When New York homeowners file for bankruptcy in New York, they are typically aware of the protections extended to them by the automatic stay. The calls and letters from creditors and/or third-party debt collectors stop and all official collection actions, such as wage garnishments or lawsuits, are brought to a halt. A comparative few-and even their attorneys—know that if they hold a mortgage on their house, the Real Estate Settlement Procedures Act (RESPA) may offer additional protection.

The Real Estate Settlement Procedures Act

Passed in 1974 to mandate greater transparency during the real estate settlement process, the RESPA requires lenders to give mortgage applicants a complete and valid picture of the transaction, including servicing practices, closing costs and any relationship between the lender and other parties involved in the transaction. It also directs mortgage providers to prevent or at least minimize investor loss as much as possible. Specifically, they are required to:

  • Reach out to you before your mortgage payment is 36 days in arrears and let you know what remedies may be available to help
  • Wait until the mortgage is in arrears by at least 120 days before initiating foreclosure proceedings

The RESPA and Chapter 13

If you are a New York homeowner who intends to file for Chapter 13 bankruptcy, then the RESPA increases your chances of keeping your property, because the lender is legally obligated to take all reasonable steps to help you avoid foreclosure. This can include consenting to a fair repayment plan.

Escrow accounts

Another area where the RESPA can assist distressed homeowners is escrowed mortgage accounts. Most mortgages are escrowed because it enables the lender to access funds to pay property insurance and tax bills as they come due and allows you the borrower to simply make one monthly house payment.

Although lenders are technically not required to provide an annual escrow statement to a bankrupt borrower, you are still allowed to carry out an escrow analysis that can detect any shortages and help you verify that the account will be 100% current after your bankruptcy finishes.

In some instances, courts have declared that when a mortgage provider fails to notify the borrower of any detected shortages in an escrow account, it forfeits its right to collect them in a bankruptcy.

The advantages that the RESPA provides to homeowners are not always considered in a Chapter 13 bankruptcy because they aren’t as obvious or well-known. Once you are ready to file, be sure to work with a New York bankruptcy attorney who knows how to apply the statutes of the RESPA to your case, so that you are in a better position to both keep your home and bring your mortgage payments up to date.

Jayson Lutzky is a Bronx attorney who handles personal bankruptcy cases. He has over 34 years of experience as a lawyer and offers free initial in-office consultation to prospective bankruptcy clients. Call 718-514-6619 to set up an appointment today or visit www.MyNewYorkCityLawyer.com to learn more. Get a fresh financial start today!