What is a Foreclosure for Kentucky and most states
Kentucky and most of the states require foreclosure by judicial process. Foreclosures usually occur due to the non-payment of the mortgage payments. However, the failure to pay the property taxes or insurance can also cause a property to be foreclosed.
Criminal activity on the property can allow the state of Kentucky to issue a tax on real estate for any drugs found on the property. Homes have been foreclosed for both property and income taxes by the state and the IRS.
We have found all of these as causes for a foreclosure. The process involves serving anyone with interest in the property. The property can be sold within 90 days in Kentucky, or it may take years depending on an attorney’s ability to defend the foreclosure and other factors.
The mortgage borrower loses his or her home if he fails to defend the foreclosure or pay off the debt, whether it is the mortgage, property taxes, or a person with a lien on the property. Once the sale occurs, the homeowner no longer owns the home. The US 6th Circuit Court has ruled there is nothing which reverses the transfer after the property sells at auction. There is a right of redemption, but few people can write a check to pay cash for a home after it sells.
Most mortgage companies can both recover both from the sale of the home and mortgage insurance.
How Foreclosures work
Chapter 13 can offer a method to catch up on those payments. A Chapter 7 or a Chapter 13 can give a homeowner time to sell a home or obtain a mortgage modification. The reasons someone didn’t pay may include disability, death in the family, loss of a job, or divorce. Whatever the reason, the mortgage went into default. If the home falls more than two payments behind, the lender eventually files a foreclosure case. Kentucky uses a judicial foreclosure process.
In some other states, foreclosures happen very quickly. In deed in trust states, an attorney will often hold the deed to the property until the mortgage is paid. If the homeowner fails to make payments, the attorney merely sends the title to the bank, who then owns the property. Deed in trust foreclosures often happens within weeks with little notice to the homeowner.
Often what we find is clients will have other debts that they are paying, which cause the mortgage to become unaffordable. Due to wage garnishment or high credit card or medical costs, the mortgage payments are not made, and the family becomes at risk of becoming homeless. In Chapter 7, unsecured debts can be eliminated so that the mortgage can be paid. Even if you have to file a Chapter 13 later, you can better afford the payments.
Often you have to make choices, and having a home should be more important than a new car or cell phone. Yet some people will become homeless to maintain unnecessary expenses. Required medical treatments are essential. But having a home is more critical than paying credit cards.
The Steps in a Kentucky foreclosure are simple
Most foreclosures are filed after 120 days of non-payment. After a mortgage falls, 60 days or more behind, most lenders will refuse to take payments. If you do not pay the property taxes, the taxes may be purchased, and a foreclosure complaint can then be filed in court. The lender or purchaser of the property taxes will not only recover the principle but will also recover the attorney fees, court costs, and interest.
It is vital to catch up on the mortgage quickly because as costs increase, it eats up any equity in the property. And it eats it up at about 350 per hour for attorney fees. These costs decrease the likelihood you can catch up on a mortgage if you take too long to file a Chapter 13.
Filing an answer or bankruptcy is often essential to give a person time to find another home, sell a home, short sale property, modify the mortgage, or pursue other options. The longer you wait to plan how the foreclosure will proceed, the fewer options you will have, and the more expensive it becomes.
Avoiding the foreclosure early.
There are programs which the lender may have before the foreclosure being filed to avoid a foreclosure. You may consider selling the property, including a possible short sale. At any point, you can sell the home. But if you have a foreclosure sale scheduled within a month, it is unlikely that you can sell the house in time. The quicker you apply the solution, the less you have to pay to the bank to catch up on the home or to pay off the total owed to the bank. Early solutions may include a mortgage modification or workout.
Some people do delay the sale as long as possible. This may be your strategy. But if this is your strategy, you may want to file a Chapter 7 bankruptcy to make sure you do not have to repay a deficiency or income tax debt. You can obtain a HUD-approved counselor who may help you avoid foreclosure at this stage. There are specific steps the mortgage company and servicer must go through before they file the foreclosure.
The complaint and answer
When the debt is about 180 days overdue, a foreclosure complaint is typically filed. A defendant only has 20 days to file an answer. The failure to file a response is essentially the same as agreeing to the sale. Certain defenses have to be asserted now, or you lose them.
You can ask for additional time to file the answer to a complaint, but ignoring the complaint is fatal and often results in the home being sold within 90 to 180 days. There are about 120 different defenses you can make in your answer, most of which will not be applicable, but if your attorney spends time with you asking about your case, some of them will be discovered. These defenses may help to delay while you look at other options or may cure the foreclosure.
What the bank offers
Often people will call the bank or the bank’s attorney, and they will be given the options the bank wants you to choose. These options often include
- Pay us off now
- Sign over the house to us and pay more later.
- Pay us, including all the attorney fees and court costs.
- Pay us up to date, including fees and attorney costs.
The bank rarely advises you to seek a quality attorney and file an answer. I have never seen the bank’s attorney advise you to sue the bank back. Instead, the only choices given to homeowners are often options that create even more profit for the bank and their attorney.
Many of the mortgage modifications offered are at higher mortgage rates or require you to turn over significant parts or all of your equity in the home. The one thing the bank and their attorney will never offer or suggest is to file bankruptcy so you can catch up on the mortgage or avoid owing them a deficiency.
After the case has been filed, attorneys often demand mediation. This usually allows a face to face meeting with the mortgage company in one last effort to avoid litigation and a sale. Most foreclosures in state court end up eventually in a sale or bankruptcy. The mediation will often allow a workout, so the arrearage is added to the end of the loan. This is not a permanent fix if the problem which caused the foreclosure, was only temporary. If the homeowner has only excuses for the problem or wants to blame the bank, the mediation will be very short. In arbitration, the homeowner will often have to show the problem was only temporary and has been cured.
Discovery is a set of questions, requests for documentation, and admissions, requested from the other side. The answers are admissible in court as evidence. It may take months for the bank to completed these responses. Each side can request this of the opposing party. Often after the facts have been set forth, and there are no issues of fact, and there are only issues of law, one side or both sides will ask for summary judgments.
Summary judgment is granted if there are no facts in the case to argue over. It replaces a trial on the facts when no events are being argued over. Summary judgment motions are often filed after discovery, or an answer is filed. Often homeowners submit their answers and admit to the default without suing the bank back. Failing to include essential defenses speeds up the summary judgment and sale.
Once a summary judgment has been granted, it usually is too late to negotiate a settlement or mediate any issues. The case proceeds immediately to the Commissioner. The Commissioner will sell the property after advertising it for two weeks in an auction. Bankruptcy can be file before the sale to stop the sale. However, filing is a minute after the purchase, or the same minute of the sale will not save the home.
Bankruptcy 7 or 13
It usually takes days or weeks to meet with a client and adequately plan the strategy for a bankruptcy. There are documents to be provided, classes to take, and hours to prepare the petition involved in a quality case.
If you appear in the office hours before the sale, you can’t take the time to plan the bankruptcy properly. If you appear after someone purchased your property and now they own the property, nothing can be done. Chapter 7 will typically delay the sale for about six months. After that, you are generally back to another sale date. You can take up to five years to catch up on the mortgage in Chapter 13.
Sale and the problems of a deficiency or taxable income
The vital benefit of bankruptcy is it leaves no deficiency or 1099 income tax problems. Most mortgage companies will not sue to collect a deficiency judgment, but some do. All mortgage companies will report any deficiency as earned income on a 1099C for income tax purposed. Filing bankruptcy cures both problems by ending your liability for the debt. There is no deficiency if the property sells after the bankruptcy. There is also no tax liability.
A bankruptcy only requires you to wait two years before you can qualify for an FHA, VA, or HUD loan. If the property sells in foreclosure .it will be three to seven years before you will be eligible for an FHA, VA, or HUD mortgage. A foreclosure has a much worse effect on your credit than bankruptcy. Foreclosures make you wait more than three times longer for loans than bankruptcy.