I have had to sellers that I have been going back and forth about short sales finally decide to go into bankruptcy.  There is a couple of points they threw at me that I was not confident in there validity.  I wanted to throw this out to the group so I can get a better understanding.

  • Can you restructure mortgage debt in bankruptcy?  My understanding is that when you put your house in bankruptcy, you still need to make the mortgage payments and you have up to five years to catch up on the balance in arrears. 
  • Can you make second mortgages go away?  Again, my understanding has always been that there is not to much you can do with secured debt in a bankruptcy.

I would definitely love to hear what people have to say about bankruptcy and how it affects a potential foreclosure and a homeowners ability to keep their home.

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Karen - SPOT ON!!!!

I always "gently remind" my clients (and those of the agents we negotiate for), that hte BK attorney ONLY gets paid if they convince you BK is teh best solution....ALWAYS ALWAYS ALWAYS ALWAYS (you get teh point) keep that in mind.

 

As you also noted at least for a Chapter 7 - YOU MUST QUALIFY....you don't just "decide" and like a magic pill all your financial problems are solved.

 

As Karen notes, find a GOOD BK attorney to have on your team......

 

My understanding is that the lender has to provide the MI company information to whomever is negotiating the short sale with the lender if that request is in writing. Does anyone have any first-hand knowledge of this?

 

Barbara McCormack said:

I like and agree with your suggestion. However, B of A will not allow me to talk or negotiate with Old Republic directly. They said I have no authority (NOR does my client) because the relationship is with Bank of America and Old Republic...we are "out of that loop." And they have not been helpful at all. It has been a month and we have heard nothing. BOA just says Old republic is difficult to work with and never accepts less than what they ask for. So my hands seem tied. I guess I can tell BOA she is going to foreclosure (or Bankruptcy) and ask them to convey that to Old Republic?
BofA is full of B of S.  Your client has every right to discuss this w/ O.R.  and if your client gives you permission, so do you.  Thom is correct.  Its no different than you paying for auto insurance.  They are the client of the MI company and therefore have every right to communicate w/ them.  I would request to talk to a manager.  This rep is either REALLY misinformed or he/she is being deceptive, which is a breach of FDCPA rules.  

Barbara McCormack said:
I like and agree with your suggestion. However, B of A will not allow me to talk or negotiate with Old Republic directly. They said I have no authority (NOR does my client) because the relationship is with Bank of America and Old Republic...we are "out of that loop." And they have not been helpful at all. It has been a month and we have heard nothing. BOA just says Old republic is difficult to work with and never accepts less than what they ask for. So my hands seem tied. I guess I can tell BOA she is going to foreclosure (or Bankruptcy) and ask them to convey that to Old Republic?
Just for clarity. A foreclosure by the 1st will wipe out the MORTGAGE LIEN ONLY on the junior liens. The note does not go away. The 2nd can still take legal action to collect on this note or they can sell it on. Please do not tell your sellers that the 2nd is wiped out. It's not true..

Be very careful here.  The bankruptcy stops the foreclosure but the bank can go to court to get a motion to remove the house from the bankruptcy to continue the foreclosure.  Once the bankruptcy is dismissed the bank will continue the process to foreclose on the property.  As for the second on the property there is still a lien on the property so you have to get that released to sell it.  After dismissal the second cannot discuss what it will accept they have to make an offer because it is all about releasing the lien on the property.  

 

If you try and sell the home while in bankruptcy you will have to get trustee permission and they usually don't like to allow because it's not in the best interest of the petitioner in the bankruptcy too much exposure if he allows it and then it does not close.  They absolutely need to seek the legal advise of an attorney here.  I would not give any advice to them because of the liability involved.

 

As for making mortgage payments if you are in bankruptcy, you can reaffirm debt and not have it part of your bankruptcy but if they are not making payments then not a good strategy.  Never heard about catching up on payments in a bankruptcy I am sure that depends on what kind of bankruptcy.  But why would you with all the fees etc that will be tacked on and you don't have value anyways it would be like throwing money away.

Good morning Kevin,

 

If this is a chapter 7 bankruptcy, I think this home will be tied up until the bankruptcy is discharged.  If it's chapter 13, the attorneys and clients will determine how much the clients will have to pay each month to the attorney to make all their payment obligations under the chapter 13 and yes, it's 5 years.

 

However, check with your local attorney.  It's my understanding that somewhere throughout this process of the bankruptcy, you can get permission from the Trustee(s) to short sale the home.

 

Hope this helps.

Bankruptcy is not the way to go, it will only stall the foreclosure, and you've hosed your credit for 10 years. Mater of fact, if you got to the Comptroller of the Currency website, bankruptcy is one of the foreclosure rescue scams they identify.

 

   On the BK issue it is only my opinion but I have had experience with credit and how it different loans are effected by your actions...If you have a BK and a foreclosure even though you qualify in 3 years you will more thank likely take a bigger dink when getting a mortgage if you go BK and let the bank foreclose then if you ...short sale and then file BK.

It works the same way with cars...Even you give them back in BK if you do give any cars, boats etc in a BK  you will get better terms when you apply for a car loan ......remember credit is always pulled exclusively for the purpose of application...long story short...if you are going BK make sure it is about the credit cards that are just outrageous....and not secured debt that will follow you for ever....I had a client successfully complete a short sale and had the bank come after them and set it to a collection agency....he doesn't have much debt paid collection company $5 a month and in 4 months negiotated his collection from $10,000 to $1,250....Bk works...just make sure you understand why and how it will affect you for the next 10 years...because that is how long you will hear about every time you apply for credit....

 

  I have a contact with Bank of America that may help...he is charge of east operations ...send him an email and explain your problem..

 

John A. Ciresi, CPA

Vice President

East division Portfollio Retention Mgr.

 

[email protected]


Exactly, the BK is a way to stop foreclosure only for the time until the borrower get the discharge. Then the bank and the association is they have it,  will send invoices again to be paid. Is a wasting of time to delay the process.


The Negotiator said:

If anyone says BK avoids foreclosure (and yes attorney's will say so) then they are gravely mistaken. Imagine the foreclosure process as a movie. BK simply pauses the movie until it is discharged. Once the BK is discharged the bank will still need to get their house back and so they will finish the foreclosure and take it back at auction (or let it sell to someone at auction). All the BK does for a homeowner is remove themselves from the debt of the mortgage(s). Therefore, the bank(s) cannot legally hound the the homeowner for any of the remaining balance once the foreclosure is complete and the house sells to someone. Basically, BK guarantees full satisfaction for the homeowner, but, at a very costly price. The homeowner will have (1) a foreclosure on their record and (2) a BK on their record. How awesome is that? If a homeowner is doing BK ONLY because they cannot pay their mortgage, advise them NOT TO until after the short sale. If you can get full satisfaction on the short sale then there would be no reason to file BK. Even if you cannot get full satisfaction, the banks are not suing for the deficiency (yet). 

 

Moral of the story is not to file BK if the only reason is the house issue. However, BK might be the way to go if the house problem is only a small problem of the debt issue and the homeowner is drowning all over the place.

 

Now, its important to be honest with the homeowner and tell them everything. Unlike BK lawyers who lie all day to homeowners (at least down here in SW Florida) and tell them the BK will solve all their problems. I actually had a BK lawyer tell the homeowner to just let the bank take the house. I wanted to END that lawyer in a bad way. Anyway, back to the point. If the homeowner does do a BK and the lawyer does the right thing and let the house be sold via a short sale, then the BK makes the short sale easier because a letter of approval with full satisfaction or not, it doesn't matter.

I'm doing a short sale now, that the customer filed a BK and got the discharge one year ago. Chase  offer ger to do a short sale now. I already got the approval under HAFA,.

The association was including in the BK but after the discharge the borrower has to start make fees payments again.

Why is the reason to file a BK?  this is only to delay the process. Unless there is a second, sometimes they forgive the second loan, but this only dependes.

I love this web site and this topic is one that really burns me up, too!  I'd love to find an honest bankruptcy attorney (an oxymoron?) to tell the truth about short sales versus foreclosure and the impact bankruptcy has on a seller.  All the ones I've met so far tell people that they can "save your house" with a bankruptcy OR to just stay in the house rent-free until the seller gets kicked out.  This is my understanding of bankruptcy (don't know if it's different in NJ or if these are federal guidelines), someone correct me if I'm wrong here:  Chapter 13 is for restructuring.  If someone wants to save their home, they would go for this option.  The trustee determines whether the seller uses the 3-year plan or 5-year plan to REPAY the debts that are in arrears, in addition to paying their other bills.  They also pay a trustee fee for this service.  If the seller successfully completes the program, the bankruptcy is DISCHARGED and the seller is not in arrears any more.  They still have to continue paying their mortgage from whatever point it was.  They just broke up the arrearage into monthly payments.  If they fail to complete the program successfully, the bankruptcy is DISMISSED.  In this case, the foreclosure picks up right where it left off.  If the seller doesn't qualify for a Chapter 13, they can then be considered for a Chapter 7, otherwise known as the wipe-out.  The seller can wipe out UNSECURED debt, but the bank will still foreclose on the house.  They are not just going to say, "Oh, you filed Chapter 7, so keep the house."  Right!  I know this because it happened to someone who I tried to help with a short sale.  They listened to the attorney and the house was foreclosed on.  The bottom line is this:  a seller can't keep their house if they're not making payments!!!  Gee, if that were the case, we'd all be doing it!

I just had one foreclose due to Old Republic.  I offered them $6K instead of 10K which is what they were requesting....and this was on a 2nd Lien, one that would GET NOTHING if it foreclosed and they shot back a denial. My client was even a Discharged Chapter 7 Debtor that they could not go after!! 

I said some words to the negotiator and then determined.....they were  minimum wage earners that do not care!  :(   My advice to anyone that has Old Republic on a 2nd is be prepared to pay what they ask for and if the balance is more than what a 1st Lienholder will allow, DO NOT WASTE YOUR TIME. 

 

Jennifer  Hart

Keller Williams Realty



Thom Colby said:

Here's a thought -  Who pays the MI? the borrower or did the bank take this insurance themselves at no cost to the borrower.  I suspect if the borrower is paying / paid for the MI, a case could be made that the relationship is between the borrower and the MI company because of who pays the premium.

 

Lawyer-up, you'll need it !

 

Thom Colby

Broker

Newport Beach, CA

Barbara McCormack said:

I like and agree with your suggestion. However, B of A will not allow me to talk or negotiate with Old Republic directly. They said I have no authority (NOR does my client) because the relationship is with Bank of America and Old Republic...we are "out of that loop." And they have not been helpful at all. It has been a month and we have heard nothing. BOA just says Old republic is difficult to work with and never accepts less than what they ask for. So my hands seem tied. I guess I can tell BOA she is going to foreclosure (or Bankruptcy) and ask them to convey that to Old Republic?

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