Simple Home Loan Affordability Test

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Income:  Home Ownership Expenses

If you are having trouble making ends meet, it may be time to take a closer look at your actual monthly income and expenses.  If you are spending more than 33% of what you make on your home, including mortgage payments, HELOC payments, San Diego Property Taxes, HOA’s, and property insurance, you could be headed for default.  When this happens it is necessary to -evaluate whether your current home loan payment is right for your future financial security and stability.

There are several reasons why you may be finding yourself paying a mortgage that you cannot afford including:

  • decrease in income since you purchased your home
  • Mortgage reset
  • Divorce
  • Unexpected Medical Event

What to do?

  1. First, attempt to negotiate with you lender to reduce your monthly mortgage payments through a mortgage reduction or refinance.
  2. Second, if your lender is unwilling to help you make your mortgage payments more affordable, contact a Federal Housing Relief Program such as HUD for free housing resources and clinics offered free of charge to distressed homeowners.
  3. Consider whether bankruptcy relief can help you with your current payments by allowing you to payback arrears (past due mortgage payments) in Chapter 13 or if you qualify to eliminate your second mortgage in a Chapter 13 repayment plan.  You will need to contact an experienced bankruptcy attorney in your district who is familiar with filing Chapter 13 cases because this area of law is quite complex.

Finally, If you are unable to find a solution to your income/housing expenses discrepancies, it may be time to consider whether it would be in your best interest to sell the home.  If it appears that your current situation is simply not a good investment, there is no shame in moving on to a better and more secure means of living.

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California Foreclosure Timeline

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Foreclosure Help

Foreclosure occurs when a borrower defaults on their mortgage payments and the lender through the legal process of foreclosure sells the property, pledged as security for the mortgage/deed of trust, to recoup the value of the mortgage.

Day 30 – Notice of Default

When a homeowner becomes 30 days delinquent on their mortgage, the lender may issue a Notice of Default (NOD).  A Notice of Default is a notice to given to a borrower, mailed to the borrowers home, stating that the borrower has failed to make his or her mortgage payment.  The Notice of Default is also recorded with the County Recorder where the property is located.

Day 90 – Notice of Sale

In California, a lender may issue a Notice of Sale (NOS) once the borrower becomes 90 days delinquent on payments.  At this time, a Trustee Sale Date will be set.

In California, foreclosure occurs through a non-judicial sale.  This means, the Trustee’s sale is done by public auction and the home is sold to the highest bidder.

the Automatic Stay

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The Automatic Stay triggered by bankruptcy filing is an injunction that stays (STOPS) most lawsuits, Wage Garnishments, foreclosure  proceedings and collection actions the moment a bankruptcy petition is filed.  Injunctive relief under the Automatic Stay remains in effect for the duration of bankruptcy proceedings.  For many debtors this provides sufficient protection from creditor harassment until discharge is issued and personal liability for claims is released.  Collection calls and creditor harassment is stayed until the underlying debt is discharged.

However, certain types of debts such as secured debts are not covered by the Chapter 7 bankruptcy discharge.  Meaning, secured debts (debts secured by real or personal property) survive the bankruptcy and if a debtor wishes to remain in possession of the property, he or she must continue to make payments on the underlying debt.  Although the filing of bankruptcy does put a stop to the foreclosure process through the Automatic Stay, unless you are able to get and remain current on your home loan payments after a Chapter 7 discharge, your lender may pick-up where they left off.  Thus, If your ultimate financial plan includes keeping your vehicle(s) or home, and you are delinquent on payments, Chapter 13 may be best for you.

In my experience as a consumer bankruptcy attorney I often encountered the situation where a debtor, who due to misinformation or lack of information did not completely understand the limitations of the Automatic Stay.  Be wary of advertisements with phrases such as “WE CAN SAVE YOUR HOME! STOP FORECLOSURE NOW,”  and make sure initial consultations are performed by an attorney, not a so-called “financial advisor.”  An experienced bankruptcy attorney, who is both educated in the law and obligated to act in their client’s best interests should be advising potential clients as to their options for debt relief.