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Permalink Reply by Wendy Rulnick on September 4, 2012 at 9:38am

Jeanne - Can you gently advise him to get the opinion of another attorney? I just had a seller do a short sale who had a bankruptcy which included the mortgage. Does the attorney think he's being helpful by having the seller stay in the home longer?  $10,000 is a big moving incentive. Short sale is better than DIL for future re-borrowing, DIL is an actual question on a standard mortgage app, not short sale. DIL is worse for consumer loan rates (such as auto loans). Security clearances more readily accept short sale over DIL, too. Many non-military positions include security clearances. His credit is probably pretty bad now due to BK, but the $10,000 should push him over. 

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Permalink Reply by Jeanne Dominguez on September 4, 2012 at 11:20am

Thanks Wendy, I have suggested he call and speak to my SS atty's and they can give him advice, as well as his accountant. I am not trying to twist his arm in anyway, just want him to be well informed. He is very excited that his credit scores are in the 700's after a BK. I have tried to explain to him, the only way the bank can gain possession is to FC on him or if he does a DIL. But that both of those options will damage his credit much worse than a SS, and his 700 scores will drop like a brick after a FC. =(

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Permalink Reply by Wendy Rulnick on September 4, 2012 at 11:24am

He doesn't understand what you are saying? I don't get it.

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Permalink Reply by Minna Reid on September 5, 2012 at 2:37am

Bankrupted debt will usually not show up a credit report anyway so the credit score will be unaffected. More likely is that when he decides to buy a new home, he will need to prove what happened to the old home. He'll get a new home loan much faster with an SS vs a Foreclosure, and the foreclosure will add the time it takes for the home to actually foreclose in addition to the waiting period after. ( Here in CT that may be a few years just for the foreclosure to happen plus another 3-5 years to qualify for a new loan)

I have noticed 90% of the time bankruptcy attorneys will say "just let the home foreclose". Theres no logic in it...I think bankruptcy attorneys are just ill-informed about the consequences of foreclosure on new home loans and the state of mortgage lending in general. 

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Permalink Reply by Jeanne Dominguez on March 13, 2013 at 12:42pm

Thanks everyone!!  Just wondering if after they fiel a BK on all debt and home too, and they let the bank just FC, will the FC show up on credit report as a FC??

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Permalink Reply by Karen Mathers on March 19, 2013 at 3:08pm

That is a good question. From the above answers, I get the feeling that if the debt was in the BK the bank will have to foreclose but it will not show up on their credit report?  Neither will a DIL or a short sale. 

If the homeowner does not owe the debt anymore then does he have to say yes on a mortage application when asked if he has had a foreclosure?  Do they actually serve papers on the homeowner for the foreclosure after a BK? 

I would love to hear more about what happens as I talk to people that are considering bankruptcy and I usually tell them when they do a BK  they will then  have the BK and a foreclosure on their credit report. I don't really see the insentive to do a short sale.  Why not do a BK, live in the house till they come and kick you out?

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Permalink Reply by michael Shurtleff on March 20, 2013 at 10:32am

But of course in a judicial foreclosure - at least in Oregon - the lender comes out of the foreclosure case with an order of possession and no extra FED action needs to be filed.  And in a nonjudicial you can still stay until the sale happens and then leave just before the FED and hopefully get some cash for keys.  Although none of that nonjudicial stuff is happening in Oregon right now. 

For those who are going to lose their houses and want to stay in for as long as possible the best of both worlds is a foreclosure attorney and a short sale realtor working well together putting the short sales on a bit longer pipeline through pricing and having the foreclosure attorney do simple things that are cost effective to respond to the foreclosure (file ORCP 69 letter, file basic answer, do request for production).  Then you end up with the short sale resolution with more of the foreclosure timeline. 

A short sale attempt can lengthen the foreclosure process as well if there is good communication with the foreclosing law firm.  My experience is that they will often wait longer to move for default (1-4 extra months) if they percieve a short sale is moving along successfully.  So the processes can work together to reach the debtor's goals.  At least in Oregon

My take on some of the conversation above is that a foreclosure of the lien still occurs whether the underlying debt has been discharged in bankruptcy or not.  I am not certain what is and isn't reported on a credit report and how.  I wish I knew.  I think we all need a little more hard info in black and white with chapter and verse. 

I have about 60 judicial foreclosure clients in various stages.  Several have filed bankruptcy on the debt - none of which have reaffirmed to my knowledge.  That is another question as to whether the debtors are always being well advised by BK attorneys to take the common advice not to reaffirm. Perhaps I will ask some clients who come to resolution to provide me with copies of their credit reports so i can get a better Idea how things are showing up.  It seems to me there is more confusion around credit and future ability to buy advice than about anything I deal with in my practice.  Cancellation of debt income issues would be a close second.  

The only way I can think to get answers is anecdotally through looking at numerous reports or finding some report or statement from the lenders or bureaus clarifying when and how things are reported

Anyone got a handle on all that.  I'd love to be educated

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Permalink Reply by michael Shurtleff on March 20, 2013 at 10:44am

there may not be THE answer on this.  Legal things can turn on the smallest fact but....as long as the trustee has abandoned the property you are free to go out and get a chunk of cash off the sale.  Oregon courts would typically see the 10K as part of the homestead exemption and therefore it belongs to the debtor. 

The bankruptcy trustee is not going to be interested in taking and selling a house that has no equity since he would have to first give the homestead exemption back to the debtor anyway.  So unless that chunk of cash was viewed as something other than the debtor's proceeds from the sale it seems clear that the debtor gets to keep the money even if they are in BK.  But it would certainly be something to double check with the trustee if you aren't sure. The debtor himself can call up the trustee without any fear of risks (and without expending attorney fees) and just ask.  "if I sell my house on a short sale and get 10K of proceeds or relocation will I have to turn it over to you" or do I get to keep it as part of my homestead exemption or for some other reason." 

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