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.
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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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.
"Bankruptcy laws certainly can differ from state to state"
Bankruptcy is FEDERAL Law - NOT State Law. It's all the same throughout the USA.
Josh M. Boggs said:
Bankruptcy laws certainly can differ from state to state, however we have had numerous reputable bankruptcy attorneys actually refer us clients to do the short sales on their already trustee approved 13's. It helps them rid the debt in the agreement w/out a foreclosure on their credit, but the caveat is that the trustee will certainly have to approve the short sale and the final proceeds before closing.
Yes Thom,
Thank you for helping me get that clear. I mis-spoke about the "laws" itself. My apologies.
Kevin Hardin said:
Thom,
Yes Bankruptcy code is the same, but the Judges and Trustees are not, nor are the Local Rules the same. So, you can get dramatically different results state to state. Especially when we talk of homestead rights and levels of exempzt assets. If you don't believe that just compare NY and CA and their court decisions.
Josh,
I not sure what you mean by reputable referrals vs referrals from not so reputable attorneys or how that bears but, to your point, Trustees here in AZ are not so inclined and not sure what you mean by non having a foreclosure on your credit as the inclusion of the home in the Bankruptcy and the subsequent relief of that debt precludes the lender reporting it at all. At the end of the day, the mortgages will simply be reported as included in BK. Now, if that homeowner reports in their schedules that they will retain the home and subsequently lose the home to foreclosure then they have a double whammy.
It is why most BK Attorneys advise their clients to just let it go.
Here's an article from our Florida Assoc of Realtors that addresses this issue:
http://www.floridarealtors.org/NewsAndEvents/article.cfm?p=5&id...Be REALLY careful when doing this....we have had to post BK short sales where the second was "removed" or reduced down to nothing, BUT, they still had a "lien" on the property that had to be cleared....as always, watch the DETAILS!!!!
All my best to everyone.
I could you some advice on this issue as well. I have a short sale that is going no where with Bank of America. So the seller has decided to file bankruptcy and has pulled the house off the market, thinking her debt and obligation to her mortgage (AND large second mortgage) will be dissolved in the bankruptcy. She has actually been to a lawyer who told her not to agree to any terms of the short sale, her problems "will be solved" in the bankruptcy. Anybody know how that really works?
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.
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