleague or call us at Strategic Real Estate Coach about how to manage a conversation with a homeowner about bankruptcy options. You’ll have to refer them to an attorney in the end, but at least you can learn enough to help them think things through before they make that appointment.

Educate yourself as much as possible about the concerns a homeowner might have regarding bankruptcy and foreclosure. Make sure the homeowner is aware of one thing, though. A judge’s stay on the foreclosure proceedings is only temporary. The only way to completely avoid foreclosure is to work something out with the bank before the auction.

Need to know more about helping homeowners in foreclosure? Visit the Strategic Real Estate Coach website, and check out our free report about the new Real Estate Rebel. Dare yourself to follow our ethical, proven strategies for growing your real estate business beyond your wildest dreams!

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