Notice: The materials available at this web site are for informational purposes only and not for the purpose of providing legal or tax advice. You should contact an attorney or CPA to obtain advice with respect to any particular issue or problem. See Legal Notice section for additional disclosures. 


If you feel you need bankruptcy protection, or have a legal case against lender, then you can:

  1. File for bankruptcy protection (automatically stalls (automatic stay) the foreclosure)
  2. Sue the lender for a technical RESPA violation (does NOT automatically stop the foreclosure)
  3. Sue the lender for predatory lending (does NOT automatically stop the foreclosure)


Filing a bankruptcy automatically stalls the foreclosure process until the bankruptcy is discharged, but the lender can petition for a ‘relief from stay’ so they can continue foreclosure. 


To Qualify:


  1. Bankruptcy: Funds to pay attorney ($ 2,000 to $ 5,000) and:
    1. not previously filed a Chapter 7 more than eight years & Chapter 13 two years
    2. Must meet local income and asset qualifications
    3. Be willing to have BK on your credit report for: Ch 7 = 10 years Ch 13 = 7 years.
    4. Not eligible for a conforming loan for 4 years.


  1. Law Suit: Attorney retainer of usually $ 3,000 to $ 10,000
    1. Many attorneys require you to pay a loan auditing company 500 – 1,000 to review your loan documents for technical error before they will accept your case.
    2. Does not automatically stop foreclosure process
    3. Can take a long time and many lenders aggressively fighting these cases
    4. No refund of attorney fee if you lose.



- Cost will vary by attorney and complexity of case.

- Bankruptcy cost range: $ 2,000 to $ 5,000

- Legal Solution Retainer Fee range: $ 3,000 to $ 10,000

- Cost will vary greatly depending on experience, track record, and attorney client load.





****  If federal bankruptcy court is given the authority to modify loans (cram down) then look for updates in loan modification area.



Bankruptcy home loan related info:


Entities seeking relief under the Bankruptcy Code may file a petition for relief under a number of different chapters of the Code, depending on circumstances. Title 11 contains nine chapters, six of which provide for the filing a petition. The other three chapters provide rules to govern those petitions. Bankruptcy cases are typically referred to by the chapter under which the petition is filed.

Chapter 7: Liquidation

Chapters 11, 12, and 13: Reorganization


Means test

Current monthly income is defined in 11 U.S.C. § 101(10A) as the monthly average of the income received by the debtor (and the debtor’s spouse in a joint case) during a defined six-month time period prior to the filing of the bankruptcy case.


Automatic Stay

Bankruptcy Code § 362 imposes the automatic stay at the moment a bankruptcy petition is filed. The automatic stay generally prohibits the commencement, enforcement or appeal of actions and judgments, judicial or administrative, against a debtor for the collection of a claim that arose prior to the filing of the bankruptcy petition. The automatic stay also prohibits collection actions and proceedings directed toward property of the bankruptcy estate itself.


Home loan discharge rules

The effect of a bankruptcy discharge is to eliminate only the debtor's personal liability, not the in rem liability for a secured debt to the extent of the value of collateral. The term "in rem" essentially means "with respect to the thing itself" (i.e., the collateral). For example, if a debt in the amount of $100,000 is secured by property having a value of only $80,000, the $20,000 deficiency is treated, in bankruptcy, as an unsecured claim (even though it's part of a "secured" debt). The $80,000 portion of the debt is treated as a secured claim. Assuming a discharge is granted and none of the $20,000 deficiency is paid (e.g., due to insufficiency of funds), the $20,000 deficiency—the debtor's personal liability—is discharged (assuming the debt is not non-dischargeable under another Bankruptcy Code provision). The $80,000 portion of the debt is the in rem liability, and it is not discharged by the court's discharge order. This liability can presumably be satisfied by the creditor taking the asset itself. An essential concept is that when commentators say that a debt is "dischargeable," they are referring only to the debtor's personal liability on the debt. To the extent that a liability is covered by the value of collateral, the debt is not discharged.


Lien Stripping

In situations where the debtor (rather than the creditor) is allowed to benefit from the increase in collateral value, the effect is called "lien stripping" or "paring down." Lien stripping is allowed only in certain cases depending on the kind of collateral and the particular chapter of the Code under which the discharge is granted.


Bottom Line - Strategy

For those that have excessive personal debt in addition to an over encumbered property a bankruptcy may be the best of the limited choices.

Keep in mind though the inability to secure a conforming loan for 4 years for Ch 7 and 2 years for a discharged Ch 13 (5 years if more than one BK in 7 years) vs 2 years with a short sale.  This is important because with the bottom of real estate market around the end of 2010 to 2011 and price increases starting shortly after the additional 2 years of missed appreciation will be very costly.  In addition if later the property goes to foreclosure there will be a 5 year penalty and the 5 year time will begin at the time of the foreclosure ‘completion date’ (see Foreclosure Tab for more details).



Sue the lender for:

  1. RESPA Violation: Forensic Mortgage Audit or Loan Audit because of a technical violation
  2. Predatory Lending


RESPA Violation

RESPA – Real Estate Settlement Procedures Act requires lenders to provide a good faith estimate for all the approximate costs of a particular loan and finally a HUD-1 (for purchase real estate loans) or a HUD-1A (for refinances of real estate loans) at the closing of the real estate loan.

About 99% of the time there will be an error somewhere in the chain of these documents an attorney can sue for a violation of RESPA.


Account Inquiries

If the borrower believes there is an error in the mortgage account, he or she can make a "qualified written request" to the loan servicer. The request must be in writing, identify the borrower by name and account, and include a statement of reasons why the borrower believes the account is in error. The request should include the words "qualified written request". It cannot be written on the payment coupon, but must be on a separate piece of paper. The Department of Housing and Urban Development provides a sample letter.


The servicer must acknowledge receipt of the request within 20 days. The servicer then has 60 days (from the request) to take action on the request. The servicer has to either provide a written notification that the error has been corrected, or provide a written explanation as to why the servicer believes the account is correct. Either way, the servicer has to provide the name and telephone number of a person with whom the borrower can discuss the matter. The servicer cannot provide information to any credit agency regarding any overdue payment during the 60 day period.


If the servicer fails to comply with the "qualified written request", the borrower is entitled to actual damages, up to $1000 of additional damages if there is a pattern of noncompliance, costs and attorneys fees.



Fill out the following form and we’ll provide a list of Real Estate Attorney’s that specialize in RESPA VIOLATIONS and PREDATORY LENDING. Before providing information please read and agree to Legal Notice section.


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Predatory Lending


Predatory lending is a pejorative term used to describe unfair, deceptive, or fraudulent practices of some lenders during the loan origination process. There are no legal definitions in the United States for predatory lending, though there are laws against many of the specific practices commonly identified as predatory, and various federal agencies use the term as a catch-all term for many specific illegal activities in the loan industry.


Many laws at both the Federal and state government level are aimed at preventing predatory lending. Although not specifically anti-predatory in nature, the Federal Truth in Lending Act requires certain disclosures of APR and loan terms. Also, in 1994 section 32 of the Truth in Lending Act, entitled the Home Ownership and Equity Protection Act of 1994, was created. This law is devoted to identifying certain high-cost, potentially predatory mortgage loans and reining in their terms.


Twenty-five states have passed anti-predatory lending laws. Arkansas, Georgia, Illinois, Maine, Massachusetts, North Carolina, New York, New Jersey, New Mexico and South Carolina are among those states considered to have the strongest laws. Other states with predatory lending laws include: California, Colorado, Connecticut, Florida, Kentucky, Maine, Maryland, Nevada, Ohio, Oklahoma, Oregon, Pennsylvania, Texas, Utah, Wisconsin, and West Virginia.


One definition of the term is "the practice of a lender deceptively convincing borrowers to agree to unfair and abusive loan terms, or systematically violating those terms in ways that make it difficult for the borrower to defend against."


There are many lending practices which have been called abusive and labeled with the term "predatory lending." There is a great deal of dispute between lenders and consumer groups as to what exactly constitutes "unfair" or "predatory" practices, but the following are sometimes cited.


Failure to clearly and accurately disclose terms and conditions, particularly in cases where an unsophisticated borrower is involved. Mortgage loans are complex transactions involving multiple parties and dozens of pages of legal documents. In the most egregious of predatory cases, lenders or brokers have been known to not only mislead borrowers, but actually alter documents after they have been signed.


Risk-based pricing: The basic idea is that borrowers who are thought of as more likely to default on their loans should pay higher interest rates and finance charges to compensate lenders for the increased risk. In essence, high returns motivate lenders to lend to a group they might not otherwise lend to -- "subprime" or risky borrowers.


Discrimination: Some organizations feel that many financial institutions continue to engage in racial discrimination. Most do not allege that the loan underwriters themselves discriminate, but rather that there is systemic discrimination. Situations in which a loan broker or other salesman may negotiate the interest rate are likely more ripe for discrimination. Discrimination may occur if, when dealing with racial minorities, loan brokers tend to claim that a person's credit score is lower than it is, justifying a higher interest rate charged, on the hope that the customer assumes the lender to be correct.


Caveat Emptor: There is an underlying debate about whether a lender should be allowed to charge whatever it wants for a service, even if it seems to make no attempts at deceiving the consumer about the price. At issue here is the belief that lending is a commodity and that the lending community has an almost fiduciary duty to advise the borrower that funds can be obtained more cheaply.



Bottom line - Strategy

If you feel you have been a target of predatory lending then you should consult with an attorney and determine what your options are.


Fill out this form and we’ll provide a list of Real Estate Attorney’s that specialize in RESPA VIOLATIONS and PREDATORY LENDING.


Before providing information please read and agree to Legal Notice section.

Contact Us Now

Notice: The materials available at this web site are for informational purposes only and not for the purpose of providing legal or tax advice. You should contact an attorney or CPA to obtain advice with respect to any particular issue or problem. See Legal Notice section for additional disclosures. 
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