See my website at http://www.familymaritallaw.com/CM/Bankruptcy/Chapter-13-Bankruptcy.asp for information on how a chapter 13 bankruptcy can help you avoid foreclosure and catch up on any arrearages. Chapter 7 bankruptcy, unfortunately, does not allow you to do this; however, it will delay the foreclosure through the date of discharge or if the creditor motions to lift the automatic stay, the date an order is signed by the Court allowing the automatic stay to be lifted.
(Note that not all of the following article is valid in Florida.)
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Certain creditors may have special rights when faced with
collecting bad debts. One of these rights is the availability of a procedure
called foreclosure. Foreclosure is most often exercised in relation to unpaid
mortgages on real property. In a foreclosure proceeding, the creditor exercises
its option under the mortgage to force a sale on the property that is the
subject of the mortgage in order to use the proceeds to pay the debt.
The rights of a mortgagee (usually the
lender; commonly a bank or mortgage company), when the
mortgagor (borrower or homebuyer) defaults, vary considerably
from state to state. There are, however, a number of similarities. Generally,
there are only two types of foreclosure sales: a judicial sale and a sale
pursuant to a power of sale clause contained in the mortgage documents.
Judicial sales are more common. Although the details of judicial sales
are mainly a matter of local law, they usually require notice of a hearing, a
judicial determination of default, notice of sale, a sale, confirmation of a
sale, possible redemption and entry of a judgment for any deficiency (the
difference between the sale amount and what is owed on the debt).
In order for a mortgagor to avoid a judicial foreclosure
once he or she has defaulted in making scheduled payments, the entire debt must
be paid. In about half of the states, the period in which the mortgagee can
exercise this option, or redeem the debt, extends even beyond actual
foreclosure. In that case, the redemption amount is the sale price plus
interest, not the amount of the debt secured by the mortgage.
In a judicial foreclosure, the sale is not enforceable by
the buyer until it has been confirmed by the court. Legal rules limit the
court's discretion on whether to confirm the sale. Mere inadequacy of price
without more is not enough to justify the court's refusal to confirm a
foreclosure sale, but adequacy of price is a primary concern. In many states,
the property must be appraised before the foreclosure sale, and the sale will
not be confirmed unless the sale price is at least a certain percentage of the
appraised value.
Because judicial foreclosures are time consuming and
procedurally complicated, some mortgagees include in their standard mortgages a
power-of-sale provision permitting a sale without any court involvement
if the mortgagor defaults on the payments. This approach has only limited
recognition in the United States. In the states that do allow it, the sale must
be public and preceded by a notice (usually by advertisement) that specifies the
amount due, the property description, the date and location of the sale and
whatever other matters the statute and the mortgage specify. Because courts tend
to be critical of non-judicial sales, they are quick to grant relief against
such sales for even slight irregularities. This reluctance to accept
non-judicial sales can result in uncertainty of title, which could be the main
reason that power-of-sale foreclosures have failed to gain greater
acceptance.
Due to the important rights involved, debtors facing the
prospect of foreclosure and loss of their homes can benefit from the advice of
counsel experienced in this area. Attorneys working in this area can also assist
borrowers proactively by reviewing the mortgage documents before the borrowers
sign them, in order to protect the borrowers' rights and eliminate provisions
that do not serve the borrowers' best interests, such as power-of-sale clauses.
On the other hand, lawyers representing creditors can guide them through the
sometimes cumbersome foreclosure process and aid them in the recovery of the
money that they are rightfully owed.
Copyright © 2011 FindLaw, a Thomson Reuters business
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