I have had many conversations with customers, clients and agents regarding how a bankruptcy affects the foreclosure of a home. Before I give my opinion, I will give my disclaimer. This is not meant to be legal advice and you should seek out an attorney for any legal advice needed.

I recently attended a bankruptcy class taught by one of our local Albuquerque attorneys.  This person was full of information, including how bankruptcy and foreclosure work.  First we will begin with how a mortgage works and the definition.

A mortgage involves two important legal documents: A promissory note and either a mortgage document or deed of trust.

Promissory Note: The promissory note (also called a mortgage note or real estate note) is a note the buyer gives to the lender promising to repay the amount of the loan plus interest. The note also states the amount of time the buyer has to repay the loan and what action the lender may take if the buyer fails to make the required payments. The note should state the interest rate and specify whether it is fixed or variable.

Mortgage Document or Deed of Trust: The borrower gives the lender either a mortgage document or a deed of trust, depending on the state where the transaction takes place. I was told that New Mexico allows Deed of Trust and that most all other investors you this as well. Both a mortgage document and a deed of trust serve the same purposes of pledging the borrower’s title to the property as security for the loan and giving the lender a claim against the property in the event of default.

When purchasing a home you now know two instruments are used when acquiring a mortgage. I can now move on to how a bankruptcy will affect the foreclosure of a home. Assuming you are late on payments, foreclosure has been filed and you may lose the home. When filing for bankruptcy you may be asked if you want to include the home in the bankruptcy and that will remedy your problem. Well that is wrong.

Remember there are two instruments used when buying a home using a mortgage. A bankruptcy will only release you from the Promissory Note. This is the promise to pay. It will not release you from the Mortgage or Deed of Trust which is the security document for the home. This document is what gives the lender security interest in the property and the right to a claim if the promissory note is not repaid per the terms. This means Foreclosure of the home and recordation of this on public record.

To sum it up a foreclosure will remain public record forever.  It will also affect your ability to obtain another mortgage for 5 years according to Fannie Mae and most likely will not allow you favorable rates once that 5 years is up. Foreclosure is has the most devastating damage to someone’s personal credit which could be 200-350 points. 

Solution: Call me Carlos Martinez 505-350-8184 there is another option that will help you find a solution for you and your lender.  A foreclosure in any neighborhood can severely affect home values. If you know someone that needs my help please let me know.  I would be happy to give anyone a free confidential no obligation consultation.

I have been seeing to much foreclosure activity in our Albuquerque and Rio Rancho Market without any attempt at resolution. I want to help stabilize our housing market which in turn will help our local economy.

Helpful Link Prevent Foreclosure

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