Barbara Sadler: Foreclosure Lawyer Salt Lake City Utah

If you are facing foreclosure, speak to an experienced foreclosure lawyer in Salt Lake City, Utah to know if filing for bankruptcy is an option for you.

The practice of pledging property as security, essential in the acquisition of rights in land and improvements through borrowing, is as old and as ubiquitous as property itself. In its simplest form a pledge is signified by the pawn ticket; in real estate financing it has become elaborate, formal, and rigid.

The most common instrument to pledge an interest in land and improvements is known as a “mortgage.” In its earliest form in Anglo-Saxon communities, the mortgage was a deed, that is, it transferred to the creditor both title and possession or occupancy. This deed, however, contained a defeasance clause which provided that if the debtor faithfully and punctually performed his obligations, the title, possession, and occupancy pledged would revert to him and the entire transfer would be null and void. If the pledge was redeemed, the transaction was dead, and the debtor recovered his rights.

Today, the mortgage is essentially unchanged in form, but its content and effect have been radically modified. Now, as a result of legislation and court decision, any instrument the purpose of which, either expressed or reasonably implied, is to pledge rights in land and improvements as security for the performance of obligations, is a mortgage; and “once a mortgage, always a mortgage.” Even though the defeasance clause be purposely omitted, if the intent of the parties can reasonably be interpreted as that of pledging rights as security, the instrument and its effect are as though the defeasance clause were included.

In addition, the transaction no longer transfers use and occupancy. In effect, after the transaction, the debtor remains in possession the same as before; and the rights of the creditor become enforceable only upon the debtor’s default in meeting the obligations. In other words, the mortgage gives the creditor a lien against the rights of the debtor, enforceable only after default.

Through the years, the rights of the creditor have become further modified. He no longer comes into full possession of the rights of the debtor, even after default. Instead, he has only the right to demand that the pledged property be offered for sale to satisfy the obligation. If at the sale the obligation is satisfied, the creditor has no further interest. Unless he becomes the purchaser at the foreclosure sale, the interest of the creditor in the pledged property becomes extinguished with foreclosure and sale. He may have other recourse on a bond or note which the mortgage secures, but his rights under the mortgage are exhausted.

It must be emphasized that the interest of the creditor in the property pledged by the mortgage can be enforced only in the future; so long as the obligations of the debtor, under the terms of the agreement, are discharged, the latter has possession and use of the pledged property, free of any interference by the creditor, unless the agreement provides otherwise. Because of his interest, however, the creditor does have an equitable right which enables him to prevent dissipation of the pledged property; otherwise, its management remains in the hands of the debtor until he has defaulted.

Within the framework of such general rules of law or equity, so firmly established as accompaniments of the relationship of mortgagor and mortgagee that they cannot be waived even by agreement, the provisions of the mortgage instrument establish and determine the obligations of the debtor. They may also limit or enlarge the powers and privileges of the mortgagee. In general, any provision may be included by agreement which does not forfeit in advance basic rights of the mortgagor. These are protected as a matter of public policy because the debtor is sometimes a necessitous borrower. As such, he is protected against forfeiture in advance of the right to reclaim his pledge and, in most jurisdictions, against the extortion of an unconscionable rate of interest. The term of the loan (the time or times, place, and manner of its repayment), the rate of interest within the maximum, with reasonable penalties for not meeting payments on the due date, or allowances for payments made in advance of their due date, and readjustments or changes in the scheduled payments which may come into effect in certain specified contingencies, these and many other details may be provided for in an agreement embodied in the mortgage instrument.

Within the limitations of law, then, there is ample opportunity for adapting the mortgage instrument to the circumstances peculiar to each transaction. Once executed, its provisions can be changed only by mutual consent, but in its preparation the mortgage instrument is susceptible of great adaptability. Much of its rigidity is the unnecessary result of custom or the routine use of standardized provisions.

Homeownership is heralded for its financial benefits, and indeed, homes are the largest asset of most Americans. But homeownership also comes with burdens. For almost a century, government and private entities have measured the burden of homeownership by relying on ratios of households’ housing costs to their incomes. Government entities have used housing cost ratios for many purposes, including most recently as guideposts for loan modifications aimed at preventing foreclosure. Private sector institutions, including the mortgage industry, have used such ratios to determine whether households are qualified for home mortgage loans and to determine loan amounts.

Housing cost burdens are crucial measures of the financial well-being of Americans. For most families, the cost of housing is their single largest expenditure.1 If households spend a disproportionate share of their incomes on housing, then they may not have enough money for other expenses, such as health care, child care, or transportation, that are essential for a decent standard of living. Homeowners who spend a high fraction of their incomes on mortgage payments and related housing costs also are at a higher risk for default and foreclosure. Because housing consumes a disproportionate share of their incomes, these families have limited budget flexibility to respond to increases in expenses and may be at heightened risk of financial distress.

The U.S. housing market meltdown of the late 2000s—driven quite significantly by mortgage defaults of households with unaffordable loans— sparked much debate about mortgage underwriting standards and the risks of homeownership.

Since 2007, the United States has been in a home foreclosure crisis. Many home mortgages made between 2001 and 2007, either for purchase or refinance, were subprime or nontraditional loans that included features like adjustable interest rates and optional payment amounts. Borrowers may not have fully understood these complex terms and certainly could not manage the escalating payments in an economy of widespread unemployment and declining home prices. Such loans have caused millions of families to lose their American Dream of homeownership, have cost investors billions of dollars, and have pushed the entire economy into a downward spiral. Experts predict that more than half of all subprime mortgages granted after 2000 will end in foreclosure.

Plummeting home values and rising unemployment have spread the pain beyond subprime borrowers. Many prime borrowers with fixed-rate loans now owe more on their mortgages than their homes are worth and cannot afford the ongoing payments.

In their first years, such private and government-sponsored programs have helped very few families, and the modifications offered all too often lead to quick redefaults. For example, the Home Affordable Modification Program (HAMP), launched in March 2009 with $75 billion in incentives to lenders, was intended to bring about the modification of three to four million home mortgages. Eighteen months later, only five hundred thousand mortgages had been permanently modified. Even more discouraging were federal government predictions that 40 percent of those modified mortgages would end in renewed default within five years.

The grim reality is that most seriously delinquent homeowners will lose their homes. The policy emphasis on foreclosure prevention has diverted attention from the epidemic of inevitable home loss and involuntary relocation. Scholars and policymakers know very little about home loss, yet millions of families have already lost their homes and millions more will suffer the same fate. Studying the painful process of involuntary home loss is a vital prerequisite to the development of policies intended to ease the transition out of homeownership and soften the financial and emotional consequences of home loss. Any meaningful reformulation of the American Dream of homeownership has to be sensitive to the fallout from the wave of foreclosures that has swept the nation.

What Bankruptcy Offers Homeowners in Financial Distress

The fear of losing a home is a major driver of families’ decisions to file for bankruptcy. Nine out of ten of these homeowners said that keeping their homes had been “very important” when they filed. Only 5 percent of homeowners resign themselves to home loss at the time of filing for bankruptcy, agreeing in their bankruptcy court documents to surrender their homes to mortgage lenders. The vast majority of homeowners enter bankruptcy wanting to fight to keep their homes, looking for help from the law in staving off foreclosure and becoming current on their mortgage obligations.
Homeowners who are and remain current on house payments through a bankruptcy case will not lose the home to their mortgage lender during the case.

Many debtors who file for bankruptcy, however, are behind on their mortgage payments. By the time they file, some are a few months late and others are on the eve of a foreclosure sale. Homeowners desperate to save their homes often seek refuge in bankruptcy court, but they find only limited relief there. Bankruptcy does not reduce the principal or interest on a home mortgage, absent the unusual situation of a lender consenting to a modification of the loan. If homeowners simply cannot make the ongoing payments after the interest rates on their mortgage loans have risen, bankruptcy law does not rewrite those loans to lower the interest rates or to subsidize mortgage payments.

Bankruptcy does, however, offer some specific provisions to help homeowners who are behind on their mortgages and want to catch up on missed payments. Chapter 7, the most common type of consumer bankruptcy, usually delays a creditor from foreclosing for a few months and permits a debtor to discharge credit card and some other debts, freeing up income that can then be used for house payments. When the debtor is in default, the lender usually will wait three to six months for the bankruptcy case to end and foreclose at that point. The lender’s more expensive option is to ask the court to permit foreclosure before the bankruptcy case ends, which sometimes will be granted. Chapter 7 also protects the debtor from having to pay a deficiency. Foreclosure sales often net far less than the amount due on the mortgage, and in most states, the debtor owes the lender the difference, called a deficiency. Chapter 7’s debt forgiveness would cover that deficiency. Thus, Chapter 7 debtors may lose their homes in bankruptcy, but mortgage lenders normally cannot take other assets or garnish wages to collect a deficiency because bankruptcy discharges that obligation.

Chapter 13, the other common type of consumer bankruptcy, was designed to help debtors keep their homes, but as in Chapter 7, the home mortgage loan cannot be modified. Absent unusual circumstances, the principal of the debt is still owed and interest rates normally cannot be modified. However, Chapter 13 allows debtors to stop a foreclosure and cure a default due to missed payments by repaying the amount in arrears over the next three to five years. Debtors can catch up on these missed payments without creditor consent, but they must get bankruptcy court approval of their repayment plan. To do so, debtors must first persuade the court that they will be able to make each future house payment as it falls due, plus have enough income to cover payments previously missed. Then debtors must make those payments as promised. However, much can go wrong over the three to five years of a Chapter 13 repayment plan. Only one-third of debtors succeed in making all the payments due; most Chapter 13 cases fail within a year or two.\ For homeowners in default, foreclosure likely will soon follow their missed payments and the dismissal of their bankruptcy case. Thus, although bankruptcy has a home-saving purpose, the outcome can sometimes be home loss.

If you are facing foreclosure bankruptcy may be an option but it depends on your specific case. Consult an experienced Salt Lake City Utah foreclosure lawyer.