Bankruptcy Attorneys vs Short Sales; To Short or not to Short
91Short Sales Before or After Bankruptcy
UPDATE: 2011
My goal when i wrote this article 3 years ago (WOW! time filies), was to give people the best available information at the time.
Times change.
The previous version of this article (preserved below this update) is out of date. After the collapse of the mortgage securities market many regulations changed...and few things change as often as loan programs!
If you're facing a foreclosure, and you've been told that it will be "Better" for you to do a short sale. Take a deep breath. Sit down and think through a few things.
Better How?
Its easy to assume sometimes that if something's sold as "Better" that we understand what that means.
The most common understanding is that having a short sale will impact your credit less than if you have a foreclosure.
I'm going to demonstrate exactly why you should think twice before you follow this advice. I'm also going to discuss what your options are...but first I need you to understand a couple of simple things.
Credit Bureaus secret codes
Ok, secret isn't really accurate...I was just going for a little drama BUT very few people know about them or what they mean. They are called Score Factor codes.
There are many of them, but for this discussion only one matters to you. Score Factor Code 22. More on that one in a moment.
Credit bureaus and creditors communicate via a private network. If you have a loan or a credit card, all of the information that they report about your loan is sent back to the Credit Bureaus as codes.
These codes are interpreted by the Credit Bureaus computers and then used to generate a credit score. The key take away here, is that often we think about credit scores as though a human is interpreting the data but at least for the purpose of generating a credit score its important to know that its entirely done by computers.
Humans enter the equation when we are talking about using the credit score to obtain financing such as a mortgage or auto loan.
Foreclosure vs Short Sale vs Bankruptcy
Here is the rub with all of this (thanks for your patience): Foreclosure, Bankruptcy, Short Sale, Deed-in-lieu, and 90 days late all fall under Score Factor Code 22.
So as far as a computer is concerned there is no difference between them.
"WHAT? No, that can't be true! Everyone knows a Foreclosure is worse than a short sale...right?"
Right. Everyone but the computers.
"But I'm a [insert profession here] and I've seen [insert random experience here]"
Look, just know that what I'm trying to do is give the best information for the most number of people...you may have seen an exception or you may know of exceptions to what I'm saying. It does not change the fact that credit scores are affected the same by all of the above mentioned events.
BUT
There IS a difference between them. Before you think I'm contradicting myself, or before the haters catch up to me I want to plainly explain that there is a difference between a short sale, a foreclosure and a bankruptcy.
The difference is a very subtle but important one; How LONG it stays on your credit.
But be careful, people get tripped up on this one a LOT. How LONG is not the same thing as how MUCH damage is done. Meaning it might stay there 10 years...but is it hurting you for 10 years?
No.
In fact it does not matter what happens to your credit, if you know what the credit bureau computers look for, you can have your scores back up within 12 months of ANY derogatory event (e.g. Bankruptcy or Foreclosure). Just don't expect that you'll be getting loans with your good credit scores 1 year after a Foreclosure. I know that can be confusing. If you need further explanation on it, feel free to contact me.
Speaking of getting loans...
If you are considering a short sale because you want to be able to get a mortgage and buy a home again in the shortest possible time frame. That stops today.
Why? Because most Realtors and Lenders are telling people that a short sale can allow them to buy again faster than any other path. I'm telling you its largely a fallacy (thats a big word for not really true) but more on that in a moment.
So lets pretend. Here you are 2 years after a short sale. (If you really are in this situation You're really going to get a lot out of this next section.) You fill out a loan application and you're busy working on getting your documentation together.
Behind the scenes your Loan Officer is submitting your file for approval from whats called Automated Underwriting. Which is simply a system used in the mortgage industry to quickly weed out loans that won't get approved based on some basic criteria.
To your horror it comes back saying you had a foreclosure!
No no that can't be right! I did a short sale! How in the world does someone think this was a foreclosure?
OK, pay close attention here. I'm NOT talking about your credit score. I'm talking about how mortgage underwriters (the decision makers) SEE your credit. There is a difference.
What you (and most of us) didn't realize is that Automated Underwriting see's any delinquent payment over 120 days as a foreclosure.
You read that right.
If you were late on a payment on ANYTHING and it was 120 days late or more a mortgage underwriter see's no difference between you and someone who actually had their home foreclosed on.
Now, I also mentioned that many realtors tell you that you can buy faster if you do a short sale vs a foreclosure.
Here is what they are talking about; Fannie Mae (A Government Sponsored Agency that buys & securitizes loans) allows you to get a mortgage two years after a short sale...which IS faster than any other alternative.
But never forget the fine print.
Those who have participated in a short sale and are looking to obtain a new loan under these guidelines are required to have a 20% down payment AND have a 660 FICO (credit) score.
So if you're a Realtor or Lender and you've been reading this in a huff with your arms crossed just waiting for the chance to tell me how I'm wrong...ask yourself this; How many people who do a short sale will likely have a 20% down payment and 660 FICO 2 years afterwards?
If your answer was anything other than "Very few"...well you and I just have to agree to disagree. My point is that if very few people will ever be able to qualify for this option then its NOT really an option. It might as well not exist for most people.
Which leaves the next fastest route to owning a home again: FHA.
FHA allows someone to obtain a mortgage within 3 years of a Foreclosure, Bankruptcy Discharge or a completed short sale. (Again we see a theme of treating them all as equals)
FHA also allows someone to buy a home with as little as 3% down AND they can ask for the seller to pay closing costs. Credit score requirements are about the same as Conventional but FHA is often a little more forgiving.
The bottom line is its MUCH more realistic for someone to go this route than to go through all the stress of a short sale and then have to climb the mountain of saving up a 20% down payment AND getting their credit scores up to 660 within 2 years.
Course of action
I'll likely be adding to this article as I think of more. I've just had so many people asking for the update that I figured "Imperfect action" is better than having it perfect and not getting done till the end of the year.
As I mentioned, I am still making this info into a video...but I figured something now is better than nothing.
Below you will find the old article for reference...but I wanted to give you some options before I go.
First, if you actually have been trying to stay in your home but keep getting frustrated at every turn check out my friends free book at Consumer Defense Programs (disclosure: that's an affiliate link. You should know that if people use his help, he pays me a little bit of money. But, Its something I believe in strongly and have no fear of sharing)
Second, if you need help with your situation. Email me at utahcreditexperts@gmail.com I'm happy to give quick free guidance via email, and if you need more time I can discuss doing some consulting with you.
Hope this has been helpful
Corey
OLD ARTICLE:
A band-aid on the titanic
As a foreclosure advocate, I get this question a lot. Often its because the person has received some advice from an attorney, or a friend that they trust. They are essentially assuming that a bankruptcy is as bad if not worse than a foreclosure so if your credit cant get worse, whats the point. Its like being a little bit pregnant.
This advice is very typical of most bankruptcy attorneys I've worked with in the last 10 years. In fact I was doing a little looking around the Internet for other people's thoughts on this and found a video on you-tube where an attorney is taking the position that short sales are 'trouble' (shocker) and its not really worth worrying about.
Oddly he claims there are two kinds of short sales, one where you get stuck with the debt anyways, and one where you don't. This is a pretty strange analysis, as there is only one kind of short sale; The kind where the bank doesn't get all their money.
If you are a homeowner faced with this question the quick and dirty version is there are 3 different results that can come from doing a short sale. I talk about them in this article, however, this article isn't intended to address these 3 results, this article is about people in bankruptcy so the 3 results don't apply, but, I do intend to write an article that addresses this problem for anyone not doing a bankruptcy in conjunction with a short sale.
Now the reason attorneys think this way is because...well, they are attorneys. They are taught to think this way. Their job is to help people stay out of trouble, and short sales are a bit complicated and require professional help. I often equate it to open heart surgery...ok its not that tough, but it is something that should only be trusted to experts with verifiable experience.
Also some attorneys try to avoid as much work as possible, and since they would have to file a couple of extra documents to help their client do a short sale, well its just easier to discourage it (I'm sure I'm going to catch hell for that comment O.O) I'm totally kidding all you attorneys reading this...kind of.
The second reason attorneys think this way is because attorneys don't care about your future credit. Well, let me rephrase that...they don't have any incentive to care; I don't mean to imply they are heartless, and some Attorneys might actually care about your credit. But if someone has just helped you destroy your credit by filing a bankruptcy, in their mind doing a short sale after or during a bankruptcy is a bit like tagging a band-aid on the titanic. Too little too late as they say.
They also are typically only looking at it from a legal perspective, meaning because of the bankruptcy you are no longer responsible for the debt, so they are correct that its a bit pointless to do a short sale if all you are worried about is owing any deficiency.
This however is a short sighted mindset, as it only takes into account the present at the expense of your future. They are essentially saying that it doesn't matter because the mortgage company cant try to collect the debt. But the most relevant question you should ask yourself is, do you want to buy a home some time in the future? If so, this decision is more important to consider than most bankruptcy Attorneys, and their clients might think.
When facing financial hardship, you can save yourself valuable time and avoid stress if you begin looking immediately at how to rebuild your credit and financial health. Don't wait for the aftermath, or worse, waiting years later to begin planning your path back to good credit and home ownership.
Doing a short sale, even if you are in a bankruptcy is a huge step in the right direction if you plan to rebuild your credit and own a home again some day. At the very least it will keep your wait under current mortgage guidelines to 24 months as opposed to 5-7 years.
Its all in your perspective
I called a friend today who happens to be a bankruptcy attorney, and I asked him this question. "Can you tell me one reason that its better for someone to not do a short sale if they are going to file a bankruptcy?" he gave me two answers, and they are very telling.
His first answer was "sure, there are several reasons". He went on to explain that sometimes people are at an emotional point where they just cant handle any more stress and just want a clean start.
This might seem fair enough, however, In my opinion, this really only answers issues of mental and emotional well being rather than the more technical question of how it affects you and your credit in the future.
I mean, If you are on the verge of a mental breakdown, then just do what you need to do in order to feel well. I get that, really I do. It is after all just a house, but lets throw out those individuals and look at people who aren't dangerously close to the edge of losing it;
So I said "Ok, but what about everyone else?"
His answer was "yeah, I cant see any logical reason not to do a short sale even if you are already in a bankruptcy."
Now, I am not calling this the end all be all of opinions, nor is this legal advice. *You should legal advice from an attorney who specializes in bankruptcy and foreclosure matters (even though he is probably going to tell you that there is no reason to do it, but you will know better after having read my article)
So let me recap what he is saying in plain English for people like you and me. Sometimes its a mess and people are filing a bankruptcy to move on with their life. They want the mess behind them. They want the proverbial 'clean slate'.
BUT if you factor in the long term goals of most people, like owning a home, it makes sense to do everything you can to ensure you have a clean credit file. Short sales look better on your credit in the long run, but sometimes people just cant deal with more stress, thats just how it is and they will simply deal with the resulting consequences later when they are in a better state of mind.
It should be noted here, because I'm sure some guy that's been doing short sales, or mortgages or selling Hyundai's for a tenth of the time I have...(I've never sold Hyundai's, just the other stuff) will make some comment about how despite my opinions short sales are still a negative item on your credit.
He would be correct, its just like settling a credit card for less than you owe, it will most likely report on your credit that you did not fully pay the debt. Sometimes we are successful at getting the lender to report it as paid in full, but you shouldn't rely on that as any kind of a certainty...if it happens its a nice bonus, but don't plan on it. So it is BAD, but it IS NOT as bad as a foreclosure nor is it as bad for as long as a foreclosure.
By law, foreclosure stays on your credit for 7 years. Bankruptcy also remains 7 to 10 years depending on what chapter you file under. The major CRA's or Credit Reporting Agencies such as Trans-union, Experian and Equifax do not release to the public how they calculate credit scores, however there are ways out there to simulate how events like bankruptcy and foreclosure factor in to your score, and typically a settled account such as a short sale or a credit card settlement, will affect your credit score negatively for 12 months. After that first year these simulators suggest that the negative impact begins to greatly diminish.
What we do know for sure is that the time to get a mortgage after a short sale is less than it is after a foreclosure. So often the argument about how it affects your credit score is a pointless issue because the majority of people are more concerned with the question of when they can own a home again. Because of this the waiting periods to get a mortgage after a short sale that are imposed by the mortgage industry are really the most important relevant issues to any homeowner.
Where do we go from here
Now that we understand the perspective that attorneys have, and why they often recommend not doing a short sale, lets look at how we can determine for ourselves if a short sale is the right choice.
The way to determine if you should do a short sale while in bankruptcy is to ask yourself this one simple question; Even though my credit is going to be damaged now, do I want to own a home again sometime in the future?
If the answer is yes, then you should seriously consider the idea of doing a short sale regardless of a bankruptcy filing.
As a mortgage professional, I feel there are several good reasons that you should consider a short sale over letting it go to foreclosure. For instance most lenders require 24 months from a foreclosure before you can get a mortgage.
*UPDATE*
[As of 2008, Fannie Mae and Freddie Mac are now indicating that they will have new guidelines for those who have had a foreclosure or a short sale. The statement says:
Fannie Mae
- will now prohibit foreclosed borrowers from getting another mortgage through the giant investor for five years
- If there are "documented extenuating circumstances." the mortgage prohibition is for three years.
- After five years, borrowers with foreclosures in their files will have to put at least 10 percent down and need minimum FICO credit scores of 680.
Freddie Mac
- will now prohibit foreclosed borrowers from getting another mortgage for seven years
- The company also claims they will "aggressively pursue walkaways to preserve our deficiency rights" where permitted by state law.
While they have not indicated yet what the rules will be for a short sale, in the past they have been as much as half the waiting period for a foreclosure. Previous guidelines called for a 1 year waiting period before a mortgage could be obtained after a short sale.
It is important to remember that there are two aspects of your credit to consider when determining whether or not to go through with a short sale. These two aspects are the FICO score impact and underwriting guidelines and how they will affect your ability to get a mortgage.
Two for the price of one
Despite the fact that the FDCPA or Fair Debt Collections Practices Act requires that all debts included in a bankruptcy be reported on your credit report as "included in bankruptcy", there is a second place that a foreclosure shows up on your credit report; Public Records.
So you have the mortgage company reporting on their line that the loan was foreclosed, and then you have the foreclosure itself showing up in the public records. This will remain on a credit report for 10 years.
Knowing what has happened in the mortgage and banking world starting in 2007 through the present, its likely that lending criteria will continue to become more strict as banks look to avoid repeating the mistakes of the past 6-7 years. Because of the tightening of credit and increasingly strict lending standards its more important than ever that people consider the implications of their choices as they go through financial difficulties such as bankruptcy and foreclosure.
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This depends on if you are talking about a chapter 7 or chapter 13. My understanding is, that if you have been discharged from the debt via bankruptcy then you cannot be 1099'd for that debt. The short sale isn't the operative question its whether or not you can be 1099'd for debt that has been discharged in a chapter 7 bankruptcy.
This is one of the major reasons that my professional opinion is, if you are in a BK it is always in your best interest to attempt to get a short sale done thereby avoiding both a BK and a FC on your credit. Some Attorneys erroneously believe and tell others that it doesn't matter, but it does from an underwriting/credit standpoint. From a legal standpoint it does not matter, so even though they are experts on law, rarely are Attorneys experts in the fields of credit and mortgages.
Now, here is the real kicker. Lets pretend for a second that you might get a 1099 if you do a short sale while in a BK. In order to fill out IRS form 982, which essentially says "I'm bankrupt" you have to be insolvent. The definition of insolvent, is when your debts total more than your assets...generally speaking every bankruptcy client qualifies under this definition. If you are bankrupt you are insolvent, if you are insolvent you fill out an IRS form 982 and you don't owe income tax on the canceled debt. That's your backup plan for if you somehow were given a 1099 even though they cannot give you one for debt you have been legally discharged from.
What happens if you do have an offer on your short sale and your in the process of the Bankruptcy? Do they still pursue with the short sale or the lender needs to request for the BK Lawyer for the release? We have an offer for our property right now but we are in the middle of the BK process..
Its actually really simple to proceed even while you are in a bankruptcy. The only thing that needs to happen is your attorney needs to submit a request to the Judge in the case requesting permission to sell an asset of the estate.
Typically in chapter 7 cases, if it is a short sale situation the trustee (different than the Judge) will either have already abandoned his interest in the property or will not have much issue with doing so.
Also, if your realtor knows what they are doing with the short sale you can put as much as $1500 on the Settlement statements under Attorney Fee's which can be used as an incentive to motivate an Attorney to get the necessary documents filed if need be.
Let me know if this helps or if I can be of further assistance!
Its actually really simple to proceed even while you are in a bankruptcy. The only thing that needs to happen is your attorney needs to submit a request to the Judge in the case requesting permission to sell an asset of the estate.
Typically in chapter 7 cases, if it is a short sale situation the trustee (different than the Judge) will either have already abandoned his interest in the property or will not have much issue with doing so.
Also, if your realtor knows what they are doing with the short sale you can put as much as $1500 on the Settlement statements under Attorney Fee's which can be used as an incentive to motivate an Attorney to get the necessary documents filed if need be.
Let me know if this helps or if I can be of further assistance!
Hi,Hope you are doing great. My business owes about 250K on credit card debt & line of credit. We bought a house for 600K which is now worth <400K. Its pissing us off to keep paying mortgage for a home which will not be worth it for many years, at least. We are barely making minimum payments but we are not behind at all. Can we:1) do some kind of debt consolidation/reduction?2) do a short sale or so (and may still live in the same house, somehow? I heard of some people who did it!!!)3) do the above without disrupting the credit as much as possible
Thx.
Thank you! I hope this finds you well also. Its frustrating to have purchased at the peak and to see your value now under water. If you are as you say barely making minimums, is this an interest only or adjustable loan?
Its possible with the plan that Congress just passed that your loan could end up getting picked up through this program. It is also possible that once picked up there could be a program made to rework your interest and or principle. The problem facing everyone is no one knows how this will shape up. Details are slow coming forth and its impossible to see what specifics will be put into place.
Shorting the home and somehow remaining in it, is what is often referred to as a 'Sale lease-back'. There are a number of reasons why I warn people against doing them, but they often fall on deaf ears because humans have a tendency to overlook risk when its in correlation to something they want really bad.
The bottom line is, it can be done if you find someone who can finance it and or put up the cash. If you talk to a family member or friend just know that you will have to sign a disclosure from your mortgage company stating that this is an arms length transaction. Acknowleding that it is indeed arms length, when its not does constitute fraud. If you happen to find someone who is willing to do an arms lenght transaction, it will cost you. They will be looking to buy it as cheaply as possible on a short sale, and will be looking to give you an option in the future that makes them a substantial amount of money for the risk they are taking.
Doing any of these things without disrupting your credit is like asking to have your appendix removed without having to get cut open. There will be damage to your credit if you do anything other than sell the home for what you owe, or continue paying until the market rebounds above what you owe. Short sales are not good for your credit, and although they are not as bad as a BK or Foreclosure, they are also not a minimal impact type of reporting item either.
This is a tough situation for sure, and its not an easy one to guide you in simply because if you can make the payments its going to be difficult to explain to the mortgage company why they should take a short sale when you can afford to make the payment. Of course I am not advocating that you lie or fabricate an explanation. On the other hand if you are infact insolvent it may be time to speak with an Attorney and see what your options are.
Hi, Thanks for this post - it's been very helpful! I was a straw buyer in a mortgage scam with some trusted friends and now I am facing bankruptcy. They used my credit to buy 2 homes. One short sold 6 months ago, but the second mortgage "charged off" the debt, so I am still being held responsible for paying back $45K. The second home is in the process of a short sale. There is a very serious buyer and the house is under contract. We are trying to get the second mortgage on this home to accept the short sale as "paid in full without recourse, or settled in full without deficiency," but they may or may not agree to those terms. My guess is that they will probably charge off the debt and send it to a collector. That second mortgage is $140,000. I can't afford to pay any of this, so I am looking seriously at filing a chapter 7 bankruptcy. The attorney that I met with said I need to wait until the bankruptcy is filed before I go through with the short sale, or I won't qualifiy for a bk. But I make under $50k per year. He said the debt is considered business debt because it was an investment. Is this true? Do I really have to put off the closing until my bankruptcy is filed? He said it would delay the closing at least 2 months. if I file bankruptcy, will all the debt from the 1st and 2nd mortgages from both houses be discharged, meaning I won't be required to pay it back and the collectors will stop calling? Also, if I get a 1099 from any of these mortgage companies, either for the debt that was "charged off" or the difference between the original loan amount and the price that the homes short sold for, will I have to pay taxes on that? I am also really worried about one more really big thing. Losing the house I currently live in. Its a town home but I'm pretty sure it has more than $20K in equity. And last, if I want to get into another home, do you estimate that it will take at least 4 years for me to rebuild a good credit history? I had a score of 780 before all this happened. I have 38 accounts in good standing on my report, and 4 negative items - the 4 mortgages for the two investment homes. Plus I will have a bk. Sorry for all the questions, but this is a huge mess and I'm trying to sort through it and make the best decision. Thanks for your help!
Ok, one question at a time:
I dont agree with your attorney that it is a business debt. Im guessing that you signed personally on the mortgages as either 2nd homes or investment properties. Unless you are filing a chapter 11 on a business entity, I'm pretty sure that those mortgages are personal debt.
Without going over your budget though, I wouldnt be able to speak to why he perceives that you will no longer qualify under a chapter 7 if you short first.
Having said that, I almost always feel that its worth it to look at a short sale even if you go through a BK. If you successfuly are discharged, you will have no liability for any phantom income. The terms of IRS form 983 plainly state that those who are insolvent are released of the liability. Bankruptcy and Insolvency mean the same thing.
On the personal residence, you need to ask your attorney about your states homestead exemption.
Finally, rebuilding your credit scores can be rather fast. In as little as 6-12 months after all this is over. We have a client who was discharged in March and in June has scores in the 700's. What will take time however is the new Fannie/Freddie guidelines regarding having a foreclosure or a BK before getting a new mortgage.
Thanks for all of the info!
My question is dealing with the 1099. I own an investment property that I am currently trying to short sell ( it is 45 days out from being foreclosed on). Is there anyway to avoid the 1099 tax obligation without filing bankruptcy? With the current value of my home vs my mortgage debt, I will probably end up owing in the neighborhood of 50k-75k in taxes even if I can find a buyer. I have recently lost the majority of my income so I could fall under the Chapter 7 bankruptcy and I have no real assets. I also own another home as a primary that is under water by 50k and it has 2 yrs left on the arm. I was thinking about short selling both and filing chapter 7 to avoid any tax obligation. I am open to any of your thoughts.
Thanks in advance.
What you are looking for is called IRS Form 982. This form allows for someone who has recieved phantom income or a 1099 for a forgiveness of debt to inform the IRS that they are insolvent. By virtue of such declaration the person is not obligated to pay income tax on the forgiven debt.
My understanding is that the requirement for filing an IRS form 982 is that you must be insolvent. If you qualify for a chapter 7, then you most definitely fit the definition of that word. I would say that if you need a chapter 7, then I would get a consultation now otherwise cross the bridge when you get to it. Read the IRS website on the Form 982 and I think with that clarity you will be able to move forward and know exactly what you need to do.
We are preparing to file ch 7 Bk and our attorney advised us to let the house go as well. Now learning that foreclosure is more impactful than bk for future home buying opportunities, we are going to seriously look at a short sale. My question has to do with timing. We are borderline to pass the bk median test and will have to file no later than Jan in order to qualify. I was under the impression that you can't process a short sale while in the middle of a bk, but you seem to indicate otherwise. Can we start the short sale process asap and file for bk while still in the ss process? Or do we need to hold off on filing the bk until the ss is complete?
P.S. Thank you so much for any insights you can give!
Christie,
You are experiencing the exact scenario that prompted me to write the article. It is the norm for Attorneys to give this advice. The reason is first they arent experts in finance, so they dont necessarily see the need to do it since you will be causing substantial harm to your credit score. But what they miss is that scores are not the entire equation with lending and underwritting. Since Lenders have guidelines that make you wait longer for a foreclosure than a BK, then it makes sense to avoid a foreclosure even if you are filing a BK.
You can definitely start the process while in the BK, or you can start before. I would find someone very experienced who has done hundreds of short sales and has a very experienced team. If possible find someone who ONLY does short sales. I would interview multiple short sale specialists. Listen closely to them and their approach. You need someone who is looking out for your best interests rather than someone who is looking at each potential deal as an investment opportunity for themselves. In fact, on this note I would recommend you read my other hub about always using an agent for a short sale. It talks about what you are looking for and why.
Where you could run into resistance is with your Attorney. He may try to convince you that I am wrong. Unfortunately for him...I'm not. It does cause him a bit more work, but what I tell them is that there are ways to get them compensated from the short sale legally and since the bank pays and not the seller, amazingly they all of a sudden seem so open to the idea. Weird right? =)
The attorney has a couple of extra steps that they need to take to help you do this. First they will need to request permission from the court and ask the trustee to abandon their interest in the property. Once an offer is submitted, and preferably approved by the bank he will have to go back to the Judge and Trustee and ask them to approve the final numbers so that an asset of the estate can be sold.
It really isnt that much more work, but it is a little bit more so just remember its all in the presentation like anything. If you sell it right and explain the benefits to you and them if necessary they should see your reasoning.
Hope this helps. If you have any other questions feel free to keep posting.
Wow, thank you for such a quick and clear response! You mentioned that there are ways for our bk attorney to be compensated from the short sale. Is this something that a knowledgeable real estate agent should know, or can you expand on the details a little here? Also, do you know any good agents in the Colorado Springs area? Thanks!
My husband has been relocated and because of the housing market we will not be able to get out of it what we owe. We are up to date on all of our debts and very concerned about how this will affect our credit and if we will be able to purchase a new home. Our lender is not at all helpful. Is there any way to get the lender to not report it as negative on our report? I feel like we are being punished for the market being so terrible and us being up to date on our debts. What is our best option?
what should one expect to pay an attorney handling a '500k short sale by owner' ?
Bankruptcy Attornies vs Short Sales To Short or not to Short
Great post.
Question - We filed BK 7 in April 2008 - our mortgage was included in the BK, the home loans (1st & 2nd) are reporting on CRs as "IIB" - Okay so we are no longer responsible for these debts. We have continued to pay our payments every month for a year - but we now must move due to job relocation. We are upside down approx. $150,000 - we want to buy a home again as soon as possible - what happens if we short sale? Is it even an option for us? Say it sold for $180,000 - we give all that money to the lender, are we free and clear since debt was discharged? If we let it go into foreclosure, won't that report somewhere and effect when we can buy another home, more so than the bk ?? ... help.
Christie says:5 months ago
Wow, thank you for such a quick and clear response! You mentioned that there are ways for our bk attorney to be compensated from the short sale. Is this something that a knowledgeable real estate agent should know, or can you expand on the details a little here? Also, do you know any good agents in the Colorado Springs area? Thanks!
From Corey:
No most agents are not informed about this...unfortunately. Also, I am sorry but I am also not familiar with that local market so I wouldnt feel comfortable giving you a reference. However, you could look up William Bronchick. He is extremely knowledgable in this area and if he couldnt help you directly probably knows who you ought to talk to.
Tammy says:2 months ago
My husband has been relocated and because of the housing market we will not be able to get out of it what we owe. We are up to date on all of our debts and very concerned about how this will affect our credit and if we will be able to purchase a new home. Our lender is not at all helpful. Is there any way to get the lender to not report it as negative on our report? I feel like we are being punished for the market being so terrible and us being up to date on our debts. What is our best option?
From Corey:
I would suggest looking at a short sale. Since the information will be accurate there is not a way to avoid a negative report on your credit, however there are ways to minimize the damage in how they report it. In other words if they report it as satisfied or settled for less than agreed. i wouldn't let that prevent you from looking at a short sale though. The alternative is worse.
Alisa says:6 weeks ago
what should one expect to pay an attorney handling a '500k short sale by owner' ?
From Corey:
Nothing. Banks pay the fee's by including it as part of the payoff.
sophieqd says:2 days ago
Bankruptcy Attornies vs Short Sales To Short or not to Short
Great post.
From Corey:
Thanks!!!
Bella says:24 hours ago
Question - We filed BK 7 in April 2008 - our mortgage was included in the BK, the home loans (1st & 2nd) are reporting on CRs as "IIB" - Okay so we are no longer responsible for these debts. We have continued to pay our payments every month for a year - but we now must move due to job relocation. We are upside down approx. $150,000 - we want to buy a home again as soon as possible - what happens if we short sale? Is it even an option for us? Say it sold for $180,000 - we give all that money to the lender, are we free and clear since debt was discharged? If we let it go into foreclosure, won't that report somewhere and effect when we can buy another home, more so than the bk ?? ... help.
From Corey:
You are exactly correct. You are not responsible unless you reaffirmed. If you did not, then you are not responsible to pay that debt. Moreover if you simply walk away now, even though you were discharged of the debt, you will also get a foreclosure against your credit. It will report as "Foreclosure-Included in Bankruptcy" but it will be a foreclosure nevertheless and will keep you from getting a conventional loan for 5 to 7 years through Fannie Mae and Freddie Mac respectively, and 3 years through FHA.
The BK also has the same 3 year waiting period for FHA, however your discharge date was last year, so you already have one year behind you, whereas your foreclosure date would be in the future and would begin the 3 year countdown from the date of the trustee sale.
Hope this helps clarify.
Corey
This page is, without a doubt, the most informative article I've found today in hours and hours of internet research on this topic... thank-you! That said... my husband and I entered into a sub-prime mortgage for our current home in March 2007. In a rare scenario, our sub-prime status stemmed more from self-employment for less than 2 years at the time than it had to do with our then-mediocre credit rating. Less than a year later, we defaulted on payments due to an unexpected and costly custody battle. While we were successful in our family-court battle, we were being served with papers beginning of the foreclosure process on our home. By approx. In March 2008, we were approved for a 9-month loan modification plan by the Servicing company handling our loan. While our payments were nearly doubled, we then defaulted on THAT agreement about 5 months later due to more unexpected legal (family-court) expenses. Our taxes had also not yet been paid, and the lender kindly paid them... with the catch being that our past taxes as well as future taxes (in Escrow) are now added to our payment. Making what WAS an $810 mortgage a now $1385 mortgage! Furthermore, we were reminded that the mortgage is scheduled to "reset" in March 2010. THAT is terrifying!
With our credit at rock-bottom, we consulted with a Bankruptcy attorney. We started the Chapter 13 process, but hesitated many times along the way and never signed the actual petition after the attorney's office prepared it because it just didn't "feel right". Having been served again approximately a month ago with an "Intent to Foreclose" notice by the servicing company (lender's middle-man), we signed the Bankruptcy petition. Since so much time had passed, the paralegal informed us that a new petition is now being prepared and we can expect to file on 5/1/09 at this point. We have informed the lender as such.
Today, we received an offer from a reputable investor willing to buy our property via short-sale. He is confident in his ability to work with the lending company for a short-sale approval, and spent an hour on the phone discussing our financial situation. I proposed the idea to my husband, who is concerned because - even with a short-sale - we have so much miscellaneous debt at this point (car payments, etc...) that we really NEED to file the bankruptcy anyway in the near future, if not right away. My husband and I have little emotional attachment to our home, since we haven't been able to afford the cosmetic upgrades we were hoping to achieve by now anyway, and we have become less and less fond of the neighborhood we're living in. However, the tricky part of this for us is the fact that we have 5 children and a dog. Knowing that we will not be financed for a home again in the near future, finding a landlord willing to allow 5 children, a large dog, self-employment, little-to-no $ down on the rental fees, etc... seems a nearly impossible task. Rental homes in our area are hard to come by, and we need to stay local for legal reasons in regard to our children and custody/visitation agreements.
Having done a lot of internet research today and after an hour-long conversation with this Investor, we really do understand that Foreclosure is the worst-case scenario. We also really "get it" that we could choose to so-called "keep the house" w/the Ch 13 solution... and still not be able to afford the reset amount next year... and STILL end up in foreclosure. Particularly when you add an (appr.) $1200 bankruptcy payment to the Trustee every month once we file bankruptcy.
So at this point, we feel like we're standing in the middle of a room that's spinning around us. We are custodial parents to 5 children aged from pre-school to high-school that we are solely responsible for (in terms of well-being), we are running two businesses of our own - one of which is taking a pretty good hit from the current economic crisis (although still making money), we cannot lose our cars to repossession because our businesses and our family depends on them (thus making the bankruptcy a necessity even with a short-sale on the home), we can't imagine where we'd move to if we can't/don't stay in our current home, and we're afraid that if we turn away from the short-sale opportunity and hold our breaths with the bankruptcy... knowing a reset in mortgage payments is less than a year away and we could ultimately "lose it all" anyway... we will have thrown a LOT of money away trying to hold on to something that has created nothing but hardship from the beginning.
I'm not even sure what specific questions I'm asking here... except to say that we are SOOoooo confused as to what to do/where to go from here regarding the bankruptcy, the short-sale prospect, the impending reset of the sub-prime mortgage, the foreclosure intent although the lender has respected that we've retained an attorney (even though we haven't actually filed bankruptcy yet)...
Any/all advice is welcome and soooooo greatly appreciated!
(and sorry for the length of this post, it's a complicated situation)
Tajelina,
Thank you so much for your kind words! I really appreciate what you said. I also appreciate you sharing your experience with everyone. All of these comments add richness to my post as they are the 'real world' examples of what I do.
To your question about doing a short sale, could I recommend that you read my other hub about doing a short sale with an agent? I really really discourage anyone from using investors to do short sales. I am an investor, and I am not an agent. So you could say that by telling people that I am shooting myself in the foot, but its the truth. It is not in your best interests as the homeowner.
The easiest way to explain why is this. An investor wants to buy it themselves. They often tout the fact that "they are the buyer" as an added benefit to you. But what they don't tell you is what happens if the bank wont come down low enough to make it a deal that they will buy. What happens if the bank only comes down enough to make it an ok deal. A deal that any person looking to live in the area would jump at, but an investor would pass on because there wasnt enough profit in the deal to put their money at risk.The way I do all my short sales is I turn my clients over to an agent who is an expert in doing them. That is the ONLY thing they do in fact. They negotiate with the bank, and when they get a number I get to have first shot. But if the bank isn't willing to come down enough, we make sure that the property is being marketed to the entire open market. You cant afford to miss out on a buyer just because some investor wants to see if the bank will come down low enough to make it a 'steal'.
Its ok to be a short sale investor, but it is NOT ok to leave your client with only one option. Using an investor gives you one shot at completing the short sale and avoiding foreclosure. He may well be 'confident' but that is no where near as confident as I would be knowing that everyone on the open market is going to have a chance to submit their offer too.
If this investor doesnt know how to do what I just described and still get first shot at it, then you know that he hasnt been doing this very long.
DO yourself a favor and do some research on your local area and see if you can identify a couple of short sale experts that are licensed agents. At least interview them in addition to this investor.
Hello, I am so happy I found this article! Thanks for writing it and for posting all the questions and answers. My situation is exactly like the one Christie wrote 8 mo ago.
My BK attorney is going to file our paperwork with the BK court; hopefully by the end of August. We do quailify for Chapter 7; but I am unsure as to what should go through first. Before we finished all our paperwork for bankruptcy, we decided to short sale our property with and agent. We have one offer on the house but the bank has not accepted the price yet. My husband and I are in serious debt and we really need to get our bankruptcy filed because we are being sued by some creditor. My question is we told our BK attorney we wanted to let the house go, but we have not told him we are in the process of waiting for the bank to approve our short sale. I am very confused as to what am I suppose to do first. I am not trying to hide the short sale from the BK attorney. I just not sure if he needs to know. The most important thing is to be cleared of all our debt, but we would also like to buy a home later in the future. We have four kids all under the age of 8 and only my husbank works. My question is does my BK attorney need to know about the short sale? If so, why. What happens if the short sale is not approved by the bank? Can we still let the house go? Any advice you can give is greatly appreciated.
Thanks
I apologize for the delay in answering you. There was a change in my email, and unfortunately the notification kind of fell through the cracks. I hope that this gets to you in a timely fashion.
First I would say yes absolutely your Attorney needs to know about the short sale effort. The reason is because he can help. As the foreclosure sale approaches, the bankruptcy can buy you valuable time. One other benefit that often comes of a BK filing, is that the file gets transferred from the Loss Mitigation department to the Bankruptcy Department. I dont have any hard statistical evidence, but my experience has been that the specialists in this department are typically better educated on the options available and they seem to be more helpful in facilitating the short sale. Your results may vary, but I feel comfortable in putting it out there because it has been true for me the majority of the time.
Remember that this article is helping people understand why they still should try to do a short sale even if they are filing a BK. Having said that, I do understand that not every short sale will get done either because of the bank or because of the lack of a qualified buyer. Because of this, i have included the necessary information regarding qualifying for a new mortgage in the future. If you end up not being able to complete a short sale, you can of course still include the debt in your BK. In fact you have no choice but to do so (other than to reaffirm).
Doing a Short Sale and a BK together is really the best of both worlds (considering your circumstances) since you can both avoid a foreclosure and completely avoid any possibility of a deficiency.
I hope this helps....good luck!
Corey
While all of this is very helpful to a lot of people I think there is one thing that has not been addressed. We have been attempting a short sale for severla months now and were very close to finalizing a deal. Until......the junior lender has said they will puruse their rights for a deficiency judgment of $145,000!!! In light of this decision we are going to file for bankruptcy and let the home foreclose. We did everything we could to short sale but there is no way we can afford to pay that debt back. In a scenario like this it's best to file BK wouldn't you agree?
Patrick,
I understand your frustration with the bank. I have seen this attitude so often. However, I think there might be a bit of a misunderstanding here.
You see this article is about why you should do a short sale even IF you ARE doing a BK. The intent here is to help people understand why IF they are doing a BK that they want to avoid ALSO having a foreclosure on top of the BK. Most Attorneys will advise their clients that it is irrelevant, and that the BK is so bad that having the foreclosure does not matter. From a legal perspective they are correct; from a lending perspective they are dead wrong.
If your 2nd is threatening a deficiency judgment then whoever is negotiating your short sale must not have conveyed to them that you are looking at filing a bankruptcy. If they had, the Jr lien holder would realize that this is a moot point to pursue as you will have been discharged from the debt by the BK.
So I'd have to disagree with you that your situation isn't addressed by my article. Anyone who decides to take the path I have discussed here, would never ever be responsible for a deficiency judgment of $145,000. Rather they would have completed a short sale, and avoided the negative consequences of having a foreclosure AND a bankruptcy on their credit.
Hope this clears up any misunderstandings for you. I wish you the best of luck.
Corey
Ok I understand what you're saying, thank you for explaining. So what you're saying is that we're protected from BK when we do a short sale that they cannot come after us for a deficiency or tax us correct? The only other problem we have is we're so strapped for money and we're told that at the closing of the short sale we need to come up with $2,300. I would assume you would say it's worth the $2,300 to get the short sale done correct? Also, when we file for BK would that delay the short sale? That could be a good things as we can continue to save more money.
Yes, the BK will protect you from the deficiency judgment. The reason you are protected from the 1099-C is because by default the IRS has a provision vis a vis IRS Form 982 which you can find here http://www.irs.gov/pub/irs-pdf/f982.pdf
Now of course remember I am not an accountant, and so this is for information purposes only. Consult a CPA or Tax Professional to ensure that your situation complies with IRS guidelines for the forgiveness of the tax liability in relation to a cancellation of debt or the receipt of a 1099-C.
Filing will definitely delay the short sale, however if you are close to completing it and have a bonafide buyer I wouldn't risk losing the deal and having it fall apart just to get a little more time in the house. Just my opinion though =)
As to whether coming to closing with $2,300 is worth it, you really need to determine how much it is worth to you to be financeable within 3 years or if you are OK with waiting longer before you can buy a home again. Look at it as $64 bucks a month for 3 years to have the ability to buy a home sooner, if that makes it easier to swallow.
Thanks Corey, very helpful.
Very informative. I'm a mortgage broker and I learned a few things from your Hub I SHOULD have already known!
Great information! I am in a real bind that has been festering for a few years. I am 3 months behind on mortgage and can not continue this way. There is also an interest only second for about a third of the value of the house. We are also facing bankruptcy. Can't believe I brought us here but it is time to get out.
My question...If I can not secure a short sale (and how do the 2 lenders work that out?), does filing for the BK and putting the house in with it equate to a foreclosing with respect to future mortgage borrowing? Thanks again.
John,
If I understand you correctly, I think you are asking me whether or not including the home in the bankruptcy is the same as a foreclosure.
The answer is one of those technical legal concepts that requires an understanding of the subtle differences of the terms used. Bankruptcy is you being forgiven of your debt, or discharged as its called by the legal system. Foreclosure is the legal means by which the bank sells your home for you by proxy. Or in other words (and this is very technical...sorry) when a home is foreclosed, its the OWNER selling it on the courthouse steps, but they are not there in person, rather they are represented by a trustee that is appointed, or hired by the bank.
Ok, so now that you understand what is happening with each term, its important to remember that both can happen simultaneously or independently but they are not the same thing. The bank can sell the house according to the terms of your contract once they have permission from the courts administering your bankruptcy.
Foreclosure is the ONLY means a bank has legally sell a property when it goes into default because they don't own it yet. Only the owner can sell it and so the bank is actually a bidder at the sale that you are holding by proxy.
(Are you bored yet? LOL) so, they are two entirely different things and you can have both.
Which brings me to this: Your question is the point of my article. It makes sense to do a short sale EVEN if you you are including the home in a BK because if you follow everything through to its logical conclusion you don't want to have a foreclosure AND a BK for lending purposes. For legal purposes, its completely irrelevant and that's why most Attorneys advise people not to worry about it.
Now, your second question that I saw hiding in there was about the two mortgage companies and how they work out the differences between them if there is a short sale.
A 1st mortgage is called such because it is recorded against your title first. Or in other words it is a "Senior Lien". Anything that follows is a "Junior Lien" whether it be a 2nd, 3rd, 4th mortgage and so forth.
This is a pecking order of who gets paid first in the event that the property is sold. However, the most relevant information is that this is how they determine who gets what in the event that there is a foreclosure.
If there is not enough equity to cover the full balance of the 2nd mortgage, then the 2nd would have two choices; Either accept whatever is left over after a trustee sale (sometimes nothing) or show up and bid at the trustee sale, thus paying off the 1st and then they would be able to continue the bidding hoping that someone will outbid them resulting in the 2nd getting a full payoff, or if they are the successful bidder they could then sell the property to try and recover their funds.
In a short sale situation, the 2nd has to agree to take less. If they do not they will force the 1st to continue the foreclosure process bringing them to the scenario that I just described above.
That is a very rough 'foreclosure 101' class, so I hope it wasn't too much to take in =)
I also hope it helps you. Please let me know if there is anything else I can answer for you.
First I want to thank you for spending your time answering these questions.
I owed 2.2M real estate loans and $65K credit card debts. I have two foreclosures in my record. I am in BK 7 now. In the US Trustees 1st meeting, I was told that the Trustees are not interested/abandoned the two homes that I currently own and current with mortgage. The trustees told me that I can stay in the house but they are not interested. My questions to you dear are:
1. My primary residence has two loans, $330K & 65K. I am not able to make payment on the 2nd mortgage anymore. Will they start foreclosure even if I am current with 1st mortgage?
2. Since I included everything in the BK and I am sure they will be discharged. If I walk out of the primary residence after the BK discharge, will the bank report this as foreclose and show up on my credit report.
Many thanks.
Hey, this is a great post! I am a real estate broker dealing with a property owner in bankruptcy who is being advised by his attorney not to bother with the short sale of an investment property. I'm trying to convince the property owner and the attorney otherwise. Thanks for the help!
Hello
I just received the approval on a short sale that took 6 months. Now I am contemplating not going through with it because the bank is requesting 129k for the home (buyers offer was 100k) and I owe 275k!!! This puts me at 150k either owed to the IRS with a 1099-C or a judgement from the lender. They did not choose to forgive this and this is written in my short sale pending agreement. I truly think foreclosure is the better option now, and will also file a 982 with the IRS. What do you think? I'm completely broke, single mom stuggling, have some credit cards but mortgages were really the issue. This is an investment property and I am also looking at a short sale for my primary now as well. Thanks
Great post... any advice on how to find short sale properties? What is a fair percentage to pay a person who is trying to do a short sell on his home?
Hello 4closure Rescue! I have been reading with interest your various answers to distressed sellers in BK. I am a buyer waiting for a short sale approval from the sellers' two lenders. The seller went into BK and we may have to pay their lawyer I would assume, a fee to get the property off the BK file in order to move forward and wait for an approval. Our offer is $150,000 over the short sale price but the 2nd lender might take a loss. Why won't the banks jump at a chance at a great offer?
I am a Real Estate agent that has a short sale property ready to close in a couple of days. We have been pending for almost 6 months. My client is also filing bankruptcy. His lawyer just contacted him and told him to stop the SS. That if he doesn't show that high debt from the house on his BK that his payments will be extremely high. This makes no since that the higher the debt the lower his payments will be in the bankruptcy. He is filing I think a chapter 11 (debt repayment). Does it make since to have to show the house as debt.
I just completed a short sale on my home last week. My home sold for $39,000 but I purchased it 5 years ago for $170,000. I owe $22,000 in credit cards and want to clear up that debt. In addition to that my lease on my car is up in May and I want to keep it. Should I file bankruptcy in this case if I want to keep my vehicle but want to erase the rest of the debt?
In addition to that I have a car that is paid off and two motorcycles that have monthly payments and I don't want them to take the car that is paid off. What is the best choice for me and if bankruptcy is the choice should I file a 13 or a 7? I just want to clear my credit up and fix this downward spiral from 2009.
Excellent post! Thanks so much for this insight! I have a slight twist I'd like to ask about...
We filed BK 11/09 which included house mort($860K), house ELOC($117K), and an investment property mort($60K), all three with the same lender, plus credit card debt with that lender($60K) and another credit card company($30K). I have interested buyers for a short sale on the house. The credit card lenders have already cleared the debt to $0. The 2 properties have minimal equity and will be put aside by the Trustee 2/11/10 (I forget the term for that).
Question - Would the damage to our ability or time frame to buy another home in the future be improved or changed at all IF we were able to SS the house but we still had a foreclosure on another property?
Hi Ted,
I have really enjoyed the posts here. Lots of good information.
I don't entirely agree with your advice on avoiding short sale investors. Many, are licensed agents themselves, who give the sellers a valuable asset.....a buyer. And if the deal gets skinnny on the money, the investor/agent simply lists the property for less, forgoing their profit but still makes the commission and still helps the owner avoid foreclosure.
Other investors, who aren't licensed agents are still out there trying to help people. And they accept that they will make money on some deals, but not on others but in return they are helping the homeowners out and making some good profit on the good deals. In the future, you might want to advise an owner who is considering short sale to speak with the investor and ask them what their specific philosophy and stradegies are.
TAKE CARE & ALL THE BEST!!
Mary,
I assume you are talking about my other article about using a Realtor when doing a short sale. I respect your opinion, and simply agree to disagree. The reason is, the scenario you mention sounds good when you say it fast enough, but in practice that just isn't what happens the majority of the time.
More often what happens is they hold onto that deal hoping to wear down the bank sometime down the road. OR if they don't get the number they want from the bank, rarely do they continue to follow through for the homeowner.
Instead they lose interest and move on to the next hot deal. What incentive is there for an investor to see a deal through that they aren't going to buy and cant make money off of?
To be fair, I know there are some people out there that will do the right thing. But to try and represent that its common is disingenuous. What I am trying to do is give the best possible information for the greatest number of people. Meaning if I give them advice like you mentioned they stand the chance of getting scammed, on the other hand if they follow my advice they have less of a chance of falling into that issue. For them the issue of the investor making money is irrelevant. Yes it gives them a buyer...which they need, but for them they need as much exposure to the market as possible. They dont need a buyer, they need ALL the interested buyers. They need the open market, not a pocket investor. Its not in their best interests to work with one buyer, but rather ALL of them. See my point? I'm just trying to help homeowners. Investors do just fine, but locking into one exclusively is never the best option for a homeowner who is on a limited time frame like those in foreclosure are.
Si?
At the risk of sounding like a complete moron, I need to get this answered. I am a real estate agent just contacted by a woman who wants to Short Sale her home. They have already gone through the BK (ch. 7) process and lost their business. When I aksed whether she included her mortgage payments in her Bk she said yes. I have consulted with other agents and lawyers yet no one seems to be giving me a straight answer. If the BK has already been discharged can we go through and do a SS?
This is a very useful post
I also have a question about BK (ch. 7)..which I has been discharged last August. Now I want to do a short sale on my property which was included in my BK. I was also divorced last year. My ex husband who is still living in the home has chosen to do a short sale and not file bankruptcy. My name is currently still on the mortgage. My question is should I continue with the SS even though it was included in the bankruptcy? Help!
Jerry, Yes you can always do a short sale until the point at which title has been transferred. You will however have to find out if the case has been declared a no asset case, which can and often does happen after discharge. If the Trustee has abandoned his interest (very likely) you can call him and ask for permission to proceed.
Val,
As this post outlines, the issue at hand is how it looks to an underwriter/lender in the future. The impact on your credit score is negligible. It is almost identical at the onset of the short sale/foreclosure. The issue is how soon you can obtain financing again, and what is called "willingness to pay" when an actual human looks at your credit. So, while I cannot say yes you should as I dont know all your personal situations details, I can say that my post explains why you should consider it.
Question: my sister's house is set for Trustee's sale in less than 3 days, which limits her time to request a short-sale. So to extend this time period, her attorney has advised her to file for bankruptcy telling her that this will give her more time to do so.
Does filing for bankruptcy really provide her with buffer time to request short-sale? And afterwards, can she rescind the foreclosure process like the attorney suggested she can?
Much appreciated, and thank you for the very informative article.
Thanks so much for the response. So this is my situation now. I filed filed bankruptcy last yr and was discharged on 08/2009. I was divorced last yr also finalized on 04/2009. NOw my ex husband is doing a shortsale on the house we bought together. The realtor who is helping him sell the house is now telling me that we should delete my name off the mortgage title which I included in my bankruptcy rather than me continuing with the SS. Your opinion is very much appreciated.
Sorry I didnt make that clear. What I meant was that rather than including me in the SS, the realtor would prefer that I try and delete my name from the mortgage title rather that including me in the SS. Do you know how long this process takes and what documents in need to file with the court?
Hi,I did a shortsale on an investment home with a loss of about $150,000. and our primary home is going into foreclosure therefore I am filing bankruptcy as my husband (who has lost everything also) has left me facing all the debts accumulated by him. I am so stressed and worried that I will end up with a 10/99 from the investment property, how will i pay the bill, I am going to be homeless and will have to move out the country soon to provide a home for my children. please any advise appreciated. I dont want to be in debt to the IRS
We have four homes - 1 owner occupied, 3 rentals. One rental went into foreclosure last summer, one is two weeks from closing on a short sale, one has a tenant in it, is upside down but we are trying to get it modified. We also have $65,000 in credit card debt, of which 90% was caused by the rentals/business. We recently contacted a BK attorney - she told us to pull out of the short sale, that we needed that debt on our books in order to go through with the BK. She said that 51% of our debt needs to be business related. Without that one home's debt, we may not meet that 51% (since our personal residence debt is $325,000). She is doing a personal BK related to business obligations and trying to get us into a Chapter 7. The realtor says we can open ourselves up to a lawsuit from the buyers if we pull out of the ss since they've put money into the purchase already. She also said that the mortgages may not be relieved in the BK since an offer was on the table to relieve our debt but we chose not to take it. I don't know who to listen to. Help!
Nice hub. Some good information here. Thanks for the info..
You mention that "Despite the fact that the FDCPA or Fair Debt Collections Practices Act requires that all debts included in a bankruptcy be reported on your credit report as "included in bankruptcy", there is a second place that a foreclosure shows up on your credit report; Public Records."
The ruling is in the form of FTC guidance to the credit reporting agencies, indicating that the proper notation is "$0 due, debt discharged in bankruptcy." If the foreclosure was instituted prior to the bankruptcy filing, however, that notation will remain along with the $0 balance due.
As to the public records section, you're absolutely right that it will appear. The judgment of foreclosure and sale, however, may be able to be listed as discharged in certain places. In New York, for example, a separate motion to discharge judgment can be filed in state court after the bankruptcy has been discharged for 1 year. This can help with rehabilitating credit in a post-bankruptcy situation.
Jay,
Great points. I will do some more research into what you mention about the FTC guidance.
My experience is exclusively in a Trust Deed state as opposed to a mortgage state, and so I have not really had any experience at all with the entering of foreclosure judgments. Thats great information.
Also, since this article is geared towards consumers dealing with this issue, I would say that what it SHOULD be, and what it IS, are often two very different things. As a Mortgage Banker that specializes in helping people clean up credit report errors, I can tell you honestly I have never personally read those words as you wrote them. But I have 3 pulled up right now (because I wanted to check myself to be sure)and they all say "included in BK".
So getting it to report correctly is a huge step in the process of rehabilitating post BK or Post Foreclosure.
I am in the process of selling an investment proerty which I am set to close on in the next two weeks after receiving an approval letter from the bank. They will not include language that they will not proceed forward in the future with seeking a deficiancy judgement which scares me. I dont want them coming after me in the future, just when I start to get my life and credit back on track if and when my financial situation improves. I also have a second investment property which i rented but I am losing money on monthly. My primary residence I am upto date on but have no equity as I am also upside down but current on payments. Should I proceed with the shortsale, or just file bankruptcy and try to include my second property and hope to start off fresh now. I have no intentions of leaving my primary home despite being underwater. If my tenant moves out of my second rental I will also have to try and short sale that one or face foreclosure. I am very confused on what to do. Can you offer some advise?
I have been studying and researching my options for months. I have two loans on my current home that total 393K, with a market value of 235K (the Second is 81K and the first is 312K). I have 35K in Credit Card Debt. I was trying for a modification for over 7 months and decided to default on my first now 6 months while still attempting a modification. Chase never came through, or has been dragging their feet. My Second with Charter One, is about 3-4 months delinquent. I just started working again three months ago. I have a beautiful home, but I want to make the best business decision. I am not attached to my home, but I am in my late 40's and credit is a big concern to me as I would like to buy another house in another city in the near future. I am not behind on my credit cards, just on my mortgages. Should I BK and rid myself of all my debt? then let the house go? or have you ever heard of negotiating my credit card debt down myself, and possibly short selling the house? My rates are real good on the house, and I am afraid they will deny my short sale. I am curious about proving insolvency. Can you guide me? Do I really need to do a bk? btw...I also have 42K in Student Loans and I do want to go after my masters in the near future....Please help, confused about options.....
I see a critical omission in all this analysis. You are assuming we all only own one property. So that's simple. A short sale is preferable to a foreclosure. Case closed. BUT what if you, like most people, own more than one house? A primary house and a rental house say. And/or what if your primary house has a big HELOC tied to it, meaning it cannot be sold short? Is it worth the effort to short sell the rental house?! Or should one just throw it all into the BK? In other words, if you have two houses, and will lose both houses in BK, does short selling one house make a difference?
Thanks for the Comment Paul. I see a few statements that I feel need to be addressed.
I will have to respectfully disagree with your assessment that most people own more than one house. This is more than just an over statement...its not even close to reality. Most people do not own more than one house. Therefore, I also don't really see this as a critical omission.
It is an omission, and certainly one that I could write another Hub article on, but this article was intended to address the majority of people looking for information on this subject without being overbearingly long. I could also have made a case here for chapter 13 vs Chapter 7, or discussed all the different facets of deficiency judgments and 1099's for a forgiveness of debt. I could have talked about people who have judgments or mechanics liens. What of people who have high level security clearance for their job, clearly bankruptcy could jeopardize their employment...what of them?
To address your comments, I don't see this as clearly as you do. You indicate its case closed, simple, easy to see this answer...and yet I have had over 9,000 hits on this article since I wrote it. Someone is searching for this answer. Moreover, THE reason I wrote it, is because this IS what Bankruptcy Attorneys tell their clients. They should be able to consider the topic from a lenders perspective. You might be sophisticated enough to have been able to come to this elementary conclusion...but many don't understand the nuances of the law involving foreclosure and bankruptcy, nor do they understand the minutia of lending and how these things are factored into an underwriting decision.
Second, a big HELOC never ever prevents you from selling short. In fact its my favorite type of short sale. I LOVE getting short sales with a huge HELOC in 2nd. They sell short all the time, so I am not really sure where you came to understand that this was the case.
If you have two houses and need to file a BK, put them both in the BK and short them both.
Shorting one, and not the other makes it all a moot point. You will still end up with the foreclosure on your credit. If you are resigned to such a fate, then take the Attorneys advice and just move on. On the other hand, even if you fail, what harm is there in trying to keep a foreclosure from appearing on your credit in addition to the Bankruptcy?
Terrific information...
My situation is a bit simple but seems so difficult emotionally.I'm trying to figure out if it makes sense to file chapter 7 or just do a short sale, but I don't want to be 1099'd for the unpaid balance I'm a single mom w/ two kids...never been late on my mortgage...My 1st is 273K, 2nd in 13k AND 3RD IS 7k. Current property value is 200-220K and there are two other foreclosers on my street. I have no credit card debts...my mortgage is close to 50% my net income and living expenes are more than what I earn...I plan to get married this year, move to his property...My question is what is the best path for removing the burden of this house w/ the least amount of credit damage and no tax burden..do I have to file BK? if so...would I do a SS and BK? Thank you!
Nancy,
Thanks! Really the short answer to it is, the only reason to simply let a property foreclose is if continuing to worry about it and deal with the situation will cause you mental/emotional harm. If someone is so troubled that they really just need to escape reality and move on...then I suppose it is what it is.
Here are my other short answers, and then you can read the rest if you care to know the why.
Yes do the short sale.
Start there, and then contemplate the BK based on the reasoning in this article and this answer.
Thats really why I wrote this article. It spells out exactly why (From a Lenders Perspective)you want to do the short sale even IF you have to file a BK. The inverse of that is also true though...the question assumes that you were doing a BK, and since that is damaging to your credit its often discussed by Attorneys as though its pointless to do a short sale. They incorrectly believe that somehow it can't be worse so why worry about the hassle. My article explains why they are wrong from a lenders perspective. From a legal perspective they are right. Always do the short sale if you care to buy a house again in the near future.
Deficiency concerns vary from state to state, so you would need to find out the statutes governing mortgage deficiency and what the lender needs to do in order to make that happen.
Having said that, even if they dont pursue a deficiency, its very possible...even likely that it can remain on your credit at a minimum of 7 years. Longer if they decided to re-age the report. So, while it might be an noncollectable debt it could still haunt you by simply existing and preventing you from obtaining credit. Additionally, even though its not a collectable debt, it is a SELLABLE debt. Meaning, some enterprising debt collector could offer them SOMETHING for that debt and call and harass and send letters and report negative information on your credit. The only thing that is often prevented (such as here in Utah) is using the courts to collect by obtaining judgments or garnishment orders etc.
So, since I am not an Attorney I cannot say "yes you should file a BK", I think you should consult a BK Attorney and get their opinion. I realize sometimes thats like asking a Surgeon if you should cut or a car guy if you should buy, but there are some ethical Lawyers (Stop laughing)out there who will give you the best advice for your situation. If you happen to be in either Utah or Souther California, I have a recommendation for one.
Hope that helps clarify some things.
Thank you so much...I'm in Northern Calif...and am trying to figure out who to get advice from..BK Attorney, my Tax consultant or my real estate brother in law...or all of them...I talked to a friend today who did a short sale a year ago w/o going thru BK and they never came afte rhim for the balance....the other thing I worry about is if I try for a short sale it may take several months and beyond? I heard that the bank won't do a short saleif you are current and on time and basically wait til you are not making payments and ultimately end up in forecloser before a short sale is accepted...yikes...in the meantime...do I continue making my payment $2100 per month...I plan to consult with a BK attorney but it seems themore people I talk to I get different outcomes...gee it would be ideal if the bank could allow for a short sale w/o me having to file BK and not come after me for the balance...I don't want to be 1099d either....the only reason I'd file BK is to protect myself...I just want to make a clean legal break and relieve myslef of this financial burden w/o receiving a surprise bill down the road.
Nancy,
Thanks for your follow up. Re read the sections in my article that talk about being 1099'd and Deficiency Judgments. It is very unlikely that you are not covered under one of the two laws. Also, in regard to your friend. That is great that they never came after him...however don't be surprised if the difference continues to be reported on his credit report. They dont have to be "coming after you" to have it be a burden. The real travesty is when I have a client who waited because they weren't coming after him, and 3 years later they file BK anyway because the debt is still hanging around on their credit report. 3 years down the drain as far as rebuilding credit is concerned. I can tell you from so many different experiences over the years, its often the best choice to "eat the frog" and get it over with.
Thanks for the great questions!
Hi - We filed for BK about 2 years ago (it will be 2 years this coming July) We included our house in the BK. My question is we are buying a house in August - we just got a call from someone who wants to buy our other house doing a short sale. Should we wait until after August to do this? After we already closed on our new house? I am not sure what the best thing to do in this situation is??
Thanks for any help you may have
my attorney has told me to file bk7 as I cant afford the home he insist on letting it foreclose sd it doesnt matter i have asked him if i can still buy a home is answer is anyone can buy a home if you have a large down payment , also i spoke to my lender about a short sale she said as long as it is not a 3rd party who does it for me I dont understand this she said they wont pay anyone for a shodt sale.
HI there! Interesting stuff here thanks! My question is simple...my husband and I went under contract in April, 2010 to buy a short sale. Wells Fargo holds the lien and they are taking their time as expected. However, it has come to our attention that the owners filed bankruptcy on Jan. 30th of this year. That information was NOT disclosed to us. We have since found out that the sellers agent knew all along. Is this illegal? Immoral?? The houseis in New Jersey if that makes a difference... Thanks so much!
Sandra,
Thanks for your feedback. If I can be candid, and remember this is text so please don't take offense to this. I mean it sincerely and am not meaning to come across as harsh.
But I do not see how it is pertinent information for you as a buyer. To be honest it is their personal financial information and I do not see where you are entitled to have that disclosed. There is no need for that to be disclosed to you. It's simply not your business. It is neither illegal or immoral...Ironically with the number of privacy laws that exist now days, it could possibly be Illegal to disclose that to you. Its at the very least irrelevant. I do not see under any circumstances where the Sellers Agent should have disclosed such personal information to a buyer.
Hopefully your Agent gave you a lot of good information about making offers on short sales and as such prepared you for the waiting game that is just part of the deal. However if your agent feels that it should have been disclosed to you, I have to respectfully disagree. That is entirely up to the Seller whether you need to, or should know about their bankruptcy filing.
Having been an Agent and a Broker, I know there is nothing within the Association of Realtors, and I can only speak to the Utah laws as I am not familiar with other state statutes. But I cannot think of a possible justification for a buyer needing that information or finding it pertinent and relevant.
Sorry if that is not the answer you wanted, but I honestly feel it to be correct.
I wish you luck in your new home purchase.
I read somewhere that completing a short sale and then filing BK shortly thereafter can be seen as a "collusive transaction" between the bank and myself and that the other creditors could use this to invalidate the BK. I read this on a BK attorney's posting so I'm a little skeptical. Have you heard of such a thing?
(DISCLAIMER: NONE of this is to be considered legal advice. I am not a Lawyer. Consult with one before making a decision that has legal implications)
The term Collusive Transaction is just his own wording. Its not a common phrase being looked at with any regularity at all. The way you describe it here does not make sense to me at all. If he said it the way you describe it, it sounds like a scare tactic to simply keep from having to deal with a short sale.
On the other hand, I assume what he means is that if you were to do a short sale and they require you to sign off on an unsecured note for the difference, which you sign stating that you intend to pay back over time and then turn around and file BK on said debt...That particular creditor could come back and say that you entered into the agreement in bad faith. If they were successful in convincing the court that you acted in bad faith it could become non dischargeable debt based on what is called Civil Fraud (not to be confused with Criminal Fraud).
If there is no unsecured deficiency left over after the fact...then what he said is absurd. What possible grounds could anyone have for saying such a thing? How is any other creditor damaged?
The owner of our rental has filed for bankruptcy. They rent a home in another county and are discharging $40k in credit cards and $292k on this rental house that they inherited from her father. We REALLY want to buy this house and stay here. Deutsche Bank is the holder and it was transferred to them from Bank of America one month after she filed bankruptcy. The trustee has no interest in the property. I have heard from many that Deutsche Bank is not fun to work with. Would there be tax implications for her if she short sold to us while in bankruptcy and this is not her residence, but the only home she owns (or owned)?
There would not be any tax implications due to the fact that it is a debt that has been discharged via bankruptcy.
We need your advice. After 18 months, my husband and I are in negotiation with the lender in a short sale. We've since moved out of that property and moved into our retirement home purchased in 2009. We've had several financial set-backs since then including significant medical bills and credit card debt. We are exploring bankruptcy. The BK attorney is advising we stop the short sale process as the 1st and 2nd mortgage on the property would be included in the BK. We're concerned about any deficiency judgement - in our case would be about $110,000, back property taxes and income taxes. Our realtor conversely advises this is bad advice. We are at our wits end and obviously want to make a decision that is in our best interest. We're retired and just want to enjoy the rest of our lives as debt-free as possible. Any advice?
shortsale or chp 7 we have a 1st and a 2nd worried about deficiency. do shortsale most likley to take 6months or more. hoping we wont go into forclosure. and then have to file bk. or just bk and be done with it?
I claimed bankruptcy and did not do a short sale. I had an attorney and her entire attitude was snip, snip, snip, get it done. No questions about my financial future. The reason I didn't do a short sale was because no one was looking to buy the property. Would I? Good question. I guess it would decide on if I would have become responsible for the balance or not. Incidentally, isn't that what the federal bail out money was supposed to take care of??
wow...this is like an actual service. quick response along with good content
This is such a great site/article. Thank you for providing this resource for families! I am naive in this arena, but had a question regarding part of a response you left for another commenter...
"You see this article is about why you should do a short sale even IF you ARE doing a BK. The intent here is to help people understand why IF they are doing a BK that they want to avoid ALSO having a foreclosure on top of the BK. Most Attorneys will advise their clients that it is irrelevant, and that the BK is so bad that having the foreclosure does not matter. From a legal perspective they are correct; from a lending perspective they are dead wrong."
In it, you mention having both a foreclosure AND a bankruptcy as being something to avoid. I am confused by this, because our bankruptcy attorney is saying that by "surrendering the home" and filing Chapter 7, we are "stopping foreclosure." So... are you saying that even though we can "stop the foreclosure," the foreclosure is still indicated on our credit report? I apologize if I am asking something that has an obvious answer.
Thank you!
Kamesse,
I am preparing a 2010 update for this article, because it was written in 2008.
Ill answer your question first and then I should have a video that I will be embedding into this article that will clarify the new update.
Is he (your Lawyer) incorrect as to how it looks on your credit? Yes.
You will have both a Foreclosure and a Bankruptcy. The Foreclosure is two separate items on a credit report. It is a "tradeline" or Account (The Mortgage) that will report that it was closed due to foreclosure. The second is a "Public Record" which will show that there was a Foreclosure.
You can however get the credit bureaus to report the account as "included in Bankruptcy" but it will also state that it was foreclosed. This has little effect on your credit score either way. Rolling 120 day lates is what tanked your scores. What is most affected by a Foreclosure or BK is how long you have to wait to get a Mortgage.
Now, does it matter anymore? No.
The game has changed since the whole "Mortgage Meltdown" because the lenders rules have changed. As I noted in the quote you selected, I am speaking to people from a lenders perspective. The truth is, it doesn't matter anymore. This question of whether to do a short sale or file BK is really a moot point.
Why?
I honestly cannot find a compelling reason to do a short sale anymore EXCEPT to try and buy time in the home. AND I would add, that because of what lenders are doing to people I recommend that they still talk to a lawyer and file bankruptcy.
Let me reiterate...anyone telling you that its "Better for your credit" is wrong. The effect on your scores is the same. The length of time you must wait to get a mortgage is the same. There is zero tangible benefit to doing a short sale anymore. Unless it helps you stay in the house longer without a payment. Honestly this is the only benefit I can think of.
So with that said, look in the next week and I will have a video embedded into this article that goes into greater detail about the WHY of this answer.
4closure Rescue,
We can't begin to tell you how thankful we are for your input! It is overwhelming, to say the least, to figure out the best course for us... To have someone help, who gains nothing financially, is reassuring and so appreciated. Our biggest concern is finding a rental with a bankruptcy on our credit report. And while we like the idea of saving more money by staying longer in the home via a short sale, we are finding that realtors scramble off once they hear the word "bankruptcy." Regardless, we are again so thankful for your clear explanation of our current options. We look forward to your updated article/video.
Thank you!
You are welcome! Thank you for your kind words. Sadly, what you mentioned is all to common with Realtors, because 90% of them know zero about bankruptcy and are simply riding the wave of the short sale trend. They have not been doing this since 1998 like I have, so they have not seen enough examples to understand how to help people in EVERY circumstance.
Short Sales are AWESOME to do in a bankruptcy from the perspective of an Agent if you understand the rules. If not, I understand why they are frustrated.
My case is totally different from most, due to the fact that current economic conditions have nothing to do with my financial situation. I am a federal worker who became injured on the job, and as a consequence of reduced wages, a lack of capacity to earn, and an extended period of time off for healing and recuperation, it caused a drain on my reserves and put me in a financial hardship. Unfortunately now I have to give consideration to the options of BK, or short sale. I should mention that I am current on my debts and I am also seeking help with debt management, but as long as I am not earning my normal wage, things can go downhill for me rather quickly. My question is this: Since my situation was due to an injury, could my situation possibly include options other than BK or short sale? If I chose a short sale, would I have to pay back my 2nd. And, since I expect to start earning my normal wage again, can you suggest how best I might be able to negotiate with my creditors for time to avoid the BK or short sale? Your reply will be greatly appreciated. Thank you
I have a seller who has already filed and completed chapter 7. The house was included in the bankruptcy. She is 2 months behind on payments and wants me to pursue a short sale on the property. Do I have to get the property released from the bankruptcy first before I submit my short sale package to the bank? or do I see if my short sale gets accepted and then get the property released from the bankruptcy? any advice will help. Love the article. Thanks!
In California, WHEN is the right time to file BK to avoid a deficiency judgment: before ss or fc or after?
Very informative site. Thanks for all the great information. This is my situation: My understanding is that when doing a short sale, if you are current then you take less of a hit on your credit. It really is not the short sale itself, but the missed payments prior to the short sale that affect your credit. Do I stand correct? So I did speak with a bk attorney to figure out my options but only found this hub after the fact. I am in the process of getting a divorce and I understand if I assume all the debt in exchange of her not touching my 401k then I cannot discharge the debt in a BK. Furthermore, would it be wise to keep payments as current as possible, start the short sale process then file for BK? Or start the BK then do the short sale? Not sure of the timing of all of this. And how damaged will my credit be? I do want to buy in the near future. In another question If the noteholder holds both the 1st and 2nd is there a possibility they will not come at me for a difficiency? I am so maxxed out my wife took the kids 100 miles away and i am ready to throw in the towel and not deal with any of this anylonger. Just want som non-legal advice on what is the best option. Thank you in advance. K
great post
This hub has been helpful. I have a more specific question.
We just completed a ch. 7 bankruptcy and our house was included. Now we need to deal with our upside down house. We live in CA. Short Sale or Foreclosure? Our house has a first with B of A and a 2nd with Wells Fargo. We have already moved out. We have an HOA so we have to keep paying on that. We thought doing a short sale will help to get rid of the house sooner and it would enable us to buy a home sooner than if we let it go into foreclosure. We want to start rebuilding our credit the sooner the better. Also, what about the 2 year (short sale) versus 7 year (foreclosure) to buy a house again? I am aware that a bankruptcy has 5 years before you can buy again. I need some correct advice on what to do with our house. Thank you.
Hi,my name is Andrew.I just got thru all articles in here so I feel much more informated than before but if you can survive I ask you again for things you probably answered 100 times, please give me some advice on my personal situation.
I'm the homeowner of single family house in Chicago.I'm behind my mortgages payments(1st and 2nd) for about 14 months. I'm also behind my credit card payments about 1 year. About one year ago I decided to fill BK. But I also tried to get modification on my mortgages. I wanted to fill BK at that time but my agent told me to wait with the BK till the modification is done. I did'n get the modification and I got the letter from the court about the foreclosure and about the public auction sale on January 6th, which means I can stay in my house till February 6th. I just decided let it foreclosed and fill bankruptcy right now. About one week ago I was advised to do SS. My agent told me, she can stop the foreclosure and get me some extra time for living in my house(about till april she said). Honestly, it might be 2 month of free living extra time, which is really valuable for me.
(First-I don't need to pay some rent yet, second-I don't need to move out at winter time). BUT!!! My agent told me I need to wait with filling BK untill SS is done. The thing is I don't plan to buy any house in near future(simply too much everything-real estate taxes, insurance, repairs, etc.), second important thing is I'm really stressed by all my debt and I'd like to have BK done as soon as possible to start new life. I told this my BK attorney and he said I can file BK anyway but he wouldn't do SS at all. He said, he can wait with the filling because that's danger to do SS after the BK. Besides this, my SS agent told me I will not pay anything and others told me I will pay something on closing of SS. I'd like to say again, my only reason to do SS is to get some extra time for extra free living time in the house, nothing else, and my real priority is to get myself out of the debt as soon as posible and start REAL NEW LIFE.
NOW QUESTION: Would you reccomend me to do SS anyway or just let it go? I REALLY APPRECIATE YOU ADVICE IN ADVANCE!!! I can't simply wait everything is behind me. THANK YOU ANDREW
Thank you so much for being that great Soul wanting to help others.
I live in Pennsylvania and in the process of a divorce after 20 years of marriage. Spouse always handled the finances of the house. I’d bring the check, she’d pay it all. We have very high credit card debts and a 1st (Citi) and 2nd mortgage (Credit Union) against the house. 3 of the 4 card accounts are in my name and she was the only authorized user. She would open up new accounts to transfer balances and so on. Eventually, the debt grew in a snow ball effect. We have one daughter (20) in 3rd year of College and another one (18) is graduating from High school this summer 2011. Besides the high credit card debt, I have two parent PLUS loans for the one in College, since schools would not approve us as co-signers due to our high debt ratio. Her Stafford loans are in no way enough. Now, we are having big issues paying the debts and/or the mortgage. I cut off TV, phone and others in the last year to ease the situation. We had never been late in a payment until recently (in the last three months) when attorneys’ fees started to grow. My attorney recommended both of us going into BK, and get a fresh start for all, but spouse won’t do it terrorized of ruining her credit and not being able to continue helping the girls for college (at least as Parent PLUS support). I then decided to finish the divorce (taking all the debts as long as she does not touch my retirement accounts and future restricted stocks I gained through my Company) and then go into Ch13 (where I can hopefully discharge most of those debts, and help my younger daughter). Her attorney advised her not to go into BK, get alimony and some of my retirement. We’re still in negotiations. We’re still living under the same roof, because I can not afford another rent… The house was for sale in the last 3 months and barely 2 partied came to see it. Any equity we had gotten is gone due to the decrease of the house value. Realtor is not giving us any hopes, since more homes are for sale in the neighborhood and they’re bringing their prices down in order to sell. The realtor and I proposed SS, but spouse once again panics for her credit. What to do with the house? We are paying a very high mortgage plus HOA, which is really affecting us. None of us want the house. If we go for SS we need to keep paying, and still live together, which makes it even more difficult. Or should we just go for FC? Then, we can finish the divorce and then I can file for Ch13? Or both of us should go for Ch13 and discharge all under it? Either way, her credit will be affected, I think. If we both go to BK, What would happen with the Girls College? We have no one to ask for cosigning. Our families live out of the country. I heard SS with 2 mortgages is almost impossible…What are the implications? Understanding you cannot give legal advice, what course of action would you recommend me? Another opinion is very valuable. Thank you so much for throwing some light on my path… I’m LOST!!!!
I have a house in atlanta georgia and currently under process of ShortSale. I have 370K loan on first and 96K on second. I have an approved SS for 270K and 250K will go to first loan and 3000 will go to second HELOC loan. The remaining will go to SS agent comission etc. The first will forgive the remaining balance of 120K and give me 1099. The second will not forgive 93K and askign me to sign a promissory note to repay adn I cannot file for bankruptcy or anything else. The question I have should go with the ShortSale? My attorney is stating that I should go for BK only and let it go for foreclosure. This way I don't have to pay 93K and get rid of my credit card debt as well. I feel and I have heard that instead of that just negotiate the remaining balance after shortsale since 93K will become a non-secured loan and if they don't agree file for BK afterwards. What do you think?
RK - Here is my point of view. In the next couple of weeks I'll (FINALLY) have my video done on short sales. The bottom line: File BK and walk away. There is too little to be gained and too much to risk.
Short sales are also considered a "Offer in compromise". Ask your lawyer to look at the UCC laws in your state to see how long a creditor has to obtain a deficiency judgment when you enter into an Offer in compromise.
I have a friend who was served with a law suit 5 years after his short sale. He also had it in his contract that they would not pursue the deficiency. (Hint: if the contract is between the seller and buyer its not binding on the bank) Again, check on your states UCC regulations...here it allows them 6 years to obtain a deficiency after the Offer in compromise.
The idea that it becomes unsecured is somewhat irrelevant. It does for a time, but in many states there are still means to turn it into a judgment and then attach to assets like your wages, checking account, property and in rare circumstances a constables order (I may have the terminology wrong on that one) where they can enter your property and sell personal belongings like electronics and furniture for example.
Also, after bankruptcy you can rebuild your credit and get into another mortgage via FHA in the same amount of time as a short sale. The idea that its better for your credit is a myth. Stay tuned for my video to see why.
The idea of negotiating it afterwards is an effort in futility. More work than you really know, and much less certain than you think possible.
I 100% agree with your Attorney. Take their valuable advice and use it.
I am anxiously awaiting your video. Been watching the site for a while. No pressure! ;)
@Danielle...I shot it as kind of a free flow and it ended up being 1.5 HRS! Yeah, too long even for me.
I'm working to condense it into a very concise 5-7 minute segment, and then have more in depth videos that are in sections and cover specific aspects so that people can choose which pieces are most applicable to them and skip the ones that they don't need. Sorry for the tease =P I promise I'm working hard to get it done soon.
I can think of a very good reason not to do a short sale, cash flow. If you do a short sale you will be kicked out of your house as soon as you close. If you file bankruptcy first and include your house in the bankruptcy and then fight the foreclosure, you can live rent free for a year or two. At the end, the money you save can be huge. Even though you have a bankruptcy & foreclosure on your credit file, you won't care if you've saved 50K+. Plus, with a short sale, many people have a HELOC or 2nd mortgage and will be liable for the deficiency after a short sale. Plus on top of that, most people have a lot of credit card debt too. You will be beter off wiping out your debt and getting a fresh start and living rent free for a year or two, maybe longer depending on what state you live in.
I have two properties in forclosure. one property burned down and now is a piece of land. also i have a buyer on the deed. my other property has a homeless person living in it and refuses to get out..both bldg were vacant "as is" prpoerty. Am I someone who need to file bankruptcy with all of those headaches? and yes I would like to own a home someday..PLEASE HELP...
@Deedee: Probably. At the very least I'd recommend speaking with a good BK Lawyer. I don't know the specific deficiency laws where you live, but its worth finding out so you can save yourself a potential headache in the future.
If there is no benefit to keeping the properties, its better to move on now and let the healing process begin. You will be elegible for an FHA loan 3 years from your most recent 120 Day late or 2 years from your chapter 7 discharge (which ever is last).
@Enzo; I agree that sometimes staying can give people a 'rainy day fund'...having said that reading everything you say to do sounds so easy when you say it fast enough. Your non-chalant attitude might encourage others to try this who really should not.
"Fighting your foreclosure" is en vogue right now, but it's literally a throw of the dice depending on what court your case is filed in.
Your idea to file first and then fight it could also backfire. If they don't understand all of the different deadlines within bankruptcy and their states foreclosure statutes, they could end up stuck in a chapter 7, without income to convert to a 13 meanwhile their lender obtains relief from the stay and forecloses.
It's true that in some circumstances people have been in a property with no payments for 1-2 years, but they are the exceptions, not the rules.
I have an investment which is in short sale/foreclosure (per agent prop is considered in foreclosure while in short sale). Property is upside down by about $100K. I'm thinking of filing BK to avoid 1099. Should I do BK first before short sale or ok to file BK while on short sale?
Susan, with all of the changes over the last two years in the mortgage world, if you NEED to file a BK [Ask a Lawyer - Get Legal advice] then my suggestion is only do the short sale if you are 80% of the way through it. I'd define that as having a buyer already under contract with everything submitted to the bank. If you don't have a buyer yet, its my humble opinion that you should simply include it in your BK [Assuming you need to file BK per a Lawyers advice] and walk away without having to deal with all the stress of a short sale. Feel free to email me direct if you need clarification on anything utahcreditexperts@gmail.com
Thanks so much for this informative article!
We were discharged CH 7 16 months ago. We included both 1st & 2nd mortgages. We're current on all payments.
We're getting ready to try and settle the 2nd.
House is worth slightly less than balance of 1st (98K). We're eligible for a VA loan in Feb 2012 (2 years post BK). We would like to buy another house then, but we need to be off the deed of this house. I doubt it will sell for what we owe. Would a short sale affect our ability to qualify for a VA loan in Feb? I know that a foreclosure will.
Its so frustrating to send our $900 mortgage payment off each month and know that money could get us a much nicer home.
Renting is not an option, we live in a fairly rural area with 2 small kids and 2 dogs.
I stumbled across this hub randomly doing research on the subject of foreclosure and bankruptcy law. You sound very well informed and I thank you for the information. It's nice to know there are actually real people who care abut clearing away the misconceptions regarding bankruptcy and foreclosure. Good read
Thank you for running this blog (I guess that's what they call it). My husband and I have over $62,000 on CC debt alone. We have been debating BK and whether to include our home in the BK or try to short sale. After reading your recent entries, it appears to me that we might as well just get a BK lawyer and start the proceedings. With todays' market and economy, we probably will never consider buying another house. From all who read your blog, thank you for your help.
Would you please clarify something for me? If we file BK, does our house then go into forclosure? And how do we get out of paying the high tax difference between the balance on the mortgage and what the house sells for? With so many forclosures in our area, those are all the buyers are looking for - a "steal". We need to get out from under all our debt, including our house loan.
With the generous and invaluable information you are posting, I would watch that 1.5 hour or longer video any time! Thank you and many Blessings!!!
One thing this blog hasn't mentioned is the fact that having a buyer for your short sale is great but, as I was told by my bank, "we are to busy to concider your short sale due to the amount of FC". So even if you have a buyer the banks aren't working with us.
Thanks for the info in this blog...
Thanks for the information in this
FYI - FICO scores go up after filing Bankruptcy! I filed thousands of bankruptcy cases and it's pretty consistent. Filing will get the balance to $0, so in turn, FICO score jumps up within a year, depending on how fast the creditor reports it as $0.
Do I have to pay property tax for the house that I left 3 years ago. I lost the job and decided to move out. The bank was informed shortly after I moved out. I, m not sure if the house was put up for short sale or anything else. The amount for the tax is almost $4,000. What should I do? Can they take me to the court? Thank you
Hi, This was an awesome read, but as yu know everyone has a little different situation. Here is mine and was wondering if you had a moment to add your thoughts.
I am separated from my wife for 6 months and she is in the final stages of completing her BK. In the BK she surrenderred the house debt. Now it is my turn to file for BK.
I originally wanted to try and keep the home, but have decided that I wilk not be able to afford the payments. I have never been late on a payment for the house (1st or 2nd).
When I file for BK do I surrender the house and then do a short sale? OR do I say on the BK paperwork that I want to keep (re-affirm) the debt. Go through the BK while keeping the mortgage current. Then once I have completed the BK go to the lender and ask to do a SS? Are there any down falls of doing either way? Will I be held responsible for the difference in the SS and the amount owed? Also it is my understanding is that once I get approved for a SS I can just flat out stop paying on the mortgage. Is that correct?
Thanks,
Rich
I filed for chapter 7 in 2009 i was discharged in 2010. I thought i had reaffirmed my house and was making the payments then i looked at my credit report and it says that my house was in the bankruptcy i called the bank and they said i could stay there and keep making payments but it was theyre house. So we decided to leave and short sale it, my question to you is will i owe anything after it short sales, like the 1099 thing, my lawyer contacted me and said i shouldnt ss it because of a post bankruptcy liability? I am confused can you shed some light on this, and btw great blog
Wow, what a lot to digest in a short time. I read this blog line after talking to a mortgage lender, from one of the big banks, who wanted to refer me to a friend who has a bankruptcy law firm. Then an hour latter talked to a short sale attorney, suggested to us by our real estate broker, who seemed like a salesman with no concrete answers.
After reading your whole blog, and a few others, I am as confused as ever:
We do have $40K in credit card debt. We owe $220,000 on our mortgage. Current estimate of value on our house is less then $150,000. I haven't worked in a year because I've been undergoing Chemo therapy. In the last four years my wife and I have flip-flopped with one being unemployed while the other worked.
I've been offered a good job on the east coast with an employer who would co-sign a loan and put up the down payment which I'd have to pay back from my salary.
I'm looking for the most affordable and responsible way out: How do I get out of my current house with the least amount of debt possible and the best credit possible so that we can take up a new life as soon as possible?
I would appreciate any advise or suggestions since you seem to be the one person willing to talk with out taking a big piece of the pie.
Thanks,
crowell3
I filed for chapter 7 bk in California on 6/24/2011. I just got the discharge a few days ago. Before I file the bk, it was recommended to me to do a short sale. I was contemplating to file for bk because I lost my biz, had a lot of credit card debts, and my house was on the verge of being foreclosed. The agent assured me that she could keep me in the house for as long as 6 months and advised me not to file for bk. However, after careful review and assessement, I decided to file for chapter 7 bk. Then, we decided to proceed with the short sale while in bk, so that we have some time to complete the short sale process. Therefore, she had me sign many short sale docs including the escrow papers. She did not explain any of the documents; rather, she was very rushed to have me sign the docs. What the docs stated including many clauses was completely different than what she was telling me. One thing she assured me was nothing was going to come out of my pocket. This did not happen. Since I have 2 loans, there are two mortgage companies involved. She took the credit for keeping me in the house for 4 months or so, but I reminded her that it was the bk and the automatic stay that kept me in house. The first mortgage company filed a motion for the relief of the automatic stay. Obviously, it was granted by the judge. So they moved to foreclose. My broker had told me that I would have to pay $1,500 to avoid the foreclosure as she said she would pay the people in the bank to avoid it. She also had me pay for the appraisal for the 2nd mortgage company wherein she had told me nothing would come out of my pocket and everything would be paid for by the bank or the buyer. When confronted her, she said: “Oh the buyer did not want to pay for the appraisal”. I ended up borrowing money and paying $1,500 to a company to postpone the foreclosure sale. The sales date was postponed, but only for another month. I have another sales date coming up in about 10 days. My question is: Is the short sale void if the docs are signed before filing for the bk. I have not signed any grant deed. Is there any way that I can walk away from the short sale, or am I bound to continue with the short sale? Please advise. I have decided to not to work with this broker because she has lost credibility. How can I get out of this? Thank you much!
If I'm understanding what you're saying; The contract with the buyer was signed prior to your bankruptcy?
My 1st question is whether you live in the property or not. If not, then just let it go to sale and walk away. There are no repercussions for doing this as far as your sales contract is concerned. They cannot obligate you to pay money to delay the sale. Short Sales are always deemed "Subject to 3rd Party Approval". If the house goes to sale at a sheriffs sale or a trustees sale then by default it was not approved by the third party (the bank)
There are some variables I don't know that prevent me from answering directly about your situation...however in general a Bankruptcy renders executory contracts null and void. A REPC or Real Estate Purchase Contract...or any contract designed to transfer property from a seller to a buyer is an executory contract.
It simply means there are two parties that have to agree to the contract terms as opposed to a unilateral contract like "LOST DOG: Reward Offered" where you are making an offer to anyone who fulfills the specific terms of your contract.
So thats a really long way of saying that Bankruptcy can be used to get you out of selling a property that you have contracted to sell. (WARNING: This is NOT Legal Advice to you or anyone who reads this. The fact that Bankruptcy can void a contract does not mean you may not have to suffer the consequences of breaking the contract, for example losing an earnest money deposit) This answer could spin off into a big long discussion that is just not relevant so, the bottom line is that yes, it sounds like you could simply walk away right now and the only consequence would be a ticked off broker and seller who cannot do anything about it.
This is quite the hubpage! As a Realtor, I fall within that group that will tell you a short sale is better than a foreclosure-sometimes. I have found that the best candidates for a short sale are people who seem to be current on their other bills, and therefore don't see bk as a viable option. If they fit that criteria, I can't see any reason why they wouldn't attempt a short sale and try to get the bank to absolve them of a deficiency. If the let it get foreclosed, they back definitely will not forget about that debt, as far as Colorado goes (where I am at). I have actually had clients that bought again 2 years after their short sale, and you are right, they are a rarity. Lastly, I have to applaud you as an investor,actually telling people that is in their interest to list with an agent and give you first shot. So many people I come across end up foreclosed because the bank would not meet the investor's offer. As soon as the investor finds out, they bail, leaving the homeowner at the door of foreclosure. It is great to know their are some ethical investors out there!
Thank you! I appreciate your kind words. I saw the writing on the wall in 2002 when Foreclosure Prevention was the latest Fad Biz Op and so I have worked hard to educate people about whats best for THEM. I don't believe in operating with my best interests at heart ESPECIALLY when we're talking about a family and their home.
Also, I've painstakenly written this to educate about the differences of the two choices...however I try to be fair and let people know that there ARE times that a short sale is appropriate. I just wish more people would educate others properly and not use false info or scare tactics.
Thank you again, I sincerely appreciate your comments!
Corey
My step mom is at the end of the pending stage of a Chapter 13 in California. (It's Nov. 21 - the new CA Senate Bill just passed which will be helpful.) The situation is that she can't keep up with the 1st mortgage payments she has and can't afford to live in her home any longer. The equity line is being discharged, but she still can't make it. She doesn't have the income or resources she thought she would so the submitted budget is not workable. She is going to move to another state where she has family and the cost of living is much less. (Her husband, my father, died last Christmas and the household income plummeted.) She is in her 70's.
I began doing research on walking away/foreclosure vs. short sale. I talked to a knowledgeable broker today. He answered many questions. BUT I am still unclear about her situation as she is in Chapter 13, not 7. I can get a specific performance power of attorney and be able to help in many ways (especially after she moves in late December). In regards to a SS, will the process of talking with her attorney and having the attorney submit a request to the Judge, etc. be the same as a Chapter 7 situation? Or, because it's a Chapter 13, does the entire Chapter 13 fall apart? What happens when you can't make it financially under your Chapter 13 and you have to leave your home?
And what happens if she is out of the pending stage in a few days? I think it could be any time now. There is no more money to pay attorneys for anything (another family member put up the money to pay for the bankruptcy lawyer, but there aren't any more resources.) Anything you can tell us will be helpful, I'm sure!
I am grateful to know about he IRS 982. A question about that: how insolvent is insolvent?? If you have just enough to survive will the IRS consider that insolvent?
Thanks so much for your amazing help!
Ok, first lets start with Mom and her income because this might solve a lot of problems with one fell swoop. What is her source of income?
She might be what we call "Judgment Proof". If her income is from SSI this is completely protected from creditors.
At her age, having made the decision to move to live with family, it sounds like a future purchase of a home is not likely.
If she finds herself without assets, and income from a source like SSI or a retirement account...she is for all intents and purposes judgement proof.
Of course, consult with a lawyer since I'm not one and nothing I say is legal advice.
As to your question about insolvency...I'm also not a CPA, so consult with one of those too, but as I understand it the IRS definition of Insolvency is that your liabilities add up to more than your assets. I don't have more information than that, but it seems fairly black and white.
I'm unclear what the language you used means when you say shes in the end of the pending stage of a Chapter 13. My best guess is that you're referring to confirmation.
She has the option since her income changed to have her Attorney convert her case to a chapter 7. This would solve the issues completely and allow her to walk away without any concerns.
Chapter 13's are quite a bit more costly than a chapter 7, perhaps the money paid into the plan could be bartered with the Lawyer to pay for the cost of the chapter 7?
Let me know if this helps. Also, if this has been helpful and you think others might also need this information would you consider selecting one of the social sharing options such as the Facebook Like & Google +1? I have No preferences, any are helpful in making sure others get the right information to help them make these decisions. =)
Hello!
Right now, I'm a co-borrower on a home that getting foreclosed on. The primary borrower spoke to an attorney and suggest that I either file Chapter 7 or we could do a short sale. Right now, I pretty much pay the bills that I have, but I have other debt from the past that I let go to collections, over the years, some have fallen off, other's are still trying to collect. What would be my best option being the co-borrower on the mortgage? Short sale or file Chapter 7 and wash my hands clean of this mess she got me in??? Please help!
Hi Mary,
What is your biggest concern regarding this home you co-signed on - e.g. credit, getting a mortgage again, getting a deficiency judgment, or having a tax debt to the IRS for the forgiveness of debt?
Also, was this your primary residence or did you co-sign as a non-occupant?
We have a first mortgage @ $355k and a second @ $42k, the house is worth about $290k. We have $47k in credit card debt, and a $20K 2010 tax burden. The current mortgage is 90% of my wife’s income and I am self employed with no projects or income foreseeable. The interest charges alone on the tax burden is $900/month. We are current on all payments and have never been late. We really love our house and want to stay in it but I am not sure how. Will a Chapter 7 or 13 allow us to wipe out debt and still stay in our home? Even if all of our credit cards, tax burden and second mortgage were wiped out we still could not afford the 1st mortgage payment on my wife’s salary. I have been trying to find a job for two years and of course since I am self employed I do not qualify for unemployment.
Continued.....
We have always felt that paying the mortgage was the right thing to do, in doing so we have accumulated credit card debt and depleted savings. We can only pay the mortgage for another 2 months at the max until we are completely drained. The HARP 2.0 looks to be not available until April or March and who knows how long it would take before it kicked in. The banks will not work with us which I find interesting since we have made them the priority of the first fruits for seven years.
I agree with everyone on how you have givin me so much knowledge, but as said above everyone has a diffrent story. Here is mine.
Lost my really good paying job 2 years ago. Stopped making full payments on mortgage because I couldnt afford them. Applied for a loan modification through an attorney. Year and half now and I just got a letter of denial on my loan modification. My attorney says i need to do a short sale. My credit card debt is moderately low, but i do have a truck loan with a 1 1/2 year to still pay with a very high monthly payment. Balance on home is $365,000. It appraised at $250,000. I am a little scared with how bad my credit is, that i wont be able to get into a rental. I dont really want to leave my home, but i dont think i have a choice. After reading i almost think i should just file BK. I originally thought short selling would be better, but i take the risk of the bank not forgiving the remaining debt. What a hard decision.
Any advise
@Nevada11 Short answer is your biggest problem right now is cash flow. Chapter 13 will stop the interest from accruing on the tax liability. This eliminates $900 per month. 20,000 over 60 months (the length of a ch13 plan) is $333.33, so it cuts your tax pmt by 2/3 (FYI: I'm not an attorney. This is not legal or tax advice. Its an observation and my conclusion is that you should speak with qualified legal counsel and ask them whether a Chapter 13 would infact provide these benefits...sorry, have to do that to keep me on the rights side of the law)
As to your moral dilemma, I hear this a lot and I have to keep this short so don't mistake my short answer for being curt or harsh. Its merely in the interest of time. The answer I tell everyone about moral dilemmas with paying debt is A. Get over it. B. You should get over it because your highest moral obligation is to your family as a provider. You've LITERALLY done all you can and are now at the end of your rope. The very definition of insolvency or "Bankrupt" is that your debts total more than your assets. Further to that point if there is no clear path to being able to make installment payments, then you fit the very description of who bankruptcy was created for. It may have some moral implications in certain situations...but as I stated earlier you have a higher value that over rules it. Your number one core value is that you do whats best for your family as its patriarch and provider. This is merely a business decision and it DOES NOT DEFINE YOU AS A PERSON. I mean that with all the respect and love I can muster.
@Kristi, the house is upside down. It probably has sentimental value and BELIEVE me I get that. But read what I wrote to the gentleman above this. Your highest priority is to you, your dependents (if any) and your future. I hate using the cliche but if "it is what it is" and you don't have a clear answer to how you can continue financially...then you must take action that is in your best interests. Bottom line is its legal to file a bankruptcy. Its not immoral. If you speak to a lawyer (please see disclaimer above), and you should, and they advise you to file...I highly recommend you listen to them.
If you need clarity on the details, re-read the article and if you still don't see a clear answer to your specific circumstance then my email is in my bio and you can contact me directly.
Also, if this has been valuable to you, please help make sure others who may need help see it by using one of the social sharing options at the top of the page. Thank you so much. Let me know how I can serve you.
Corey
I have been talking to a bankruptcy lawyer and I should be hearing more about my options today. We started with the mindset of a chapter 13 since we are current on payment and want to stay in the house. Armed with more information we are also looking at the possibility of chapter 7 if we choose not to stay in the house. The secured assets are under water and the unsecured are killing us with interest rates. It definitely feels like the right call is with the big reset button. I am not sure if we have to short sale or foreclose after the bankruptcy if we decide to leave but I will check with the attorney. One would think that a bankruptcy, should qualify as a hardship to get a loan modification. The other thing I forgot to mention is our interest rate is 6.6% on a 30 year fixed. If we could just get that interest rate down to current rates we would easily be able to stay in the house.
@Nevada11 Great. Glad to hear you are seeking counsel. I agree with you on the equity position. It's just the reality of your situation.
To answer your question regarding short sale or foreclosure after the BK. THIS I can help with. In fact this is the very point of my article above. No you do not need to. There is absolutely no need if you file a chapter 7, for you to do a short sale after wards. It affords you zero benefit in any way shape or form. Not credit, not buying a home again, nothing. Your account will be considered "Included in Bankruptcy" and that is the end of the story. Anything after that is a moot point.
I understand your sentiment on the rate change...unfortunately loan modifications are a complete nightmare and there is zero certainty or reliability in looking to this option. Its honestly a great big gamble and NO ONE out there has a magic bullet or "insider contact" that changes this fact.
Best of luck. Let me know if I can serve you in any way.
If the mortgage is included in the chapter 7 bankruptcy then what happens? Do I still have the same payment, is the principal or interest rate reduced? Does chapter 7 also take care of the second? I know chapter 13 can wipe out the second but not the 1st. Will a chapter 7 allow us to stay in the home?
No, Chapter 7 is if you are looking to either walk away and start over OR have the ability to bring it current on your own. It does not let you make payments on the arrearages like a chapter 13 does.
Also a Chapter 13 only makes the 2nd unsecured. It does not discharge it the way a chapter 7 does. You'd still need to either discharge the 2nd through your payment plan OR be paying so little back to your unsecured creditors via the Chapter 13 that they are getting pennies on the dollar.
Chapter 7 does not do anything at all to the loan.
What I would really love to do is a chapter 13 and a loan mod to get the first down to current interest rates from the 6.625 that I am paying now. So I am going to check with my BK lawyer to see if they can submit a loan modification request after the chapter 13 is submitted. Hopefully incorporating the proposed modification into a chapter 13 plan to be approved by the court once (if) the mortgage company agrees to the modification. I am not sure of the success of this route but I think it is slim.
Probably is, but it can't hurt to try. You can always convert your case to a chapter 7 in the event that you are not able to continue to afford the home and just want to walk away without worrying about recourse.
You can convert to a 7 even after a 13 is in process? Doesn't a chapter 7 also become public record?
Yes, you can convert a case from 13 to 7. Of course you'll need to speak to your attorney about the nuances of this choice. All bankruptcy filings are public record. If your question is attempting to understand how a conversion would affect your credit long term, your scores are affected by your filing date which is the original filing of the 13 in this hypothetical scenario. Your ability to obtain financing is typically affected by the discharge date. For example some Mortgages cannot be obtained until 3 years after discharge.
I purchased an investment property in 08. My mortgage was thru 5/3 bank. I had a fixed rate but within one year the mortgage doubled in payment. I was told by the bank it was due to increase in property taxes. I went to the bank to help with loan modification and I was told they could not help me since the loan was never late. My husband went to the Realtor that we purchased home from and said he would do a short sale. After 4 months there was not a short sale and the house went into foreclosure. My credit report shows the mortgage pending forclosure. Last month I received a letter from the city stating that I owed property taxes and if not paid they would issue a tax lein. I contacted the bank which told me they no longer have the property that Freddie Mac took over the property. I contacted Freddie Mac which told me the loan was not foreclosed but charged off and that I am responsible for the loan and all taxes associated with the property. I was also told that they would turn over the loan to a collection agency. I do not own other property and never lived in this house. I have no interest in keeping this house. I filed BK in 2003 and have worked very hard to get my credit where it is. Of course with the forclosure on my credit it has dropped by 150 pts. Sorry for all of the information buy I am desperate to learn if I am going to be financially responsible for the loan if I do not file BK again, what other options do I have. Thank you so much for your help it is quite difficult to find anyone to give you straight answers.
My sister and I bought a house together and she lost her job. She now makes significantly less. I also took a pay cut. We tried for a loan modification and recently got denied. She doesn’t have much debit except for the house, which it looks like we are going to try to Short Sell. But I have a lot of credit card debt. I am thinking of filing bankruptcy. I also have a home that my mother left me when she passed away that is completely paid off in another state. So here are my questions:
1. Do I need to claim the house in the other state on bankruptcy?
2. If we are short selling the house we own together do I claim that on bankruptcy? If I do with that show up on my sisters credit?
3. Can I leave the home out of bankruptcy all together?
I am a realtor in MA currently working a short sale for some clients in a unique situation. The husband is really good with his money and other than being in default on the mortgage, his credit is otherwise perfect. The wife on the other hand, has tens of thousands of credit card debt and installment loans that are well over 120 days late. We started the short sale process approximately 3 weeks ago and it appears that we will be closing within the next couple of months. The problem is that since we started the short sale process, the wife decided to see an attorney about filing for bankruptcy. The attorney advised her to take the house off of the market immediately and just file for bankruptcy. I don't think it's a good idea for a couple of reasons. It's a FHA mortgage, so if the house sells as a short sale, the bank will not go after them for the deficiency. With that being said, it would make more sense to me to sell the house, and then proceed to file for bankruptcy after it's sold.
I just wanted to add that the wife is filing for bankruptcy, not the husband.
I would also like to add that they have been told by several people other than myself that the impact that a short sale will have on your credit score versus a foreclosure is a difference of about 200 points. The husband is hoping to buy a house within the next 3 years with his name only being on the mortgage.
I am currently in an active Chapter 13. I was able to keep the house out of the bankruptcy. Always current until Jan. 2012. Business circumstances have dipped, again, I can no longer make my payment. First missed payment in 13 years.
I am upside down by $75,000 due to dropping values the last five years in my town. Time to say "uncle". I have a wonderful agent in my corner who is experienced in short sales and optimistic about our ability to price the house right so the bank will approve an offer. Inventory is low in our market which she says will help.
My attorney suggested attempting a short sale and also consider converting my 13 to a 7 if the sale doesn't happen.
Sound like good advise or do I just go 7 and call it a day? My credit is already impacted by the 13 so can it really get worse? I'm not interested in trying to buy a new home in the next 3-5 years.
Your thoughts? Your article and these comments helped very much. I'm just not sure of my direction given the active Chp. 13.
Thanks very much.
OK, so I was discharged in bankrutcy 3 1/2 years ago. I had thought I had reaffirmed on the house but I apparently didn't. I kept paying on the house for 2 years. When I found out that the house was discharged in bankruptcy, I stopped paying on it and let it go into foreclosure. I'm told now that I have to wait another 3 years before I can get a loan. Is this true? Can they nail me on the same account for a foreclosure after the account was closed due to being discharged in bankruptcy? This is madness!
Okay so my boyfriend and I are ready to buy a house. Well he filed bankrupt/forclosure on his house 02/09, well then a year later I guess he done a short sale. I assume his Realtor tried selling his house before he filed or what not. Not sure but anyways, he went to the bank the other day and they said we were approved for a rural development loan. Well then he called his realtor and he said it still had to be 3 years after his short sale before we can buy again. Its been exactly 2 years since the short sale and 3 years since the bankrupt. I'm so confused and tired of messing with this! I'm tired of renting, i'm ready to buy a bigger place for our hoodliums!
My sister and I purchased this house together in 2008. My loan guy called in 2009 and said he could refi it for cheaper interest rates. Our current loan is through B of A. I lost my job in Feb 2010. Now I employed but making half of what I use to. Since then my sister has moved out and got married. I took on a roommate, but not anywhere close to what my sister use to pay. I have been told that I won’t be able to get a loan modification, because my sister doesn’t live in the home with me. I am hoping this is not true. I figure people go through divorcees’. Should I still apply for loan modification even if she doesn’t live in the house? Do I still put her income when I don’t get her income any longer?
We put an offer to buy a short sale home I early November. The sellers are currently going through a bankruptcy. Their first mortgage is through B ofA and second was through Chase. The offer has been accepted by B of A but Chase has now charged off the second and refuses to negociate with the 1st and does not return calls to the sellers attorney. We put an offer in at 96% of the appraised value and it was quickly accepted by the first mortgage. Why would the 2nd not want to negotiate. Once a property goes into foreclosure, doesn't the second mortgage typically get nothing for the property? I am concerned that we will not be able to close on this home.
Hello, I have an odd situation. My husband and I moved out of our home in Oct 2009 because it was in pre-foreclosure in June 2010 we decided to get a divorce and File complete bankruptcy,the house we owned at the time was suppose to go on the commissioners auction block that Nov. 2010 we included the house in the bankrupcty and it was finalized in August 2010. The house was then cancelled from being placed in the sale due to the issues with Bank of America paperwork being screwed up for some reason. I have spoke to the lawyer office for the Bank about getting the home out of our name as well as the bank but the lawyers indicated until the bank gets their paperwork in order there is nothing that can be done, and Bank of America was just a big argument, they kept asking me what my intentions were to get up to date on what was owed as I explained to them and was verified by their attorney I owe nothing due to claiming bankruptcy. The bank presently claims I am over due 30 plus months on the house and a forclosure date has not been set. My question is my brother has made me an offer on the house. Am I able to sell him the house. And if so since I do not legally owe the bank am I able to accept any of the funds. also since the house has been vacant since Oct 2009 that has been a liability for me and my ex as well as accumulating property taxes, and we can not get the bank to take over the deed. thanks
Question - In a divorce, will the bank consider a short sale, after bankrupcy to one of the former owners of the home? For example, the divorce causing bankruptcy and forclosure. Is it possible to convince the bank to do a short sale to "you" the owner vs. forclosure?
This hub has been helpful. Thanks a lot for your information!
Short sale after bankruptcy is a mistake. My “closing” will probably take place soon but if I knew 6 months ago what I know now, I would never involved myself with that MESS. I had FHA mortgage that was discharged in chapter 7 over a year ago but hoping to settle the account with the Condominium Association, to spare my neighbors seeing foreclosure notice on the next door unit and to receive enough money from the PNC bank to cover my relocation expenses, I got involved with so called “short sale”.
I bought the one-bedroom unit for $116,000 in 2003, in 2010 when I stopped making mortgage payments the value of the same unit was around $60,000, now the unit is selling at $44,500.
In 2010 my outstanding loan balance was about $98,000 and I called PNC requesting the reduction of the home loan principal to match the actual value of my place. I was told that they do not offer that type of the “loan modification option”. They have not received a monthly payment of my home loan since.
I just give you the “almost final HUD statement” so you can judge for yourself if going through all that hustle for nothing is worth your time.
Sale price: $44,500
PNC net proceeds: $36,250
Realtor Commission: $2,670
Title Insurance Fee: $1,450
Legal Fee: $750 (I heard that this is 50% of what they usually charge)
Unpaid assessments (I stopped payment the association assessment 10 weeks ago) $818
Seller Incentive $925
This means that all I am receiving is $925. Since the mortgage loan has been already discharged I am not even interested in any favors from the bank. They cannot collect any money from me even if their sale net proceeds were zero. I am angry, disappointed and actually upset with myself. I was simply stupid. I should have just stay here until the very end, let that “greedy PNC Bank” go through the foreclosure proceedings and maybe sell my unit at the auction for half what they are getting now.
So stay in your house or condominium as long as you can, save your money and let the sheriff kiss you goodbye. You credit is already very bad and it cannot really get any worse no matter how nice as a human being you are. Do not let others make money on your misery, specially that bank that was never good to you anyway. After all, the bank is not losing anything, do not fall into any “short sale” promises, and represent only your own interest.
Good Luck and be smarter than I were! Janina
my situation feels like a disaster waiting to happen. we stopped making our house payment 5 months ago and now our 2nd has been charged off and our 1st is pending forecloser in lieu of a short sale.. people have said that i would have to file bk 7 so the 2nd doesn't file a judgement and before the charge off i was 1099 14000. on th e2nd they did a forgiveness. now we just want out of that house it's 50 miles away frm my work (one way) i have a 2yr old i never see and it seems we can't get out without a fuss. different people are saying we can stay in our home for over 2 yrs without making a payment but honestly i just want it to sell so i can move on. will i need to file bk for the 2nd or is that included in the short sale process. overall credit card debt we only have about 3000.00 i feel achamed having to file bk just for that and the house. what would be my options. like i said we have 5 months that we have been saving our money ab=nd would like at least 5 more to save more money for the move.
Fred 3 years ago
Question: Is it true that if you do a SS in BK (that will settle after discharge), that you will get a 1099, where if you just let it go to FC you will not get a 1099 for the deficency? Thanks.