A few days ago, a client came to me wanting to file for bankruptcy protection. One of the information I got from them was that they own a home, the mortgage for which they can no longer afford to continue paying. The spouses had the belief that the moment they stopped paying their mortgage, the bank would initiate foreclosure proceedings right away and they would then be evicted from their home in a matter of days. Not wanting to take the chance of being evicted and homeless, the couple abandoned their home and rented an apartment. They decided to take this course of action immediately after they were unable to pay for their mortgage.
The mortgage on their home was approximately $4,000 per month. The rent for their new apartment is now costing them $2,000 per month. Their lowered monthly payment is giving them some financial relief. Should they have abandoned their home immediately and rented an apartment? Did they have a better option?
I have previously written about foreclosure proceedings in this column. It would normally take a few months before a bank can actually foreclose on your home. Before a bank even initiates foreclosure proceedings on a debtor’s property, it takes a few months before they send the debtor a notice of default. Normally, they don’t send debtors a notice of default until the third month of delinquency. This notice give you a warning to cure the default or they will foreclose on the property.
Once the bank has sends you this default notice, it may take them another few months to actually foreclose on the property. In California, for example, the period of time it takes a bank to actually do an extra judicial foreclosure on a home is approximately 4 months.
Even after debtor’s home has already been foreclosed, debtor still does not have to leave the home immediately. Depending on the jurisdiction where you live again, it may take another few months for the bank to go to court and actually evict you from the foreclosed home. In California, for example, this may take about 3 months for the actual eviction to take place.
Thus for the couple above who came to me wanting to file for bankruptcy, if they had not immediately abandoned their home, they would have been able to stay in their home for at least a few months rent-free. The moment they stopped paying their mortgage, it would take at least 3 months before a default notice would be sent to them. Another 4 months for an extra judicial foreclosure of their property (longer than that if it were to be a judicial foreclosure). Then approximately another 3 months for an eviction case to take place in court.
If you add up the 3 months for the default notice to the 4 months for the foreclosure proceedings, and, the 3 months for the eviction action, the total would be 10 months. At $2,000 per month of apartment rental, the couple could have saved $20,000 had they just stayed in their home instead of abandoning it and going out to rent an apartment. This is the minimum that they would have been able to save as I have run into some homeowners who have been delinquent in their mortgage payments for more than a year and yet no foreclosure proceedings have even been initiated by the bank. In fact, many homeowners who refuse to leave their homes are paid by the lenders to move out of their home voluntarily.
To some people, it may be immoral to be a squatter and stay in a home you no longer own or are paying for. However, for some financially troubled homeowners they may have no other choice. Other homeowners may also just feel that they are being screwed by the system where the banks get all the financial bailouts from the taxpayer’s money; and, bankers get billions in bonuses while homeowners find it impossible to get any form of financial relief from the banks. For these homeowners, this may just be a way for them to save some money and build up their cash reserves before they actually loose their home.
(DISCLAIMER: material presented above is intended for informational purposes only. It is not intended as professional advice and should not be construed as such. Rey Tancinco is a partner at Tancinco Law Offices, a professional corporation with offices in San Francisco, Vallejo, and Manila. The law office website is at: tancinco.weareph.com/old. Rey Tancinco can be contacted at (800) 999-9096 or (415) 397-0808 or via email at: attyrey@tancinco.com
