Written by Craig D. Robins, Esq.
The next storm to hit the housing market will be caused by the wave of defaults on pay-option adjustable rate mortgages according to an article in the Wall Street Journal yesterday.
The problem is part of the sub-prime mortgage meltdown. Between two and four years ago, an incredible number of homeowners took out pay-option adjustable rate mortgages (ARM), especially here on Long Island. A very large number of our clients who own homes have such mortgages.
Now, with these mortgages starting to reset to much higher rates and exorbitant monthly payments, many homeowners will be unable to afford them any longer. There can actually be a flood of defaults. Many Long Island communities have a great majority of homeowners who refinanced their homes with ARMs.
The rate of delinquencies and foreclosures on ARMs is extremely high, in large part because so many of these homes are underwater and have no equity.
A bankruptcy filing can often provide relief from an onerous adjustable rate mortgage
The Long Island bankruptcy attorneys in our firm meet with homeowners on a regular basis who are facing this dilemma. Fortunately for them, they have various bankruptcy options.
With some, we recommend Chapter 7 bankruptcy which enables them to stay in the home for a period of time without having to make any payments. Then, they can move out and not have to worry about any deficiency obligation on the mortgage, as that is discharged in the bankruptcy proceeding.
With other clients who may have several mortgages, we may recommend Chapter 13 bankruptcy as there is a mechanism in that type of bankruptcy to eliminate the second mortgage if he house has lost a great deal of value.
For those Long Island homeowners in financial difficulty, it makes sense to quickly meet with an experienced Long Island bankruptcy attorney.