Foreclosure and Loss Mitigation

Especially because of unemployment during the Covid-19 public health crisis, many homeowners have a difficult time paying their mortgages. But hard times don’t always mean you must lose your house. Federal law includes help for homeowners. With the help of an attorney, you may be able to change your loan and keep your house. 




Bad things happen to good people, and this country’s founding fathers knew that. Under Article 1, Section 8, Clause 4 of the US Constitution, all Americans have a right to seek protection from their lenders. This process is called bankruptcy. Special courts handle the process, and the protections begin immediately. Bankruptcy will freeze the foreclosure process, and the homeowners can negotiate with their lenders to stay in their homes. 


Automatic Stay


The Bankruptcy Code provides for an automatic pause in all mortgage foreclosure proceedings during any bankruptcy proceeding.The “automatic stay,” as it is called, suspends any non-bankruptcy court’s authority to hear cases, including foreclosure cases, against the person who filed bankruptcy. The automatic stay is mandatory and applies to all courts and to all banks. A bank cannot foreclose while the homeowner has the automatic stay protection.


Bankruptcy Loss Mitigation Law


In 2011, the NJ Bankruptcy Court  started the bankruptcy court Loss Mitigation Program to oversee and facilitate mortgage loan modifications as well as other options for bankrupt homeowners facing foreclosure. Loss mitigation options include loan modification, loan refinance, forbearance, short sale, or surrender of the property in full satisfaction of the debt. The Loss Mitigation Program requires banks and homeowners to work together to keep homeowners in their homes whenever possible.The bank must appoint a single contact person to handle the borrower’s loss mitigation. In addition, the program allows the borrower and bank to mediate the process with the bankruptcy court Judge.  


More Protections under Federal Law


Congress enacted the Real Estate Settlement Procedures Act to protect homeowners and consumers. The Consumer Financial Protection Bureau regulates and enforces the Act. New laws came into effect on January 10, 2014. Banks must now provide information to homeowners about mortgage loss mitigation options. Loss mitigation is a foreclosure alternative offered by the bank to the homeowner. These alternatives can include  refinancing, loan modification, repayment of past due payments over an extended period of time, forbearance, short-sale, or deed-in-lieu of foreclosure. The bank may have more options too. 

If a borrower applies for loss mitigation, then the bank must consider alternatives to foreclosure. After a homeowner applies, the bank may not begin foreclosure for at least 37 days.  The borrower can sue if the bank breaks this rule. 

A lawyer can help you explore these options, navigate the process, and keep your home.