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Balloon in Ch. 13

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    Balloon in Ch. 13

    Hey guys. I haven't seen any situations like mine on here so thought I'd post and see if anyone had any insight. 5 years ago we refinanced with a balloon mortgage. Big mistake! In that 5 years our credit tanked due to unexpected expenses. When we called to see what we could do our loan had matured and they wouldn't do a modification. So we tried to refi but we were denied, obviously, because of our abysmal credit. No one would refi. Then we get the letter from our lender giving us 30 days to pay the lump in full or they would start the foreclosure process. Our last option was a BK attorney.

    On 2/5 we filed chapter 13. Our attorney didn't make us any promises but said his first step would be to try for a loan mod. He said being in BK and having him working on it for us gives us some leverage....but again...no promises. Is it even remotely possible for a lender to agree to a loan mod in this situation?

    This past week we received a letter from the lender stating that even though we are protected by bankruptcy and not liable for the debt they still have the right to foreclose. But if we would like to continue to make payments we can send a payment to the listed address. What payments are they looking for? The amount we used to pay? The full lump sum? We emailed the letter to our attorney and he said he would get back to us.

    I know these things take time to work on but time is just dragging! And im afraid of whats happening while we sit here waiting to hear something.

    Thank You for listening!
    H.

    #2
    Your lawyer is going to need to speak with this lender. It sounds like they are allowing you to stay and pay, but that's really weird with a fully matured mortgage.

    Have your attorney look at In Re Marvin Williams, 05-BK-27158, E. D. Arkansas - Little Rock Division. In this case, the debtor, Williams, had the EXACT same issue that you have where the mortgage matured before filing. The debtor was able to bifurcate the claim on his primary residence because of a little used exception in 11 USC 1322. Typically, a debtor cannot modify the claim on his primary residence, but there is a subsection ("(c)(2)") which changes this fact where the debt matures before the final plan payment is due.

    The problem would be that you would first need to find out the market value of your home. This would be the bifurcated "secure" amount. Unfortunately, the secure amount would need to be paid over the life of the Chapter 13 plan.

    Now that I have that out of the way, let's answer your questions.

    The lender may now be in a position to modify the loan. The problem may be that the loan is due in full (matured) and any changes (extension?) could only be a novation of the agreement; meaning it's an entirely new loan.

    It's interesting that they say to just keep paying, but, at least according to Fannie Mae, they are NOT allowed to accept payments after maturity. As an example only, a refinance is the only thing allowed on Fannie Mae balloon mortgage.

    Let me add, personally, that you not attach any emotion to this property. I want you to do the right thing for yourself and your family, but a house -- or property -- is not a home. You should exhaust all the available options and then let the house go if you can't afford the home any longer.

    Please wait for your attorney and see what strategy he/she will employ. In the mean time, is this a first/second mortgage, how much is the home worth, and what is the balance on this mortgage?

    justbroke's study guide


    § 1322(c)(2)
    (c) Notwithstanding subsection (b)(2) and applicable nonbankruptcy law–
    (2) in a case in which the last payment on the original payment schedule for a claim secured
    only by a security interest in real property that is the debtor’s principal residence is due before the date on which the final payment under the plan is due, the plan may provide for the payment of the claim as modified pursuant to section 1325(a)(5) of this title.
    Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
    Status: (Auto) Discharged and Closed! 5/10
    Visit My BKForum Blog: justbroke's Blog

    Any advice provided is not legal advice, but simply the musings of a fellow bankrupt.

    Comment


      #3
      Thank you Justbroke for taking the time to read and respond. I should have stated that we are not paying anything to the lender. Once the loan matured they stopped taking the mortgage payment out of our account. So we are living here for free :-/ That's why I didn't understand what payments they want us to continue. So we are waiting for our attorney to advise. On the day we filed BK the attorney said he'd start working on the loan mod but have no clue where they are at in that process. Hoping to find that out tomorrow too.

      This is a first mortgage. The balance is 155K. Probably more now. Getting a loan mod for a 30 yr mortgage is our best case scenario. Having to pay that balance in a 5 year plan is daunting. Losing the house is worst case scenario. I'm not emotionally attached to the house it's just scary because I have 4 kids and have no clue where we would go.

      I guess I just gotta wait and trust the attorney is doing his job!

      Again thank you for all the info!

      Comment


        #4
        Depending upon which State in which you live, a foreclosure could take 290 or more days to complete. This would give you breathing room and I hope that you start saving your "regular" mortgage payment (what you were paying) so that you have that for deposits and moving expenses... should the need arise.

        Do you know if the lender filed a Motion for Relief from the Automatic Stay (RFS)? The RFS is what would allow the lender to proceed under "non-bankruptcy" law to foreclose upon the property. (Noting that in some Districts, an RFS is not required where the plan indicates that you will surrender the property, or the plan does not address the property. Mine is among those that don't require an RFS unless the lender wants an order confirming the non-existence of the stay.)

        It just reads really weird that they want you to continue to pay... a sort of ransom... so that they don't pursue foreclosure. What's to stop them anyhow?

        Everything is speculative at this point without the lender showing their cards. I'm thinking that maybe you could pay them over the next year, inside the plan, and after one year of on-time payments, seek permission to refinance. That's a long shot and very speculative.
        Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
        Status: (Auto) Discharged and Closed! 5/10
        Visit My BKForum Blog: justbroke's Blog

        Any advice provided is not legal advice, but simply the musings of a fellow bankrupt.

        Comment

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