Thursday, April 5, 2012

Does a default on a construction loan entitle the bank to the land as well as the home?

Question: We have been told by the foreclosure court that our foreclosure sale date will be in 90 days. We owned the property prior to obtaining a construction loan in 2005, to build our home. Now that we are in foreclosure for the mortgage from 2005, is the bank also entitled to the property which we had owned prior to the construction of our home? We were also told that filing Chapter 13 bankruptcy will prolong the sale date of our home, is this true? We got the construction loan solely to build our home that is now foreclosed on.

Response: If you signed a mortgage, then more likely than not, that you secured the debt with collateral, i.e., property. Banks will generally not give out a home loan without having its interest backed up by collateral. That's what gives them the legal remedy to foreclose and to recover, if not the full amount owed, then at least the fair market value of the property. It is unclear what other property you own. If you own one property and you refinanced several times, your debt to the bank is determined by the amount borrowed at the last closing. It would be irrelevant if you bought your house a lot cheaper a long time ago and then you refinanced and took out a greater loan for whatever reason. You owe whatever you last borrowed. You can try to modify your mortgage so you could reduce your monthly mortgage payments as one way to avoid foreclosure. However, you can also do a short sale, which would allow you to sell the home for the fair market value rather than for what you owe. You can also do a deed-in-lieu of foreclosure. Many banks today offer financial incentives for you to do a short sale or a deed-in-lieu. Finally, filing for bankruptcy will stay the sale and a lot of people do file for bankruptcy as the last resort to avoid foreclosure. However, if you cannot work out a plan through the Bankruptcy Court on how to resume to make mortgage payments, the relief from the Bankruptcy court will be temporary. While the sale will be stopped, the stay will only last so long until the bank makes a motion to lift the stay, which would essentially take you back to square one (i.e. bank will continue the foreclosure process). Weigh your options carefully as to what exactly are you trying to accomplish...

In the legal blog, Attorney Svetlana Kaplun addresses typical questions our firm has received from our clients, or come across from homeowners related to foreclosure, foreclosure defense, loan modification and bankruptcy topics.

The information contained in the legal blog of Attorney Svetlana Kaplun is for informational purposes only, and should not be construed as a legal advice on any subject matter. Please read our full disclaimer or contact the Law Office of Svetlana Kaplun, P.C. by telephone at 718-444-1115 for more information.
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