Archive for March, 2009

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Can Bankruptcy Stop Foreclosure

March 23, 2009

foreclosures1Stop Foreclosure in the United States

Mortgage companies continue to foreclose on American homes at an alarming rate. The real estate market boomed in the late 1990’s and early 2000’s. Property values appreciated at an unprecedented rate and homeowners cashed in on their new found home equity. At the same time, a variety of “creative” mortgage options became available, options mortgage lenders said would allow people who might otherwise not have qualified for home financing to become homeowners.

Now, interest rates have climbed, and the real estate market has cooled. Homeowners with adjustable rate mortgages (ARMs) and interest-only loans are reaching the “shock point” and seeing payments increase dramatically, but prepayment penalties, rising interest rates, and declining home values make refinancing difficult-especially since these “creative” mortgage options have left most borrowers with little or no equity.

What is Mortgage Foreclosure?

Foreclosure, in simplest terms, is the process by which the bank or mortgage company that has a lien on a piece of real property takes that property back because the borrower / property owner hasn’t complied with the terms of the mortgage agreement. Most often, this is because the borrower has fallen behind on payments.

The exact foreclosure process differs somewhat from state to state, but the real problems usually begin when mortgage payments are 16 days past due. Although it is still possible to work out a repayment plan with the lender at that point, many homeowners do not. This may be because they’re still in the midst of the financial difficulties that caused the past-payment, or simply because they’re hoping things will get better with the next paycheck or the next month or some other change in circumstances.

Unfortunately, many people delay too long while hoping for things to get better. If a homeowner has significant equity (usually at least 15 – 25%) in the home and is less than 90 days past due, there may be a variety of possible ways to stop foreclosure, including refinancing. However, once a loan is more than 90 days past due, or if the homeowner doesn’t have significant equity-which is often the case due to creative financing options-refinancing can be difficult. In those cases, Chapter 13 bankruptcy may still allow the homeowner to stop foreclosure.

How Can Chapter 13 Bankruptcy Stop Foreclosure?

Many people file for Chapter 13 bankruptcy specifically to stop foreclosure. In most cases, an automatic stay is entered as soon as a Chapter 13 bankruptcy petition is filed. The automatic stay will temporarily stop foreclosure, along with all other collection action, regardless of the stage of the foreclosure proceedings. With the automatic stay in place, the debtor and his attorney have the breathing room to work out a Chapter 13 repayment plan.

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Children Of Foreclosure Falling Behind In School

March 13, 2009

sad-childSome of the people hit hardest by this bad economy are the youngest. Almost 2 million children nationwide have had or will have their lives disrupted by home foreclosures, according to one study.

These are the children whose families have had to move, sometimes more than once. The youngsters are pulled out of school, often leaving their friends behind without even saying goodbye.

Nine-year-old Kenia, who is in the fourth grade at Fairview Elementary School in Modesto, California, said that is what happened to her. She is new to the school, having moved to the area just a few months ago. She said it is really hard and she misses her friends.

Her classmate Bethany said her best friend since kindergarten just left without saying goodbye.

Heather Sharp, the principal at Fairview, said her school has been the one most affected by the bad economy in the Modesto City School system.

“We have, over the last couple of months, 50 students coming new to the school and 50 students leaving,” Sharp said.

It was so bad that the school conducted a door-to-door search for missing students, she said.

“We had our community aide going out to houses. And they were boarded up, windows boarded, yard brown. She had to go to neighbors to find out where the kids were.”

In terms of raw numbers, California had the most foreclosures of any state from 2007 through January 2009. More than 57,000 homes entered foreclosure. Many of those were in Stanislaus County, where home prices have declined 65 percent since December 2005, according to the Modesto Bee.

Fourth-grade teacher Suzell Tougas said she has lost 10 kids from her class so far this year and is braced to lose more. She usually has a room full of children with every desk occupied. Now, it “looks empty … it’s like a “ghost town”.

She said constant moving is hard on kids.

“Just having to start over and start over is really hard on a child,” Tougas said. “It takes six weeks for a child to adjust … at least.”

While children are in that period of adjustment, she said, they aren’t learning and their studies suffer.

“The biggest issue is that when [children have to move] when there are other stressors going on, we know it puts these kids at greater risk for being behind in their academics,” said Pat Popp, a past president of the National Association for the Education of Homeless Children and Youth.

That is borne out in a recent study by a nonpartisan group in Washington called First Focus. It said that children who move twice in one year are only half as likely as others to be able to read proficiently, and may have a greater chance of being held back. It also found that moving a lot reduces the student’s chance of graduating from high school by half. Read the report here

The report, published in May, estimated that 1.95 million children will be affected by foreclosure over the next two years.

The number of homeless students is increasing dramatically. A study by the National Association for the Education of Homeless Children reported that more than 450 school districts across the nation had an increase of at least 25 percent in the number of identified homeless students between the 2006-2007 and 2007-2008 school years.

A student who moves “may hear the same information again that you learned in your previous classroom or miss information that has already been covered in your class but wasn’t taught in your previous school,” Popp said.

The fallout from the rash of foreclosures likely will have a long-term impact on education, especially in California. Schools get much of their funding from property tax revenues. Real estate values are spiraling downward and so is the revenue.

At Fairview Elementary, Principal Sharp worries about students like 9-year-old Eunice, who has moved twice in the last year. Her parents told her that after they pay their mortgage this month, they won’t have any money for a week.

But, Sharp said, children are resilient.

“We don’t give them credit for what they can handle but, at the same time, the flip side is it’s sad — they shouldn’t have to handle it. They should be able to know they can go to school and focus on reading and math and recess.”

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U.S. Home Foreclosure Notices Hit 274,000 In January 2009

March 13, 2009

The number of Americans on the verge of losing their homes fell in January but was still up from the same month a year ago. The numbers would have been higher if not for efforts to stall the foreclosure process.

Across the U.S., more than 274,000 homes received at least one foreclosure-related notice last month. That was down 10 per cent from December, but still 18 per cent higher than a year ago, according to RealtyTrac Inc., an Irvine, Calif.-based foreclosure listing service.

Contributing to the monthly drop was a decision by government-controlled mortgage finance companies Fannie Mae and Freddie Mac to suspend foreclosure sales during the winter holidays. As well, Florida Gov. Charlie Crist brokered a deal in which lenders in that state agreed to a 45-day halt to new foreclosure petitions.

But those efforts may not have much effect in the long run.

“If you don’t do anything to get to the core problem, all you’re doing is extending the housing downturn,” said Rick Sharga, RealtyTrac’s vice-president for marketing. “It’s only a good idea if there’s a corresponding program that dramatically restructures hundreds of thousands of loans.”

Meanwhile, a federal regulator on Wednesday urged more than 800 thrift institutions to suspend all foreclosures while President Barack Obama’s top economic officials develop plans to keep borrowers in their homes.

The Obama administration plans to spend $50 billion to combat foreclosures of owner-occupied, middle-class homes, but is divulging few details. An announcement of the administration’s housing plans is expected in the coming weeks.

Testifying before House lawmakers on Wednesday, Treasury Secretary Timothy Geithner said the government would provide incentives to “try to induce economically sensible restructuring of mortgages,” but offered no specifics.

2 million foreclosures in last year
More than two million American homeowners faced foreclosure proceedings last year, and that number could soar as high as 10 million in the coming years, according to a report last month by Credit Suisse, depending on the severity of the recession.

The RealtyTrac report said nearly 67,000 properties were repossessed by lenders in January as the worst recession in decades, falling home values and stricter lending standards continue to sap the U.S. real estate market. That was up from more than 45,000 repossessed properties in January 2008, but down from 79,000 in December.

Geithner and Shaun Donovan, the new secretary of the Department of Housing and Urban Development, met with officials from housing and other nonprofit groups, top bank executives and industry lobbyists Wednesday to hear proposals for how the new programs to fight foreclosures should be structured.

After the meeting, John Taylor, chief executive of the National Community Reinvestment Coalition, a consumer group in Washington, said he was optimistic the new administration would agree to use government dollars to buy up mortgages and remove them from complex mortgage-linked securities and restructuring them at more affordable levels.

He said support from government and industry officials for that idea was a “giant step forward” compared with opposition to such an approach by the Bush administration.

The Obama administration is also expected to back a push in Congress — opposed by the mortgage industry — to let bankruptcy judges alter the terms of primary home loans. Earlier this week, Obama said it “makes no sense” that judges are not allowed to do so. The mortgage industry argues that this prohibition allows lenders to charge lower rates.