The recession has not been kind to New Jersey homeowners. Rapidly declining home prices mean that nearly 300,000 of the state’s residents are now “underwater” on their loans, owing more than their homes are worth.

A substantial portion of these homeowners have found it difficult to keep up with their payments. Thousands have already entered New Jersey foreclosure proceedings, and even more are on the brink.

Thanks to a recent $26 billion settlement between federal and state governments and some of the nation’s largest mortgage servicers, a portion of these homeowners may be eligible for relief.

For example, Bank of America has agreed to reduce the principal owed on some homeowners’ mortgages, in order to bring the loan in line with the property’s actual value. Those that qualify could see their principal reduced by up to $100,000.

Other lenders will be implementing similar programs. The settlement was designed to address the lending abuses and financial misdeeds that ultimately led to the housing market’s collapse.

New Jersey’s share of the settlement funds is $837 million.

Bankruptcy Can Bring Foreclosure Relief

Although the settlement will help some struggling New Jersey homeowners, many will not qualify for relief.

Homeowners who are facing foreclosure do have other options for relief.

Filing for Chapter 13 bankruptcy can help homeowners manage their outstanding mortgage debt without giving up their home. In some cases, it can also strip a second mortgage from the property.

Filing for Chapter 7 bankruptcy will put a temporary hold on the foreclosure proceedings until the homeowner’s debts can be sorted out.

Homeowners may also be able to pursue alternatives to bankruptcy, such as a short sale or loan modification.

New Jersey residents who are worried about keeping up with their mortgage payments should talk to an experienced bankruptcy attorney who can help them understand their options.

Source: The Times of Trenton, “Bank of America Targets Trenton for Mortgage Assistance and Financial Counseling Service,” Bridget Clerkin, March 12, 2012.