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Saturday, January 19, 2008
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Foreclosures and bankruptcies
Staff Writer Foreclosures and bankruptcies sometimes go hand in hand.
Both legal proceedings can be a long and confusing process.
Several questions come to mind:
- What is the foreclosure process?
- How long does it take before a person has to move out?
- Are bankruptcies also increasing?
Crow Wing County Recorder Kathy Ludenia said the process of foreclosures begins after the lender files a "Notice of Pendency of Proceeding and Power of Attorney to Foreclose" with the county the property is in.
Ludenia said the notice is put on public record and published in the local newspaper. Ludenia said the homeowner has time to come up with a new mortgage or financial plan before the property is put up for sale by Crow Wing County's Sheriff's Department.
Brandi McCutcheon of the sheriff's civil process department said a private process server or a county deputy will serve the individual whose home is being foreclosed about four to six weeks before the actual sale.
People filing Chapter 13 for the most part are trying to save their house. If they stay current on their payment they would keep their home out of foreclosure.
Paul Sandelin
An attorney with Sandelin Law Office in Pequot Lakes, who was a judicial law clerk for a federal bankruptcy judge in Minneapolis and a former bankruptcy trustee.
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Sales are held at 10 a.m. at the civil process office. McCutcheon said 99.9 percent of the time the mortgage company that owns the loan buys the foreclosed property.
"It's very rare to have someone from the public show up to buy the property, McCutcheon said.
Once the sale is complete, the homeowner typically has six months to redeem the property, McCutcheon said. She said the redemption period may be reduced to five months or can be extended to one year for agricultural property. McCutcheon said if people are still living on the property after the redemption period, they'll be forced to leave the premises.
The number of foreclosures in the county jumped significantly in 2007. Ludenia said with this increase, people have to remember that there also are a lot more homes in the county.
Ludenia said last year there were 427 notices of pendency filed and 231 of them went into foreclosure. In 2006, there were 281 notices of pendency filed and 142 properties were foreclosed.
Ludenia said today homeowners are not as worried as they used to be about letting their home go into foreclosure. People think they can get their credit back on track easier than in the past, Ludenia said.
Paul Sandelin, an attorney with Sandelin Law Office in Pequot Lakes, who was a judicial law clerk for a federal bankruptcy judge in Minneapolis and a former bankruptcy trustee, deals with clients on bankruptcy and foreclosure issues.
Sandelin said if a home is in the process of being foreclosed and the homeowner files one of the two types of bankruptcy - Chapter 7 or 13 - and their home hasn't been sold at the sheriff's sale, the filing will stop the sale of the home temporarily. Sandelin said the lender can go to the bankruptcy courts to get authority to continue the foreclosure process, but filing for bankruptcy gives the homeowner more time to come up with a financial plan.
When individuals file Chapter 7 and they're in default on their home mortgage, they must cure the default ordinarily in a lump sum in order to avoid foreclosure, Sandelin said.
"Many people who file Chapter 7 don't have hope of saving their home if they are in default," said Sandelin. "They are people who are behind who can't stay on top of their credit cards or they have medical bills they can't pay."
Sandelin said when people file Chapter 13 they must have a source of income and establish to the court through a reorganization plan that they have the ability to remain current on their home mortgage. They also need to cure the mortgage default within about one year and their reorganization plan has to be approved by the bankruptcy court, Sandelin said.
"People filing Chapter 13 for the most part are trying to save their house," said Sandelin. "If they stay current on their payment they would keep their home out of foreclosure. They have up to one year to cure the home mortgage default and typically five years to pay, based upon their ability to pay their unsecured creditors.
"It may work for a while for most people, but normally it becomes too difficult financially and they cannot stay current on their loan payments. It's not uncommon for a Chapter 13 plan to go into default. Either they didn't change their spending habits or they were just so far behind and on such a tight budget that for a majority of people the margin of error is simply to thin."
Jim Fossum, an attorney in Brainerd who deals with bankruptcy cases, agreed with Sandelin that filing Chapter 13 gives the individual more time to fix the situation and make payments, but it doesn't change the terms of the mortgage.
Fossum saw a 20 percent increase in commercial and residential bankruptcies in 2007. Fossum said bankruptcy is usually the only solution for people in great financial trouble.
Fossum said there are not many attorneys in the Brainerd area who deal specifically with foreclosure cases on behalf of banks. He said there are several large firms in the Twin Cities metro area who deal with a majority of the foreclosure cases in the state.
Nationally, consumer bankruptcy filings increased nearly 40 percent in 2007 from the previous year, according to the American Bankruptcy Institute relying on data from the National Bankruptcy Research Center. The data showed that the overall consumer filing total for 2007 reached 801,840 compared to the 573,203 filings recorded during 2006.
JENNIFER STOCKINGER may be reached at jennifer.stockinger@brainerddispatch.com or 855-5851.
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