Second home prob- long story

[deadbroke99]

While building my current home, I was trying to sell my old house. It did not sell and I could not afford two mortgage payments. I heard about an investor who would make my payments and find a "rent to own" buyer and charge them more than my payments and he would keep the difference. I agreed to do this and in December 2006, we signed a lease with option to buy with this investor. The contract stated that he would not pay over $825.00 per month, and that if my mortgage payment went up then I would be responsible for the difference. The problem comes in now two years later when my property taxes tripled due to the fact that it's no longer owner occupied. (In my county of South Carolina, the owner is taxed at 4% and non owner occupied real estate is taxed at 6%) This has caused my taxes to triple and since taxes and insurance on the old house is escrowed in with my payment. It has caused that payment to sky-rocket. To add to this misery, the investor has transferred his stake in this property to another investor who is now paying very late. The investor sends a check directly to the mortgage company. The lease with option to buy was recorded by the investor at the deeds office in the county of which we live. My question is, since I am about to file chapter 13 due to my own financial issues of too much credit card debt and the realization that I will be responsible for the huge payment increase on the second home. How can I let this second home go in the bankruptcy with the knowlege that there is a lease on it. Can the investor stop me from letting this second house go? I just want it gone so I don't have to worry about this anymore....2) I have been counting the money that the investor sends to the mortgage company as rental income on my taxes because that is the way the accountant told me I had to do. It usually comes out as a wash because I can also count the interest and taxes and expenses that were paid on this second home. My question is this raises my gross income greatly. Obviously, if I am able to surrender the house, I won't be receiving those payments any longer from the investor. Will the trustee look at those payments as income? I know this is all issues I should ask my attorney, but I don't have one yet because I am waiting out the 90 day cash advance thing. Thanks for any help you can give.

[BigJohn]

Does your 1st mortgage allow you to rent/lease your 1st house? Generally the mortgage is for a owner occupied home not a rental/lease.

As for your property taxes, they should have went up 50% not 3 times. I would investigate that further if I was you.

[deadbroke99]

Yes, my first mortgage does allow it as long as I didn't buy it for that purpose. We owner occupied that house for four years before building our new house and trying to sell the old one.

Property taxes went from $700 per year to $2300.00 They did a Reassesment at the same time. I have checked into it and it's for real.

[StartingOver08]

You should have no issue surrendering that home. You will need to put all the information regarding the mortgage and the 'rent to own' contract as a separate contract on the schedules.

You can speak with an attorney, several in fact, without retaining an attorney. Usually the initial consultation is free and the attorney will answer specific questions for you. It is a good idea to do that while you are 'waiting' for your 90 days. Also, most attorney's will take their retainer in installment payments PRIOR to the filing, not afterward unless you are in a CH 13.

[deadbroke99]

Thanks, I have heard that someone had a cash advance that was not dischargeable because they spoke to an attorney about filing for bankruptcy a few weeks after getting the cash advance. The trustee looked at that and said they knew when they took the cash advance that they were not going to pay it back. I guess my real question is how is those rental payments counted since I won't be receiving them anymore .

[StartingOver08]

The rental payments do count as income; however, you have the expense to set off the income, right? As a matter of fact, your expenses are greater than the rental income on the property now because of the increased real estate taxes.

You will have to provide a copy of the rent to own lease. A copy of your mortgage, and the mortgage statements. That should show the trustee that your expenses exceed the income.

The rent to own lease should probably be listed under the executory contracts section of the filing - but your bk attorney will know where it goes.

The reason that person's cash advance was not discharged is because it was presumed abuse. How you can minimize that from happening is putting a lot of time between any balance transfers, cash advances or charges prior to your BK. You want to have a minimum of 90 days with NO charges, advances or balance transfers and the more time the better for you.

[justbroke]

I heard about an investor who would make my payments and find a "rent to own" buyer and charge them more than my payments and he would keep the difference... The problem comes in now two years later when my property taxes tripled due to the fact that it's no longer owner occupied. To add to this misery, the investor has transferred his stake in this property to another investor who is now paying very late.

First, whoever has the interest in the property (on the lease to own) is in breach of contract. As soon as they paid late, they should be in breach. Please check the contract terms. Hopefully, with any luck, the contract was very specific about late payments, defaults and what constituted a breach. If a late payment constitutes breach, I would call the contract as due immediately! Or, void the contract.

The lease with option to buy was recorded by the investor at the deeds office in the county of which we live. My question is, since I am about to file chapter 13 due to my own financial issues of too much credit card debt and the realization that I will be responsible for the huge payment increase on the second home. How can I let this second home go in the bankruptcy with the knowlege that there is a lease on it.

Depending on your District, options or lease-to-own contracts or contract for deed contracts may be considered an Executory Contract. Executory Contracts are voidable in a Chapter 13. Furthermore, I don't believe that the investor is performing under the terms, so they are in breach anyhow. The nice thing about Bankruptcy, is that you can sue them within the Bankruptcy.

Can the investor stop me from letting this second house go?

I don't think so. If this is a true contract-for-deed (lease to own), then it's probably an executory contract and you may be able to void it and get from under it. Especially since they are not performing pre-petition.

My question is this raises my gross income greatly.

Well, the Current Monthly Income is based on your income including your income from the "lease". It's considered business income. However, you can offset your expenses insofar as they don't exceed the income generated. In other words, if your income is $1,000 a month from the property, and your expenses are $1,200 a month from the property... then your net income is $0.00 (because the BK code doesn't allow you to have negative cash flow).

Obviously, if I am able to surrender the house, I won't be receiving those payments any longer from the investor. Will the trustee look at those payments as income?

For the purposes of the Current Monthly Income (CMI) test, yes!!! It will also trickle down to your Disposable Monthly Income (DMI).

However, a Chapter 13 Plan is based on your projected disposable monthly income... not merely multiplying 36 or 60 times your DMI. (Which is a good thing!) So even if your DMI is really high... the offset of surrendering the second property... would reduce your projected DMI so your monthly payment to unsecured creditors won't include the income which you won't have anymore.

I hope I read all that correctly.

[deadbroke99]

Thanks

Thanks, that makes me feel alot better. In our contract, it says any fees associated with the late payment will be paid by the investor. Let me clarify, when I say they are paying late. They are paying it about 28 or 29 days late which causes a late fee which they pay but does not ding my credit because it's under the 30 day. It also says they will only pay a maximum of $825.00 per month and as soon as my escrow pays those $2300.00 taxes, that will make my payment go way above $825.00. I cannot afford to pay that or any additional amount. My cc's just raised my interest rate because I am maxed out on all my cc's. My minimum payment with Wamu cc is $350.00 per month and my minimum payment for chase is $652.00 and it used to be $200.00. I am drowning in debt and so stressed out. I took a $200.00 cash advance about three weeks ago to pay my power bill that was about to be cut off. I have a trip next weekend to NYC that has been paid for a long time ago and I am going with my friends. I am only taking cash from my paycheck with me for spending money but I am worried how that might look to the trustee. I plan on filing chapter 13 around March that should put me past the 90 days. I am just so stressed.