New Jersey Foreclosure: Frequently Asked Questions

In a New Jersey foreclosure sale, your home will be sold in an auction-type setting. The sale will be publicly announced and will be open for anyone to attend. Since New Jersey is a judicial foreclosure state, the local sheriff will typically lead the auction. If the sheriff cannot conduct your sale, another public official will do so.

Everyone who attends the foreclosure sale is able to place bids in order to buy your former home. As in all auctions, “to the highest bidder go the spoils.” The spoils in this case refers to your mortgaged home.

So: you stopped paying your mortgage payment. For a variety of reasons, people sometimes do this. Maybe you ran into temporary (or permanent) financial trouble because you: lost a job, got divorced, fell ill, made some poor money choices – the potential reasons are endless. Regardless of how you ended up in foreclosure, it’s probably not something you hoped would happen to you one day.

No one goes around saying, “I hope I get foreclosed on at least once in my lifetime!” Because foreclosure something you didn’t wish for – you probably don’t know what to expect. As a general rule, we don’t sit around thinking about things that we don’t plan to experience. Therefore, now that you have found yourself smack dab in the middle of a foreclosure, chances are that you have some questions.

We’ve covered a lot of foreclosure sub-topics here on our blog. Today’s foreclosure question we’d like to answer for you is:

“Who gets the money from the foreclosure sale?”

The normal course of a foreclosure auction is that the bidding remains rather low and the final, winning bid is often less than the house is actually worth. In fact, many times foreclosed homes are sold for less than the original mortgagor still owes the bank. There are, of course, exceptions.

Here is a breakdown of what will happen to the proceeds from your foreclosure sale, who receives payment, and in what order:

  • The first person/entity to be paid from the foreclosure sale proceeds is the New Jersey lender who granted you the loan for the mortgage in the first place. The bank or mortgage company needs to recover as much money as possible because you didn’t repay them like you originally agreed. A small portion of the proceeds will also go toward settling the cost of having the foreclosure auction.
  • If there is still money left after the sale is paid for and the lender has fully recovered the amount they are owed, any secondary lenders (2nd or 3rd mortgage granters) will receive the full amount you borrowed (perhaps for a home equity loan) or as much as possible.
  • After the above parties have received payment in full is the only time you, as the mortagor, will be entitled to receive any money from your foreclosure sale. Keep in mind: you are not likely to receive much, if any, money from a foreclosure sale because foreclosed homes don’t typically sell for as much as they would in a traditional real estate transaction.

In fact, you may even owe money when all is said and done. If the winning foreclosure bidder pays less than you still owe on the property, your lender will suffer a loss. This discrepancy is known as a deficiency balance. As the mortgagor, you can legally be held accountable for this amount.

You can learn more about NJ foreclosure procedures, get the answers to common foreclosure FAQs, and find out how a foreclosure will affect your life on our NJ law blog. We can also help you save your home via foreclosure defense, if that is your ultimate goal.

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Avoiding the Short Sale Deficiency: What are My Options?

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If you’re living in a home with zero or negative equity and falling farther and farther behind on your mortgage payments, you may have considered or already applied for a short sale. When approved, a short sale allows the homeowner to sell a home for less than they currently owe the lender.

Oftentimes, lenders will ‘forgive’ this discrepancy amount, for several reasons. Big-name, well-known lenders usually want to maintain a good relationship and reputation with borrowers, and a short sale allows them to recover at least some of the money owed.

However, there are times (lenders) who refuse to forgive the deficiency amount and will sue the homeowner (who becomes the seller) for the difference between how much the home sold for and how much was still owed on the original mortgage.

If you are experiencing a lender who won’t forgive your short sale deficiency, and you have no way of paying said deficiency, it should be noted that going forward with the short sale is not your best option.

What, then, are your best options, you ask?

First and foremost, we would ask if there is any possibility of a loan modification making enough of a difference for you to be able to catch up on late payments. A real estate attorney will be able to negotiate with your lender to work out the modification details, if the numbers crunch just right.

If a loan modification isn’t able to budge the numbers enough to make it a real possibility for you to stay in the home, consider applying for a deed in lieu of foreclosure. Avoiding foreclosure in this way allows you to approach the lender rather than vice versa, and also avoids a Sheriff’s Sale of your home, which can be embarrassing.

For homeowners who get turned down for a ‘deed in lieu,’ the path that makes the most sense would be to file for Chapter 7 bankruptcy. Naturally, we cannot know if you would meet all of the necessary qualifications for a NJ Chapter 7 bankruptcy without having a look at all of your finances.

In a situation like this, it is in your best interest to meet up with a bankruptcy/real estate attorney in New Jersey who has experienced a lot of success pulling through for his/her clients.

Some important pieces of information to bring with you to your FREE consultation with your NJ bankruptcy lawyer include:

  • How much total (unsecured and secured) debt do you currently have? Bring as many credit card statements, auto loan invoices, mortgage paperwork, utility bills, etc as possible with you to your first meeting with your attorney.
  • Proof of any tax debt;
  • Your current and recent total income and expenses;
  • A list of your exempt and non-exempt assets;
  • Your credit score. Come with the most recent copy of your credit report, if possible. We realize your score will be low, but we want to have a starting point we can look back on as we work to get your score moving upward!

Second in importance to working with the right bankruptcy attorney is to GET INFORMED. Read all you can about your options, including:

We have a plethora of other helpful information that will aide you in getting prepared for your attorney consultation. Please visit our blog at your leisure. Like and follow us on Facebook to get real time updates on the successes we experience for our current clients. You can become our next success story!

Image credit: Images Money

After the Short Sale: What is a Deficiency Judgement?

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For homeowners who have been struggling to make their mortgage payments along with other monthly living expenses, filing for bankruptcy is the best way to either wipe out or reorganize debt that’s become overwhelming.

When filing for bankruptcy, many homeowners give their homes up to the foreclosure process so they can move to more affordable housing.

Another option that’s available to distressed homeowners (whether filing for bankruptcy or not) is to sell the home via short sale. In order to get your lender to agree to a short sale, you’ll have to provide them with proof that you’ve experienced a significant change in life circumstances. For example: job loss, mandatory job relocation, divorce, death of a spouse or disability, to name a few.

Many people believe that selling their home through a short sale will look better on their credit report versus having their lender foreclose and sell via Sheriff’s Sale. The truth is that bankruptcies, foreclosures and short sales are all going to appear on your credit report and none of them are going to do your credit score any favors. At least not immediately.

However, if you sell your house through a short sale, it is possible for it to have a bit less of an impact on your credit score if you can get your lender to report the debt as ‘paid.’ Often, lenders will report short sale transactions as ‘settled,’ which indicates a deficiency, which will knock more points off your credit score.

What exactly is a ‘deficiency’ and how is it going to affect me?

You may have heard the term ‘deficiency’ thrown around a lot when referring to foreclosures and/or short sales.

Essentially, when you sell your home via short sale, you (as long as your lender agrees) accept a purchase price that is less than you still owe the bank. The difference between how much you owe and the short sale purchase price is called the deficiency.

Example: You owe $190,000 on your mortgage. Your home sells at short sale for $140,000. The $50,000 difference is the deficiency.

The reason it is important to be aware of the deficiency amount is because lenders in New Jersey are legally entitled to seek repayment of that amount from you – the original borrower.

As you can imagine, after falling behind on your bills, meeting with your bankruptcy attorney to discuss your options, opting for a short sale, and (finally!) breathing a sigh of relief when your house sells – it can be more than a little disheartening to discover that you still owe $50,000. For a home that you are no longer living in, and no longer own.

Here’s the good news: even though New Jersey does not prohibit deficiency judgements, most lenders do not pursue them. To err on the side of caution, however, have your attorney negotiate a release of liability from your lender. This must be in writing so that it will hold up in court.

If your lender isn’t keen on the idea of signing a written release, it may be possible to sway them by negotiating a small fee in exchange for the release. This will make your lender feel as though they are getting at least a small payment, and will allow them to avoid expensive court proceedings that would be required for them to sue you for the deficiency. With a release of liability in hand, you’ll be able to relax and move on after your short sale is completed.

Image credit: Diana Parkhouse