Home > Mortgages > NJ Man Uses Loophole to Beat Foreclosure, Get His Home Back

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Generally, failing to pay your mortgage does not end up with you outright owning your home. In fact, that’s usually the exact opposite of what happens.

That being said, here’s the story of a New Jersey man who had the uncommon experience of defaulting on his mortgage and retaining ownership of his home, by court order, according to a report from The Record.

In 2007, Gordon A. Washington defaulted on his $520,000 mortgage. This is usually the point at which foreclosure proceedings start, but that’s not exactly what happened, according to the U.S District Court of New Jersey. Washington argued that his creditors, Specialized Loan Servicing LLC and Bank of New York Mellon, couldn’t collect on his debt because they didn’t file “a viable foreclosure complaint within a six-year statute of limitations,” The Record reports.

Judge Michael B. Kaplan ruled in Washington’s favor, though not without a grimace. Here’s an excerpt of his written opinion, published by The Record: “The court will proceed to gargle in an effort to remove the lingering bad taste.”

As humorous as that line is, it’s doubtful Washington’s creditors are laughing. Washington reportedly bought the $650,000 home with $130,000 down and a 30-year, adjustable-rate mortgage, but only made a few monthly payments of $4,165 before defaulting. The outstanding loan, according to The Record, is $519,000, just $1,000 less than what Washington borrowed, and his creditors now have no claim on his property.

It’s still not an entirely rosy picture for Washington — he filed for bankruptcy in March — but getting out of a half-million-dollar mortgage is a pretty big victory for someone with financial issues. It’s unclear if the creditors will appeal the decision.

This isn’t your typical foreclosure case. Falling behind on mortgage payments is one of the worst financial issues you can have, because it will trash your credit for several years, not to mention the stress of potentially losing your home (see: U.S. financial crisis, 2007).

Of course, most people go into homeownership expecting to be able to pay for it, but given the recent history of mortgages in this country and the gravity of this financial milestone, it’s worth approaching with caution. Before you start home shopping, you should figure out how much house you can afford (here’s a calculator to help). Keep in mind that good credit will help you qualify for more affordable mortgage rates, which will greatly reduce the cost of homeownership over the life of your loan. You can check your credit scores for free every month on Credit.com.

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