Short Sales And Bankruptcy Language

Every real estate professional who works with homeowners in default needs to know a little about bankruptcy. At the very least, you should know enough to join the conversation because bankruptcy and foreclosure often go together.

The first thing you need to tell them is that you can’t help them with the bankruptcy itself. That’s not why you’re there. You could be accused of practicing law without a license; if you’re not an attorney, don’t give legal advice.

The point is to know enough about bankruptcy to speak with the homeowner like the professional you are. It is critical to know what bankruptcy will and won’t do for people in foreclosure, and that begins with learning a few terms. Once you understand the basics, you can help them figure out which questions to ask their bankruptcy attorney.

Bankruptcy Stay: A judge can order a stay to freeze the progress of the foreclosure. It doesn’t prevent the foreclosure from ever happening, but it does prevent the lender from taking further action for a while – even an hour before the sheriff’s sale. This has the effect of giving the homeowner more time to work things out.

Relief of Stay: When a stay is ordered by the judge in a bankruptcy court, the lender may file a motion for relief of stay. The lender is basically asking to be allowed to continue to go after the house or the money. The judge has the option to allow their request or deny their motion.

A motion for relief of stay may be justified in one of two ways. First, if the property has negative equity, the homeowner will receive nothing from the sale of the house anyway. Since there will be no proceeds from the sale to distribute among the other creditors, the court may see no point in freezing the foreclosure process. Second, the homeowner may already be in trouble with the court because they can’t keep up with their repayment plan. The court will see no point in giving most homeowners a second chance to save the house if they aren’t cooperating in good faith with the bankruptcy process.

Abandonment of Assets: In bankruptcy court, an asset is considered abandoned when its value has decreased to the point that nobody will be interested in it but the owner and its secured lienholder. One example of an abandoned asset is a home that is worth less than the mortgage debt.

Bankruptcy Discharge: The court discharges all debts in a Chapter 7 or a Chapter 13 bankruptcy after all procedures have been followed. A discharge tells future creditors that the borrower is no longer legally responsible for those debts.

Bankruptcy Dismissal: Most frequently used in a Chapter 13 bankruptcy, the term “dismissal” means that the individual has lost the ability to file bankruptcy papers and have his debts discharged. The court dismisses a bankruptcy when the individual fails to comply with either the court’s request for paperwork or the trustee’s payment plan. The legislative reforms that became effective in October 2005 limited an individual’s ability to refile bankruptcy in the event of a dismissal.

Bankruptcy is a common topic among people who are in financial trouble, especially when it involves a mortgage. If you would like to continue this conversation, don’t forget that you can always find a colleague at Strategic Real Estate Coach. You may never become a bankruptcy expert, but as a real estate professional, you can at least know what everyone else is talking about.

You may want to speak with a bankruptcy attorney yourself to get the details about how this works in your state. In the meantime, just remember this: When a homeowner files bankruptcy, the court won’t stop the foreclosure permanently, but it could delay the auction temporarily and buy the homeowner some time to work things out another way.

Need more information about helping homeowners in default on their mortgage? Visit the Strategic Real Estate Coach website, and check out our free report about the new Real Estate Rebel. Dare yourself to follow our ethical, proven strategies for growing your real estate business beyond your imagination!