Medical expenses, job loss, adjustable mortgages with soaring interest rates, divorce, dropping property values that make it impossible to sell your home, there are many reasons good people end up having to deal with a bad situation; Iowa foreclosure. We are in the midst of the worst housing market since the great depression, so if you are going through Iowa foreclosure, don't feel alone, you have lots of company!
You do have some choices. First, consider how much equity you have before deciding whether to try and keep your home. Many of my clients will go to great lengths to try to keep a home with no equity when they would be much better off just to let it go back to the bank and get a real fresh start.
Iowa Foreclosure Options:
1. Refinance/Modify to an affordable fixed rate if you can qualify. Unfortunately banks have tightened lending standards making refinance more difficult even for well qualified applicants. As the New York Times noted recently, banks as a rule would rather make money on foreclosures than modify loans. In my experience, many lenders pretend to work with you to modify, often approving a trial modification and later pull the rug out from under you even when you are fully compliant by denying permanent modification.
2. Sell your home prior to foreclosure and pay off the mortgage debt. If you act early enough this can work if your local housing market is strong enough and your mortgage debt is not too high. Unfortunately for most of my clients this is not the case. I am getting a lot of clients who simply cannot sell their home for as much as they expected; real estate values have suffered. Even in a good resale market, high mortgage debt can make selling the home impractical.
3. Surrender the home to the Bank without Bankruptcy
If you do not have other significant debt, this can be the way to go at least initially. In most Iowa residential foreclosures, the lender does not pursue deficiency. So even if the bank sells your home for less than you owe, they normally do not come after you for the remainder. NOTE: Debt forgiven by lenders is taxable income unless you show insolvency. The IRS considers bankruptcy proof that you were insolvent. This means that if you surrender your home without filing bankruptcy you may be hit with a big (non-dischargeable) tax bill later. So if you are going this route make sure you consult a Certified Public Accountant first.
But I find that many of my bankruptcy clients have had to use their credit cards for living expenses as they have tried to keep up with the higher mortgage payments, so even if the bank does not come after them on the deficiency they have a lot of other debt to deal with.
4. Iowa Personal Bankruptcy
Chapter 7 Full Discharge
Many clients going through foreclosure will file a Chapter 7 Iowa Bankruptcy and surrender the home. In most cases they owe more than the home is worth and it is just not sensible to try to keep it. Many clients who want to keep their home have the ability to catch it up within a few months and will file a Chapter 7 bankruptcy and get a full discharge of credit cards, medical and other misc. debt. See Jeff's Iowa Chapter 7 bankruptcy. Need more info? See Iowa bankruptcy information.
Iowa Chapter 7 Bankruptcy
Iowa Chapter 7 Bankruptcy- With Chapter 7 you can:
*Surrender the home;
*Keep the home if you are up to date on payments or can get up to date within a few months;
*Discharge credit cards, medical and other misc. consumer debt. There is no repayment. Chapter 7 is the "Fresh Start".
Banks do not make money unless they issue loans. If they wrote off everyone that has filed bankruptcy they would be out of business. In my experience, clients with good, steady incomes are able to get good interest rates on new home purchases two-years post bankruptcy. See- Smart Money, Credit After Bankruptcy.
Chapter 13, 5 Year Repayment
Some clients who are far behind on payments will try to keep the home with a Chapter 13 repayment plan (5 years). But beware; the failure rate on these "keep the home" Chapter 13 cases is high because you are paying the original house payment(s) plus the monthly Chapter 13 payment to the Court for 5 years. Most people find they cannot afford to pay that much. Many end up converting to a Chapter 7 and surrendering the home after a lot more expense and stress. If they had simply filed Chapter 7 in the first place they would have been a lot better off. Jeff's Iowa attorneys site lists attorneys handling Chapter 13 bankruptcy in Iowa.
See more of Jeff's Iowa Bankruptcy Video's.
I hope I can help!
Jeff Mathias Law Office
4800 Mills Civic Parkway, Suite 218
West Des Moines, Iowa 50265
Tel. 515-261-7527
Toll Free 1-800-997-1395
Email Jeff Mathias
We are a debt relief agency, we help people file bankruptcy under the United States Code.
See Jeff's Iowa bankruptcy video's. Also: Iowa bankruptcy law and for a list of Iowa attorneys in a variety of practice areas, see Iowa Attorneys Online. Jeff also handles cases under the Iowa Fair Debt Collection Practices Act.
Iowa Bankruptcy Office:
Suite 218
West Des Moines, Iowa 50265
Tel. 515-261-7526
Toll Free: 1-800-997-1395
Iowa Bankruptcy Law
Email Jeff Mathias
See Jeff's Iowa Bankruptcy and Divorce
Video Directions to West Des Moines, IA Office
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Walk Away From Your Mortgage!
John Courson, president and C.E.O. of the Mortgage Bankers Association, recently told The Wall Street Journal that homeowners who default on their mortgages should think about the “message” they will send to “their family and their kids and their friends.” Courson was implying that homeowners — record numbers of whom continue to default — have a responsibility to make good. He wasn’t referring to the people who have no choice, who can’t afford their payments. He was speaking about the rising number of folks who are voluntarily choosing not to pay.
Such voluntary defaults are a new phenomenon. Time was, Americans would do anything to pay their mortgage — forgo a new car or a vacation, even put a younger family member to work. But the housing collapse left 10.7 million families owing more than their homes are worth. So some of them are making a calculated decision to hang onto their money and let their homes go. Is this irresponsible?
Businesses — in particular Wall Street banks — make such calculations routinely. Morgan Stanley recently decided to stop making payments on five San Francisco office buildings. A Morgan Stanley fund purchased the buildings at the height of the boom, and their value has plunged. Nobody has said Morgan Stanley is immoral — perhaps because no one assumed it was moral to begin with. But the average American, as if sprung from some Franklinesque mythology, is supposed to honor his debts, or so says the mortgage industry as well as government officials. Former Treasury Secretary Henry M. Paulson Jr. declared that “any homeowner who can afford his mortgage payment but chooses to walk away from an underwater property is simply a speculator — and one who is not honoring his obligation.” (Paulson presumably was not so censorious of speculation during his 32-year career at Goldman Sachs.)
The moral suasion has continued under President Obama, who has urged that homeowners follow the “responsible” course. Indeed, HUD-approved housing counselors are supposed to counsel people against foreclosure. In many cases, this means counseling people to throw away money. Brent White, a University of Arizona law professor, notes that a family who bought a three-bedroom home in Salinas, Calif., at the market top in 2006, with no down payment (then a common-enough occurrence), could theoretically have to wait 60 years to recover their equity. On the other hand, if they walked, they could rent a similar house for a pittance of their monthly mortgage.
There are two reasons why so-called strategic defaults have been considered antisocial and perhaps amoral. One is that foreclosures depress the neighborhood and drive down prices. But in a market society, since when are people responsible for the economic effects of their actions? Every oil speculator helps to drive up gasoline prices. Every hedge fund that speculated against a bank by purchasing credit-default swaps on its bonds signaled skepticism about the bank’s creditworthiness and helped to make it more costly for the bank to borrow, and thus to issue loans. We are all economic pinballs, insensibly colliding for better or worse.
The other reason is that default (supposedly) debases the character of the borrower. Once, perhaps, when bankers held onto mortgages for 30 years, they occupied a moral high ground. These days, lenders typically unload mortgages within days (or minutes). And not just in mortgage finance, but in virtually every realm of our transaction-obsessed society, the message is that enduring relationships count for less than the value put on assets for sale.
Think of private-equity firms that close a factory — essentially deciding that the company is worth more dead than alive. Or the New York Yankees and their World Series M.V.P. Hideki Matsui, who parted company as soon as the cheering stopped. Or money-losing hedge-fund managers: rather than try to earn back their investors’ lost capital, they start new funds so they can rake in fresh incentives. Sam Zell, a billionaire, let the Tribune Company, which he had previously acquired, file for bankruptcy. Indeed, the owners of any company that defaults on bonds and chooses to let the company fail rather than invest more capital in it are practicing “strategic default.” Banks signal their complicity with this ethos when they send new credit cards to people who failed to stay current on old ones.
Mortgage holders do sign a promissory note, which is a promise to pay. But the contract explicitly details the penalty for nonpayment — surrender of the property. The borrower isn’t escaping the consequences; he is suffering them.
In some states, lenders also have recourse to the borrowers’ unmortgaged assets, like their car and savings accounts. A study by the Federal Reserve Bank of Richmond found that defaults are lower in such states, apparently because lenders threaten the borrowers with judgments against their assets. But actual lawsuits are rare.
And given that nearly a quarter of mortgages are underwater, and that 10 percent of mortgages are delinquent, White, of the University of Arizona, is surprised that more people haven’t walked. He thinks the desire to avoid shame is a factor, as are overblown fears of harm to credit ratings. Probably, homeowners also labor under a delusion that their homes will quickly return to value. White has argued that the government should stop perpetuating default “scare stories” and, indeed, should encourage borrowers to default when it’s in their economic interest. This would correct a prevailing imbalance: homeowners operate under a “powerful moral constraint” while lenders are busily trying to maximize profits. More important, it might get the system unstuck. If lenders feared an avalanche of strategic defaults, they would have an incentive to renegotiate loan terms. In theory, this could produce a wave of loan modifications — the very goal the Treasury has been pursuing to end the crisis.
No one says defaulting on a contract is pretty or that, in a perfectly functioning society, defaults would be the rule. But to put the onus for restraint on ordinary homeowners seems rather strange. If the Mortgage Bankers Association is against defaults, its members, presumably the experts in such matters, might take better care not to lend people more than their homes are worth.
This article has been revised to reflect the following correction:
Correction: January 10, 2010
An essay on Page 15 this weekend about underwater
