Foreclosure defense and bankruptcy lawyers are – in one very important way – like plumbers. It is almost always true that the sooner you hire one, the the better the result of the work they do. People facing foreclosure often make decisions which provide temporary emotional relief but actually increase the chances they will lose their home and – in some cases – their life savings.
Below are four of many examples of decisions those facing foreclosure should not make without the advice and counsel of an attorney:
1. Don’t use a home equity loan to refinance credit card debt.
Using a home equity loan to refinance credit card debt can reduce the interest rate on your debt and have tax advantages and may be a good idea for those who are financially secure, but if you are facing serious debt problems, it may be a terrible idea because it transforms unsecured debt to secured debt. Depending on the particular facts and circumstance, a Chapter 13 Bankruptcy proceeding can be used to prevent foreclosure. Transforming unsecured debt into secured debt makes the use of Chapter 13 to avoid foreclosure more difficult.
2. Don’t make the payments on your second mortgage or home equity loan if you are unable to make the payments on your first mortgage.
There is absolutely no rational reason to make these payments. Like many other counterproductive actions taken by homeowners facing foreclosure – making payments on a home equity loan when a homeowner is unable to pay the first mortgage-provides momentary emotional relief which can prove to be very expensive in the long run.
3. Don’t use retirement funds to pay a mortgage.
Over and over again, we have been contacted by homeowners who have exhausted their retirement savings to pay their mortgage when they were unable to pay it because of their loss of income. They do this to ‘buy time’ hoping that they will be able to resume making their payments when their earnings increase. The time they buy is extremely expensive. The retirement funds are exempt from creditors and income taxes and a penalty for early withdrawal will have to be paid on the withdrawn funds. Had they consulted an attorney when their serious debt problems first arose, it is likely that homeowners could have ‘bought time’ at a much lower price and protected their retirement savings if things did not work out as they hoped.
4. Consider whether adding mortgage arrears solves a short term problem at a long term cost.
Agreeing to add your mortgage arrears to the principal balance on your mortgage may make sense, but there may be better ways to cure the arrears; for example, by filing a Chapter 13 Bankruptcy Petition and Plan to repay the arrears over five years at no interest. By contrast, adding the arrears to the principal balance will require that you pay interest on them and would thereby increase your monthly mortgage payments. Only a comprehensive review of your present circumstances and reasonable expectation can provide what is reasonable to expect would be in your best interests.
The above are only a few of the examples of the wrong decisions made by those who are experiencing serious debt problems. The frequency of these wrong decisions seems to have increased because of the almost universal use of the internet by those seeking “THE ANSWER” to their problems. The internet is almost magical because of the wealth of information which can be found on it.
But like all other powerful inventions, the internet can be dangerous when used for the wrong purpose. It is a great resource to use when preparing a list of questions to ask at the time you are consulting a bankruptcy or foreclosure defense attorney. But it is not a substitute for consulting with an attorney. You can find interesting information about the possible benefits of a complex surgical procedure. That should not lead you to decide that what is needed to perform the procedure is a scalpel, a bright light and a mirror.