Modesto Bankruptcy Lawyer Blog

When housing prices were up in the mid 2000s, homeowners often hedged their home values against the market to take out home equity loans or lines of credit (HELOCs) in order to pay for various expenses. Some homeowners wisely invested the money back into their homes, making value-added improvements and needed repairs. Others unwisely spent the money on cars, credit cards and other items that would soon depreciate in value.

Now, with the housing market digging out of a major slump nationwide, homeowners are defaulting on home equity loans in record numbers. According to a recent article in the NY Times, lenders wrote off $11.1 billion dollars in uncollectible home equity loans and $19.9 billion in HELOCs in 2009, more than even primary mortgage loans that same year.

Struggling borrowers are contending with not only not being able to afford to repay the loans, but also having far lower home values than when they initially purchased. Lenders are trying to recover money where they can, but many banks are simply writing off losses because so many people can't afford to pay. Buyers, on the other hand, defend their inability to pay, citing that many banks engaged in practices that were unfair to homebuyers, including predatory lending and indiscriminate loan approval for unqualified buyers.

The delinquency rate in the first quarter of 2010 was 4.12 percent, slightly down from the fourth quarter of 2009 (which marked the highest in 26 years). If you are a part of the thousands of Americans struggling to pay back a home equity loan or line of credit, you can work with a Modesto bankruptcy lawyer to settle your accounts.

Modesto homeowners who have experienced foreclosure may not be done paying, according to a recent article in the Modesto Bee. According to the July 22, 2010 story, people who refinance their homes typically take out a first mortgage at 80 percent of the home's appraised value and a second mortgage for the remaining 20 percent. If foreclosure occurs, then both loans need to be settled with the loan holders. However, after foreclosure of the first (primary) mortgage, the secondary loan company will often file suit against the former homeowner to recoup their loss if it's not covered in the original foreclosure.

Since home prices continue to drop at record rates, many homeowners are unable to complete even short sales due to the nature of the 80-20 structure. Usually, one lender would let the owner out of the loan but the other won't, eliminating the chance for a short sale. This is when foreclosure must take place. And if the secondary lender is not satisfied, homeowners may still owe 20 percent of the home's original purchase price.

Furthermore, according to the article, the holder of the second mortgage can also tack on interest, late charges and attorney's fees in addition to the face value of the original 20 percent loan. Facing this unforeseen debt after foreclosure is enough to seriously threaten the financial security of many Modesto families. If you've been foreclosed on or are facing foreclosure, you might also think about filing for bankruptcy. A bankruptcy attorney in Modesto can help you weigh your options to see what would work best for your situation.

RealtyTrac, a website that tracks foreclosure properties in the U.S., recently listed Modesto and most of Stanislaus County as two of the highest concentrations of housing foreclosures in the nation. Based in Irvine, California, RealtyTrac aggregated housing data at the state, county and city level to develop statistical reports for housing units that received a foreclosure filing in June 2010.

According to the data, the city of Modesto averaged foreclosures on 1 in every 117 housing units in June. The average for Stanislaus County was even higher, averaging 1 in every 99 housing units. By comparison, the state of California as a whole averaged foreclosures on 1 in every 194 housing units and the national average was 1 in every 411 housing units.

While other states are slowly experiencing economic improvement, the state of California continues to see a rise in unemployment, foreclosures and debt. From June 2009 to June 2010, Google Data reports that the unemployment rate in California rose from 11.6% to 12.2%. In addition to those who have already experienced foreclosure, there are countless homeowners who are on the verge of losing their homes by year's end due to continued unemployment and underemployment.

Bankruptcy May Be An Option to Stop Foreclosure
If you're facing foreclosure, a professional bankruptcy attorney may be able to help you save your home. Chapter 7 or Chapter 13 bankruptcy give homeowners options when it comes to financial restructuring and dealing with overwhelming bills. While bankruptcy isn't ideal for everyone, consulting a lawyer can help you make an educated decision about your choices.

Although Modesto area foreclosure rates dropped by 3% in May 2010, this area continues to have one of the highest foreclosure concentrations in the nation. With many factories and companies in Central and Northern California closing their doors, the Central Valley is still being hit hard by the economic and housing crisis that began back in 2007.

According to the Modesto Bee, the three-county region including Stanislaus, Merced and San Joaquin counties continues to have the highest percentage of defaulted mortgages in California. Nearly 52,000 homes in these three counties alone have been foreclosed upon since the housing crisis began three years ago. This accounts for nearly 13% of all houses and condos in Stanislaus County, 15.5% in Merced County and 14% in San Joaquin County.

Bankruptcy Can Help Save Your Home From Foreclosure
With the help of a professional bankruptcy attorney, you may be able to save your home from foreclosure by filing for Chapter 7 or Chapter 13 bankruptcy. Since bankruptcy rules and laws are constantly changing, it is imperative that you have a reputable lawyer on your side to help you file all the necessary paperwork required by the federal government.

There are many services out there that promise refinancing and loan modification options that sound appealing, but only a lawyer can truly review your financial situation to recommend a viable course of action. What's more, if you try to file the paperwork yourself, you could end up disqualifying yourself from any type of bankruptcy relief.

On May 21, 2010, the Modesto Bee reported that homeowners from seven Stanislaus County cities, including Modesto, were victimized in a multimillion-dollar loan modification scheme that promised to pull underwater owners out of imminent foreclosure. Instead, the operation simply robbed residents of as much as $5,000, never fulfilling the promise of loan modification.

The scheme was known by several names, including Mason Capital Group, LLC and Gretchen Fox and Associates. It was run out of a boiler room in Southern California by a dozen or so representatives who promised homeowners that, for a fee of several thousand dollars, they could modify their current loans to keep their houses out of foreclosure. In all, nine men were arrested on 97 charges of grand theft, unlawful foreclosure consulting, tax evasion and conspiracy.

Attorney General Jerry Brown said that the men bilked some 1,500 Californians out of more than $2.3 million, many of whom resided in Modesto and surrounding cities. In many cases, not only were homeowners denied the promised loan modifications, but they also lost their homes and accrued additional debt after paying the scammers.

Brown's office began investigating the scheme in 2009 after a number of consumer complaints. Reports indicate that many of the company's high rollers were using their ill-gotten gains to pay for private school tuition, travel, entertainment, shopping and lavish personal expenses. The Attorney General's office will seek restitution for the victims.

If you are facing foreclosure on your home, consider hiring a reputable bankruptcy attorney in Modesto. Don't rely on fly-by-night scams--if it seems too good to be true, it probably is. A lawyer will follow the letter of the law to help you save your home and rebuild your credit after financial hardship.

According to Lita Epstein of HousingWatch.com, Modesto-area homeowners are one of the hardest hit groups of the American population when it comes to negative equity in their homes. Her May 11, 2010 article cites CoreLogic's recent study of homeownership across more than 47 million homes, in which Modesto ranks as the #4 city with the highest number of underwater borrowers in the U.S (62 percent).

When coupled with unemployment or underemployment, being underwater, or owing more than your home is worth, is forcing many homeowners in Modesto and surrounding areas to consider Chapter 7 bankruptcy. Chapter 7, or total, bankruptcy allows your unsecured debts to be forgiven so that you can gain a fresh financial start. In some cases, you can even save your home.

CoreLogic estimates that the average underwater borrower will need another 10 to 20 years to make up for negative equity. Unfortunately, for many people, they just don't have the resources needed to stay in their homes for that length of time. This is why bankruptcy rates have been steadily rising in the Modesto area since 2007. Although bankruptcy can stay on your credit history for up to 10 years, it is also not considered as heavily as it once was by creditors. As a matter of fact, some filers find that they are able to apply for new lines of credit almost immediately after filing for Chapter 7.

Chapter 7 bankruptcy is strictly regulated by the government, and several steps must be completed before you can be approved and your debts can be wiped clean. A Modesto bankruptcy lawyer can walk you through the process to ensure a speedy and efficient solution to your financial problems.

If you're facing foreclosure on your Modesto home, you might be intrigued by offers that claim to be able to "save your home quickly" or "stop foreclosure now." You may have seen or even responded to newspaper ads, flyers or Internet ads that promise to get you out of debt fast without filing for bankruptcy or that claim to be able to file your bankruptcy without affecting your credit score. While there are legitimate credit counseling services that offer foreclosure assistance, there are no magic "genie lamp" services that can simply wish away your foreclosure situation.

The Better Business Bureau (BBB) and Department of Justice (DOJ) work together to educate homeowners on bankruptcy foreclosure scams around the country. Both agencies post known scams and warn consumers that scam artists will often target specific religious or ethnic groups with flyers offering homeowners quick fixes to mortgage problems.

The BBB reports that one of the most common scams involves companies telling homeowners that they can deal directly with their lender to stop foreclosure. Then, they ask the homeowners to make mortgage payments directly to their company instead of to the bank. Instead of making the payments for you or talking to your lender, though, they will just take the money and run. More scandalous con artists will even ask for the property deed or title to your home so that they can file bankruptcy in your name without your knowledge. While this will temporarily stop foreclosure, it only allows them enough time to skip town with all your money before you realize what's happened.

Look for Signs
The BBB and DOJ suggest that you proceed with caution when you come across services that:
- Have titles such as "mortgage consultant" or "foreclosure service"
- Contact you only when your home is listed for foreclosure
- Ask for a fee before providing services
- Direct you to make payments directly to them instead of your lender
- Make you sign over your property deed or title

Your best bet is to hire a reputable bankruptcy lawyer in Modesto who can take you through the bankruptcy filing process using the proper legal procedure. If something sounds too good to be true, it probably is.