Giving up house

[becky20]

I have an email into my attorney but since I don't know if they are off tomorrow I thought I'd post this here as well.

DH and I filed a chapter 13 and had our 341 in August. We originally planned to keep our house and were still paying the 1st and 2nd mortgage (though the 1st is several months deficient, we were still paying monthly and the deficient amount was to be rolled into our plan.

Since that time, we've had an interesting offer. My parents (who do NOT know that we have filed bk) have presented a scenario that we walk away from our home (we owe more than it's worth and it really is not big enough to suit our needs) and they will buy a home and rent it to us, and eventually somehow get it in our name or sell it to us.

So can we just tell our attorney we've decided to walk away from the house, and have him revise the plan? I know it will likely mean our BK payment will go up because we'll have more disposable income, but other than that, what else am I missing? i'm guessing we'd do another means test to figure out what our new payment will be? Also, this would probably free up some of our payment to go to unsecureds since the 6K deficiency wouldn't need to be paid to the mortgage company?

Lastly, if we did decide to walk away and assuming we could do so without dismissing and refiling our 13, when would we stop paying on our mortgage - would we continue to pay up til the day we send our keys in to the bank, or could we stop paying a month or two before?

any suggestions or thoughts would be helpful and appreciated... We're going to look at houses and any information I can have before I go would give me peace of mind (since I KNOW I won't hear from the atty by the time we go house hunting).

thanks!!

[catleg]

Only makes sense if you can convert to a 7.

Did you cram down the 2nd?

[becky20]

I don't know if we can convert to a 7 - we were over based on the means test. Also, our two cars (which we need to keep) are with the same credit union as the 2nd mortgage and were crammed and I'm guessing that we'd have major issues with the cars from the credit union since the loans were crammed and are paid in the plan.

We didn't do a lein-stripping on the 2nd - at the time we filed my attorney said that Arizona courts were not allowing lein stripping. They just let me know last week that they are now allowing this and that we could file some forms, get an appraisal, and work to get the 2nd lein-stripped. But if we decided to let the banks foreclose on the house, why would we have them lein-strip it?

I mean, what happens when people are in a home, file a 13 to try to keep the home, and then after several months realize they can't afford it so they give the house up? I'm guessing this happens often - so do they have to dismiss and refile? Or can the plan be modified? doing this would mean unsecureds would get a higher % since the mtg payment would be less which would likely mean our 13 payment would go up, right?

[rrockinggramma]

You can walk away any time. Your mortgage company would become "unsecured" after the sheriff's sale etc and as they have a claim filed, I believe they can ammend their claim at any time. They will file a motion to lift the stay, etc but you will know all of that is coming. I say go for it with your parents. You want a fresh start and this may be your chance. You might however have to let the parents know about the chapter 13 because it will be a while before they can convert the mortgage to you. (FHA is right after discharge but with a foreclosure etc, 3 year wait from the foreclosure) but that might be when you are discharged anyway.

I say go for it. Give your attorney a heads up and start packing. GL And I wouldn't make any more mortgage payments but I wouldn't spend the money either. I would bank it until your plan is modified as your trustee might want the back pay put into your plan.

[becky20]

Thanks so much!!! I think they know it has to be awhile since we'll have a foreclosure on our credit (my mom's cousin, who is a realtor, told her 7 years). If it is 7 years before we can get a home loan, then that will definitely be after we're discharged...

[atolar]

we filed 13 and now in the process of foreclosing (because I haven't found a job yet).
sad. but it is what it is.

[catleg]

I think you'd probably have to start over with a new ch13 plan, although , think now, you'd need trustee approval but you're not actually incurring any new debt, though you might be creating another unsecured creditor from your 2nd mortgage holder.
Would the rent on the new house be less than what you're paying now?
Might create more disposable income to pay unsecured creditors.....and you know that's the last thing we want to happen.

[rrockinggramma]

there is no need for the op to refile her chapter 13. She is not behind on her trustee payments. Her plan would just be "modified" to accomodate her new situation, which is, no more mortgage payments. However she does need to know her rent payments because those would be factored in to her modified plan. The op needs to get with her attorney asap but no need to dismiss this case.

[Flamingo]

To the OP - discuss this with your attorney - the Trustee is going to want to know why you stopped payments on your mortgage payments when you can afford the payments at the moment and are in a confirmed Chapter 13. If you stop those payments, you risk dismissal. Your attorney will have to confer with the Trustee if your Plan can be modified to do that as you are not having financial difficultly making Plan or mortgage payments at the moment as there has been no increase or decrease to your income.

While what your parents are doing is marvelous you need to come clean about this with your attorney and don't take any further steps until you fully talk to him/her. Best of luck to you!

[BigJohn]

Interesting point you mentioned Becky20 about lien stripping. I am in Arizona and that is what our lawyer told us. But he said he would try for the lien stripping.

It sems what applies in one part of the country does not apply in other parts of the country.

[chloe0724]

Becky,

I didn't think you were able to do a lien stripping if you already had a confirmed plan. If this is a possiblity, I need to look into it.

[becky20]

I am definitely talking to my attorney before we do anything - I am guessing that I'll very likely have more disposable income and our BK payment will go up some, but that would still be worth it for us!

To those that asked, this is what the attorney said about the lein stripping...

Since we last discussed avoiding 2nd mortgage liens there has been a 9th Circuit decision and the Arizona courts are now allowing second mortgages to be discharged. This would require a separate Motion and Hearing

Also, as of yesterday Citibank has endorsed a bill to empower Bankruptcy Judges to rewrite first mortgages. Other banks are anticipated to follow their endorsement almost guaranteeing its passage. I would anticipate it will be passed within the next 60 days.

With the lien stripping, if even $1 is "secured", then the 2nd mortgage would not be able to be lein stripped. So if the 1st mortgage is $150K and the second is $15K and the appraisal comes in at $155K, then the entire $15K can't be lein-stripped... It's all or nothing...

[rrockinggramma]

Citi has since retracted their support on cram downs in bk. Too much pressure from other lenders. I wouldn't anticipate much changing after Jan 20th. The Messiah won't be able to cure everything overnight.