How Will the Foreclosure Mess Affect Colorado Bankruptcy Filings?

October 26, 2010

By: David M. Serafin

Bankruptcy filers in Denver and all of Colorado on the verge of foreclosure are undoubtedly wondering how the moratorium on foreclosures will affect them.

Those who have already filed for chapter 13 bankruptcy, which is often used to prevent against foreclosure (i.e. by curing past due mortgage arrears over 36 to 60 months), may be allowed to stay in their homes for longer, while state courts and bankruptcy courts sort out the legalities and accompanying confusion. However, absent any evidence of fraud on the part of the mortgage lender, chapter 13 debtors will still be obligated to continue making monthly payments to the trustee.

Also, mortgage lenders are notoriously careless at the least and nefarious at the most when imposing various types of fees, including late fees and attorneys fees. Carefully check the numbers. As an experienced Denver bankruptcy lawyer, I’ve had countless numbers of matters here in Denver and most areas of Colorado where we’ve successfully challenged the fees imposed by the mortgage lenders, whether in court or by negotiation with the lender.

Further, simply because a mortgage lender files a Motion for Relief from Automatic Stay in the Colorado Bankruptcy Court does not necessarily mean that the lender will actually go through the entire foreclosure process. These types of motions are filed in bankruptcy matters due to the automatic stay provisions preventing against collecting directly from the debtor and just so the lender can pursue foreclosure as a last resort ‘just in case’ it becomes necessary (i.e. if the debtor falls behind on the monthly mortgage payments).

The mortgage lender will first assess the value of the home in relation to the outstanding mortgage debt. If the home is upside down and the fair market value has significantly diminished, it’s less likely the lender will pursue an immediate foreclosure. Realizing that it would otherwise own a severely distressed property, the lender may choose to wait things out.

Simple economics dictates that a mortgage lender will only pursue foreclosure if economically feasible. As foreclosure will cost you money (particularly if the property has any equity), not to mentioned the stress of losing your home, foreclosure also cost the lender money (particularly within the context of an ongoing Colorado bankruptcy) and, thus, the lender will only use this option as a last resort.