Leaning: how quick do banks react to bankruptcies?

If you are not making payments on a mortgage, a second mortgage, or some other type of secured loan, like a car payment, and you file a Chapter 7 bankruptcy case, how long will it take for the bank to request a chance to do a foreclosure?

Like most legal questions, the answer can be given in two words: “It depends.” But first, a primer. If you are in bankruptcy (with a few exceptions), a lender can’t just do a foreclosure or repossession. They need to ask the bankruptcy judge for permission first. This is done through filing a motion for “relief” from the automatic stay of proceedings that protects you, the debtor. And by the way, this relief isn’t free: the Court, besieged by these types of cases, now charges creditors $150 just to file them with the clerk.

Well, how soon will a lender typically file for relief? Right now I’m seeing all kinds of responses from lenders ranging from just a few days after your case is filed to “never.”

But I think I’m on to a clue: I think the banks, at least some of them, are “leaning.”

Meaning that if the property is in a desirable neighborhood, the chances for quick action increases. An ordinary neighborhood (or worse), and the interest just isn’t there.

File a bankruptcy case for a nice home in Andover? You won’t wait too long to hear from the bank about a motion for relief.

File a bankruptcy case with an ordinary (or worse) home in Lawrence or Haverhill, and it might be a while before they get to it.

Now officially, banks are in the lending business, not the real estate selling business. On paper, they shouldn’t really WANT to own any more property anywhere.

But with the slight uptick in the economy, and the real estate business at least not in complete free-fall, a lot of leaning is starting to go on. So if you have a nice house in a nice neighborhood, be prepared to try to keep up on those mortgage payments at all costs!

 

By Doug Beaton

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