Deciding what to do about the house

[BrokeinCA]

I have a question regarding our current situation with our home. We owe 445,000. Houses in our area are listed for 200k and aren’t selling (we are in So. Cal – Inland Empire). Our second is 75k which we plan to strip in our chapter 13. That leaves us with a first mortgage of 369k which is about 150k over what is currently for sell in our area. I would like to let our house go at part of our filing but my husband is adamantly against that (at least at this point). Is it possible to let your home go during a chapter 13 plan or following completion of a 13 if you do not reaffirm the debt? I’ve been searching the forums but can’t seem to find the answer for out situation.

[chloe0724]

If you are current on your mortgage and have it paid outside the plan, it's my understanding that you can let it go at anytime. The question you have to ask yourself is, "do I love my house, can I afford it, and how hard would it be to find a place to rent that would meet your needs" Your husband may be attached to the house. In order to have the second stipped, you have to complete the 13 and have it discharged.

[liz417]

Why doesn't your hubby want to let it go? Even if you strip the 2nd, you have so much negative equity that it will probably never recover. Is your credit score still good? Are you filing a ch 13 to save the house and/or other things?

I PM'ed you.

[BrokeinCA]

House

Thanks for the replys. Liz417 I sent you a PM. Not sure if I did it correctly so let me know if you don't get it. Our house will be paid in the plan as we will be doing a lien strip. My husband is very attached to our home and (although he doesn't say it) I believe he is worried that everyone will know that we are in BK if we let the house go. All of our friends already know what our plans are as many of them are facing the same situation, but his family doesn't know and he doesn't want them to find out.

Anyway, he believes that we can complete the chapter 13 and if we decide that we want to move or our home is still not gaining equity that we can walk away without a forclosure going on our credit report since the home will be included in the BK. I told him I don't think that is the way a Chapter 13 works, but I might be wrong. Just wondering if any of you know how this works before I contact my lawyer.

Also, we initially looked into filing 13 to save the house and strip the 2nd, but our income is significantly over the median income to file a 7 so 13 is our only option.

[lrprn]

I would like to let our house go at part of our filing but my husband is adamantly against that (at least at this point).

It is often difficult to let go of an asset when the person has a deep emotional attachment to it. Some men see losing the house as a sign they haven't been a good provider or haven't taken care of their family. This is the time to sit down and have a cold, hard, emotionless discussion about your house situation, no emotions allowed.

Ask him to answer truthfully how likely is it that your home is going to make up over $150K in lost equity just to get back to ground zero, let alone build any equity to buy the next house. Frankly, the real estate boom is dead and the artificial 'equity' with ever-increasing home prices is not returning any time soon - hopefully never. The likelihood of getting what you owe out of the house when it's eventually sold is about the same as a meteor hitting your house today. Do you want to have that kind of debt hanging over your head for years to come?

When you have the cold, emotionless discussion, keep in mind that the house is just a thing that can be replaced fairly quickly after your 13 is over. What truly matters is your family and your love and caring for each other - that lives anywhere you go, even in a rental. Your family deserves to live a normal financial life and not be held hostage by a house. Talk it over calmly and use facts. Share with your husband that the best way to take care of the family is to discuss with your lawyer whether keeping the house makes sound financial sense. Hopefully that will reach him.

Yes, you can surrender your house during a 13 and walk away owing nothing if you do not reaffirm the debt.

Most lawyers will advise that you file first and include the home's mortgage payment and any arrears in your plan. Then after filing, surrender the home. This wipes out everything, including the arrears on your mortgage.

If you ever get a 1099 from either mortgage company, then you need to file IRS form 982 so the IRS knows the debt forgiveness happened during bankruptcy so you won't have any tax consequences.

Good luck to you - hope everything works out in your favor!

[walkthaplank]

Do you plan on moving any time in the foreseeable future? I don't just look at my home as a profit/loss investment, to me my home is where I plan on staying to raise my children and hopefully be here until I retire and likely move out of the state (also CA). I really don't care what the market value of my home is or will be in the next 10 or 15 years, my home has a different value to ME that transcends the "cold" business decision.

Now for the other aspect of the business decision, I can afford to stay in my home paying my remaining mortgage and bills without issue as long as nothing drastic happens My mortgage will likely be payed down well below what market value should be at the end of my time table, can you realistically say that? You have to live somewhere, moving sucks, paying somebody else's mortgage sucks, having no control over your housing cost sucks (landlords can raise their rent as often as your state allows). How much rent would you likely end up paying? I can tell you in Southern California, the rental market is rising while the housing market is crashing. Lots of people losing their homes and not being able to buy houses means they have to rent pushing what will likely be the rental bubble.

If you can afford to stay in your home and plan on staying there for the long term, then maybe it is best to stay in your home from a "business" perspective.

[relief13035]

Welcome BrokeinCA - yeahhh another forum member living in the IE.