Lenders in Massachusetts failing to follow foreclosure rules

New reports of continuing shoddy bank practices could make it difficult for those who fall behind on a mortgage. Falling behind on payments is easy following a job loss or an increase in payments after an introductory interest only period expires. A Chapter 13 bankruptcy can halt foreclosure proceedings, discharge unsecured debts and provide a plan for catching up on missed payments.

Even with greater scrutiny of the mortgage industry, a recent report from the Boston Globe found that banks continue to violate legal requirements in the foreclosure process. Often the most basic information, such as the name of the mortgage holder and contact information is incorrect.

In 2010, Massachusetts amended its state law to require that lenders allow time for borrowers to catch up on missed payments before starting a foreclosure. The lender must also send right-to-cure notices with basic information on how the foreclosure process works and who to contact at the bank that holds the mortgage. This was important, because banks often sell or transfer mortgages.

A bank does not need to go before a judge to finalize a foreclosure, so the notice requirements are important.

Earlier this year, the Massachusetts Attorney General Martha Coakley expressed concerns that lenders were failing to offer timely help to borrowers and sent confusing and inaccurate information. For instance, a right-to-cure letter might list IndyMac Federal when the actual mortgage holder was Mortgage Electronic Registration Services Inc., or MERS.

Even if a homeowner reaches the correct mortgage holder, the companies are often unwilling to help. This is where a bankruptcy can help and address more than one problem.

A broader financial solution through Chapter 13

After filing a bankruptcy petition, creditors must stop contacting you directly. If you have fallen behind not only on mortgage payments, but also a hospital bill or a credit card this will stop the telephone calls and letters. If your lender has already started the foreclosure process, a bankruptcy filing will stop the process.

Chapter 13 offers a broader solution than renegotiating payments with just the mortgage lender. Over a three to five year period, you pay a trustee monthly payments that you can afford. The trustee then pays creditors. When the payment plan is completed, the remaining debts are discharged. This allows you to address credit card debt, medical bills and other unsecured debt.

If you have fallen behind on a mortgage, because of a job loss or an illness, contact a bankruptcy attorney. After the foreclosure notices arrive, you must act quickly. An attorney can discuss possible options, including a Chapter 13 bankruptcy, which could save your home and stop creditor harassment.