Foreclosure Frequently Asked Questions

Of course foreclosures can be stopped. In most circumstances, a successful loan modification will stop a foreclosure. In other circumstances, where a bank or mortgage servicer has made mistakes or committed outright fraud, a counterclaim and a federal lawsuit can be filed to sue the bank. When successful, those claims also stop foreclosures. A foreclosure can also be stopped by bringing the loan current or by refinancing to pay off the entire debt.

Absolutely, categorically, 100% … NO. A foreclosure is a lawsuit to take back real property as payment of an outstanding mortgage. That is all it is. The foreclose ends when the borrower beats the bank at its own game, modifies or otherwise brings the loan current or loses the property at sale.

You cannot finance your way out of a foreclosure, because banks do not lend money to people to get themselves or others out of a foreclosure situation. It is considered too risky a loan profile. There are other ways to resolve a foreclosure, and they must be pursued with the assistance of an attorney experienced in the field.

A foreclosure cannot be ‘reversed’, meaning eliminated even from credit reporting, as though it never happened except in exceedingly unusual situations – such as when the plaintiff files a foreclosure complaint against the wrong property. When that happens, and it does happen, there are many more opportunities to pursue than simply reversing the foreclosure. In the main, though, foreclosures may not be reversed.

Over time, yes, the foreclosure will be removed from the credit report. People often worry that a foreclosure on a credit report will prevent someone with a foreclosure on their credit file from ever buying a home again or making a major purchase. Neither of these concerns are warranted. Per the Fair Housing Act guidelines, a borrower who went through foreclosure is eligible for FHA financed mortgage borrowing in as little as two years from a foreclosure sale. As to making other types of financed purchases, someone with foreclosure on their credit file will face higher rates, perhaps, but so long as the income is sufficient for the purchase and other bills are paid on time obtaining financing is not very difficult.

Some industries look at foreclosure on a credit record as a real problem – these are generally in the financial services fields – but for most industries the existence of a foreclosure on the credit file, if the prospective employer even ever learns of it, will have only minimal impact.

Absolutely. Foreclosures are resolved after commencement all the time. Remember, a foreclosure is a judicial mechanism available to the loan owner or mortgage servicer to try to recoup the amount due by selling the collateral – the home. The bank/mortgage servicer is only entitled to pursue foreclosure if the loan is in default. A modification cures a default and requires a foreclosure to be dismissed, as does a reinstatement or payoff amount made. There are other ways to stop a foreclosure, too, but those are the most common. Bottom line, though, foreclosures can most definitely be stopped even after they are started.

Actually, yes. Sometimes a foreclosure can end up being a very good thing, if handled right by the borrower and counsel. Usually foreclosure ends up being beneficial when there is enough in the way of monthly financial revenue to make a reasonable monthly payment, but there is a significant amount of other debt. Defending a foreclosure will keep the matter open for an extended period of time – often significantly longer than a year – in which time the other debt can be addressed either by negotiating payment arrangements, by contesting the claimed debt or by discharging it in bankruptcy. That way, when it comes time to negotiating a resolution of the foreclosure – generally by modification, the other debt has been eliminated or greatly reduced and the borrower in a much stronger financial position than when he went into foreclosure in the first instance. The other common way that foreclosure is useful is as a mechanism to get out from under a terrible loan to value ratio. Most people really want to keep their home, but change their mind if it becomes clear that the house is worth only 50% of the total debt on the property. In those circumstances, it is often very helpful too.

The foreclosure, even if the house goes all the way to sheriff sale, will NOT prevent you from financing another home purchase. The Fair Housing Act provides regulations that allow a homeowner who has gone through a foreclosure all the way to sale to qualify for a mortgage loan in as little as two years after the foreclosure is completed.

No. Your social security is safe during a foreclosure proceeding. Foreclosure is the creditor/mortgage servicer’s attempt to pay down the loan through the repossession and sale of the collateral, which in this case is the home. That is pretty awful, but that’s all that it is. In New Jersey, foreclosure is just the attempt to recover against the collateral and is NOT also a money judgment for more than the house is worth.

Absolutely, completely NO. Your wages are in no danger from your foreclosure case. A foreclosure lawsuit is an action by a lender or mortgage servicer to try to get paid some of its debt by taking ownership of and selling the collateral to the mortgage loan. That collateral is, unfortunately for the borrower, the home and that is certainly a bad situation, BUT the lawsuit for foreclosure is only to recover the home. Put another way, a bank in a foreclosure case cannot take your home and your money. They can only take the home to pay off the debt. In EXTREMELY RARE SITUATIONS the bank might file a second suit to collect the difference between the amount of the debt and the value of the home, but this is an exceedingly rare situation. It is very, very unlikely it will happen to you.

Absolutely NO. Your tax refund and the foreclosure case are totally unrelated. The bank is entitled to sue you to recover the collateral for the mortgage loan – which is your home – but the bank is NOT entitled to sue you for money or to take your tax refund at the same time as the foreclosure case is going on.

Sometimes, yes. A foreclosure auction is the last step in the foreclosure case and it takes a long time to get to the sale stage. That means that the Court has been dealing with the foreclosure case, in one form or another, for months. If you have defended the case, your foreclosure lawsuit might have been going through the Courts for years. Given that that is the situation, you might understand why Courts are reluctant to stop a foreclosure sale absent some substantive reason to stop the sale. The most common reason why foreclosure sales are stopped is because the borrower and the mortgage servicer negotiated a settlement and then the bank tried to back out of the modification deal. The New Jersey Supreme Court, in 2017, held that a borrower has the right to enforce a modification, so that is a reason to stop a sale and to dismiss a foreclosure complaint.

Negatively. A foreclosure is a lawsuit that is filed – or is supposed to be filed – only because a loan secured by your home has not been paid. Any late payments on the mortgage loan affect your credit, the filing of the foreclosure complaint affects your credit and the sale the home, if it gets to that point, also affects your credit. It is not the end of the world, though. Your credit will improve after and even often during the foreclosure if all your other bills are paid on time.

NO! Dealing with a foreclosure case is no fun at all, but it will not ruin your life. Talk to someone who understands the system and your rights and make plans on how to respond to the foreclosure and also make plans on what to do if you do not win the foreclosure lawsuit. It is not going to ruin your life. You might have to move, but if you defend the foreclosure and assert your rights you will end up with many, many months in the home without paying for housing costs while you get the rest of your financial situation in order. Many times, believe it or not, people who go through a foreclosure are in a better place financially even a few years after the unpleasant process is over than if they had managed to keep making unaffordable payments and kept their home.

Almost certainly. We have been on a bull market for almost a decade. The economy is overdue for a course correction which will cause foreclosures and other debt collection lawsuits to increase. In 2019 there were over 19,000 foreclosure complaints filed in New Jersey alone. You should expect that number to increase a significant amount for 2020 and 2021. Remember this: If you are going through foreclosure right now … You are NOT ALONE.

Unfortunately, the answer here is: It depends. Bankruptcy, despite what you might have read or heard from bankruptcy exclusive attorneys, is not a solution to foreclosure. Bankruptcy is, instead, a tool in the toolbox that experienced foreclosure attorneys can use to try to work out a solution to the problems that caused the foreclosure in the first instance so that you can get back on your feet. There is no easy answer to this question, except in a one on one setting where the issues can be explored based on your individual situation.

Bankruptcy is a legal proceeding in federal court that allows you to get a ‘fresh start’. It is a tool that people and businesses use to try to avoid financial problems that cannot be overcome without a do over.

It is a useful tool in some foreclosure proceedings, but it is NOT something that everyone in foreclosure should file.

Bankruptcy may allow you to extinguish unsecured debt, and it will temporarily stop a foreclosure proceeding. The foreclosure will continue after a brief pause, but sometimes that pause is extremely important. When properly used during a foreclosure proceeding, especially when there is a lot of debt in addition to the mortgage loan, the bankruptcy can ‘discharge’ all of the other debt to make it easier to negotiate a resolution to foreclosure. Bankruptcy does come with some disadvantages, including negatively affecting credit score and ability to obtain loans for a period after bankruptcy is filed and the debts discharged, but the good often outweighs the bad. It all depends on your personal situation. It will stop repossessions of property, until the Court has an opportunity to review the case, and it will also stop wage garnishments and debt collectors harassing you … but just as in foreclosure, bankruptcy is a tool in the toolbox and its use should be carefully considered in the face of other alternatives that may be available.

In general, it won’t affect your family. If you have joint credit cards or other joint debts that will be discharged by bankruptcy it will cause your co-borrower to be completely responsible for the debt.

There are rules in Bankruptcy law as to how much money you can have at the time your file for bankruptcy protection. You should consult with an expert before deciding whether bankruptcy is right for you.

On its own, no. A bankruptcy filing will NOT save your home from foreclosure. Bankruptcy, used appropriately in connection with a broader strategy, however, can be a very helpful filing in defending your home during a foreclosure suit.

Most definitely yes. Bankruptcy is a significant and serious choice. It is often a good choice, but it can sometimes be used inappropriately in ways that can harm consumers.

Absolutely, with any doubt whatsoever. When used properly, bankruptcy can be an essential tool in the toolbox to solve serious financial problems.

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I hope this helps you understand things better. As always if you have questions, PLEASE, do not hesitate to contact me. I am here to serve you.

Yours faithfully,

Attorney Josh Denbeaux

General Foreclosure Questions

Strategies to Stop Foreclosure

Working With a Foreclosure Attorney

Foreclosure Process in New Jersey

Scams & Fraud in Foreclosure

Selling Your Home in a Short Sale

Sheriff Sales

Foreclosure & Divorce

Bankruptcy

Loan Modification

Debt Collection