I see it a lot – homeowners who have some equity in their home, but also a boatload of unsecured personal credit. They understand they need to make changes, and are ready to pay the piper. At this point, people begin to scour the newspaper classifieds; check the Yellow Pages; pay closer attention to the radio ads; and of course, scour the internet to find useful information on matters such as debt consolidation, consumer proposals, and even bankruptcies.
Most homeowners I have encountered do not want to sell their homes, and they certainly do not want to lose their homes to a bankruptcy process.
Many end up consulting a trustee in bankruptcy, who will also be an administrator of consumer proposals. This first consultation is free, and gives you a chance to tell your story and begin to understand what your options are. The trustee’s job is to help you find the relief you need, while representing the best interests of your creditors.
Many people come to me first, while wearing my mortgage broker agent hat. I have enjoyed fair success resolving these crises through creative mortgage solutions which freed up sufficient equity from the home to either pay down the debts, or muster up sufficient capital to make a lump sum settlement offer to their creditors.
Because I specialize not only in credit counseling, but also as a licensed mortgage broker agent, some trustees refer their prospective clients to me, since they sense there is unrealized equity in the individuals’ home, which can perhaps be unearthed to help solve some, if not all, of their debt problems.
Once you are identified as a homeowner, the trustee’s mandate is to first determine how much money can be realized from the equity in your home. It’s a pretty simple exercise – they determine the market value of your home, then subtract the total mortgage financing already attached to your property. That is their starting point. So if you have a home worth say $280,000, and a first mortgage of $230,000, the trustee will likely suggest you should come up with an amount of $50,000 to pay your creditors.
But no one with debt problems has $50,000 lying around – hence the problem. A mortgage specialist can help you realize up to 85% of the value of your home (via restructuring your first mortgage, or adding a second mortgage) but you still maybe short tens of thousands of dollars.
At this point, you probably need an advocate to plead your case with the trustee. Usually a lawyer is recommended, but it does not have to be a lawyer – I find trustees agreeable to accepting pleadings from me on behalf of my clients.
The advocate will try to reason with the trustee – arguing that there is no certainty in a bankruptcy and the forced sale of the home. Any proceeds from a potential sale will be eroded by legal fees, mortgage prepayment and discharge fees, and real estate commissions. A case can be made for reducing the amount the trustee is willing to accept on behalf of the creditors. The trustee is often more likely to listen to these pleadings from an advocate than from the debtor himself.
The point is there are many ways to solve the problem of too many debts and a desire to hang on to the family home. Seek out expert advice from a trusted third party.
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