Sign of the Times: Bankruptcies, Foreclosures, Chaos

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I am currently working on a 2-part article about the experience I went through last year while selling a rehab house I had. Since it still is incomplete, I wanted to submit a quick article about something that happened to one of my friends on December 5th.

One of my friends is currently in Chapter 13 Bankruptcy. She started to get behind with the mortgage payments again and went to her attorney to see what could be done. She was informed that since the government overhauled the Bankruptcy system on October 17, 2005, there was very little that could be done. In years past, people would simply re-file and past loopholes in the system allowed for that sort of thing. One extreme case I had knowledge of, had a husband and wife, each filing personally, three times each over a three year period. That made SIX bankruptcies over three years, without a single payment being made. Those days are gone. . .

My friend told me that her attorney had made a motion to adjust the current terms of her bankruptcy but it was very unlikely to be approved because both lenders for her first and second mortgages, would appear and contest the modification. In fact, they would likely ask the court to release the protection because she had fallen behind once again.

When she asked my opinion of what would happen, even I told her that it was very likely for the court to “release the hounds” and grant the lender(s) permission to foreclose.

It looked bleak.

She went on December 5th to the Northern District Bankruptcy Court in Texas to as the court for a modification. A funny thing happened though… NEITHER lender showed up to contest the modification! When I heard about it, I told her that she had just dodged a massive bullet. Had either lender showed up, it was almost a lock that she would end up in foreclosure within a month.

In the current “real estate storm” we are all going through, it really says a lot when you find that lenders are to the point of allowing someone who has defaulted on their bankruptcy agreement, to modify it when they are behind already. In other words, the lenders would rather continue trying to collect money from the homeowners rather than foreclose and have another house added to their REO (Real Estate Owned) stock piles.

The storm is starting to intensify now. This storm has my full attention now but, my guess is the government is about to get much more involved…. Stay tuned.

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4 Comments

  1. Sounds like your friend lucked out! I know several people who have been forced to file for bankruptcy too, lately.

    It is an unfortunate situation, one in which I personally blame lenders for.

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