21 Oct What Do You Do When Your Mortgage Is Being Foreclosed? Court-Ordered Reinstatement
Connecticut has a statutory procedure to restructure mortgage arrearages in a supervised payment plan. Instituted in 1983 when interest rates were forcing homeowners out of their homes, the Superior Court has the power to force mortgage lenders into a reinstatement plan.
Some of you might remember back in the early 1980’s when interest rates skyrocketed and some mortgages were hitting rates of sixteen and eighteen percent. Unemployment was also prevalent. That may seem like a long time ago and hopefully we will never see those kind of mortgage and unemployment rates again. At the time, the housing market was in crisis and foreclosures were common. (Sound familiar?) The bankruptcy code revisions of 1979 were still very new and not well understood. So the Connecticut Legislature created a process to allow state court judges to fashion a reinstatement of a mortgage in default if the homeowner requested it and could prove worthy.
The procedure outlined in the Connecticut Statutes is disclosed in the paperwork for every foreclosure case that is filed, yet few homeowners take advantage of it and fewer yet are successful. The statute requires that the homeowner file a Motion for Protection from Foreclosure within 25 days of the case “Return Date”. (That date is specified on the cover sheet of the foreclosure summons and is essentially the starting date of the case in Court.) The motion must be accompanied by a financial affidavit and information showing that the homeowner has been unemployed or ‘under-employed’ during the past 6 months, earned less than $50,000 in the last year, has lived in the home for the last two years, and has not previously taken advantage of the reinstatement process. There are other more particular standards outlined in the statute.
If approved, the Superior Court Judge has the power to restructure the mortgage by adding the mortgage arrears including court costs to the mortgage balances and spreading out the payments over the following six months.
Sounds great doesn’t it? It would be if it were that simple. The first mistake that most homeowners make is to delay in seeing a lawyer when the foreclosure is first filed so they can be fully advised of their rights under that law. The second is that many lawyers do not pay attention to the stringent requirements of the Act. The third is that if unemployment were the reason for default, it is likely that the decrease in household income is ongoing and so making even the regular payment, never mind the extra $50, is difficult at best. Finally, the entire process does not take into account the true nature of these toxic mortgages with their variable rates and payment terms that seem designed only to encourage default.
The end result? In the 25 years since this law was passed, I have only seen one mortgage approved for a reinstatement plan. The overwhelming majority of cases make their march to foreclosure judgment and ultimate lose of the home.
The moral of this story is to get competent legal help as soon as practicable even before a foreclosure starts, if possible. Don’t do this yourself!