Chapter 13 rental property

[addision]

I have two rental homes that are worth less than what is owed, one the rent adequately covers the expenses. The other is a loss.

If I file Ch13 must i keep both properties or can I allow one to be foreclosed on or go to short sale?


Is it required that I keep both because I elected to do a ch13?

[forgotten]

You will need to surrender the one that is losing money. The one that covers the expenses you can keep, but keep in mind how you will make all your payments if it stops doing so (tenent moves out, stops paying, etc.).

You have the option of surrendering both of them.

[frogger]

I have two rental homes that are worth less than what is owed

Your answer is stated in your question. You owe more than it is worth, so get out while you can do so. The pool of tenants in the rental market continues to get worse.

It may be paying its way today, but I bet when you run the numbers the right way, you're not making any money.

There's a lot more to it than just the mortgage payment.

[justbroke]

As a former landlord and owner of a 75-unit apartment building (former hotel), a 3-unit apartment building and two single-family residential investment properties... dump them all. It's not worth it. Get out while you can. I'm speaking from the experience that it's really NOT fun to be a landlord with rental property in Chapter 13. That trying to save your rental property will probably cost you more, in having to pay your unsecured creditors more since you're keeping the rental! That in the end, you should just let go.

As frogger just wrote, you answered your own question. Never keep investment property that is worth less than you owe.

[addision]

letting them go.

OK, I live in California.

On the two rental properties I owe about 130k on each 1st, and the 75k on each second.


If I plan to do a ch13 should I just let these be foreclosed on, should I file before foreclosure, and what will my tax liability be as both were refinanced.

If I file now and get a 1099 next January where will this put me with taxes and the BK?

I could possibly have 200k income from the 1099 if I understand this correctly.

Oh and one more thing, do the amounts owed on the houses then convert to unsecured debt? which will put me over the ch13
limits?

[NoTomatoCan]

You shouldn't get a 1099 if these properties are surrendered in your ch13.

I am not an expert here, but I can tell you how my attorney explained it to me...

The way the unsecured debt is treated may vary by district, but in general, the only part that is unsecured is whatever you owe on the home LESS whatever the bank is able to sell the home for. So if you owe $205k, and the bank sells the homes for $170k, only $35k is considered unsecured.

Here is the kind of tricky part... Since the sale of the properties could be a long time after you actually file and get confirmed, you use a reasonable/good faith estimate for how much the property is worth for your bk schedules. My attorney used an online valuation tool (not zillow, but something similar) for one of our rental properties. I was only underwater by about $5k on that one. So $70k went to secured and $5k went to unsecured. I have no idea what the property will actually sell for, but when it came to my schedules and what I put down for secured versus unsecured, that is how we came up with our numbers.

It all seems like a bit of voodoo to me, but I guess you have to start somewhere...

[forgotten]

If I file now and get a 1099 next January where will this put me with taxes and the BK?

I could possibly have 200k income from the 1099 if I understand this correctly.

Oh and one more thing, do the amounts owed on the houses then convert to unsecured debt? which will put me over the ch13
limits?

There is no tax liability for any debt discharged in bankruptcy.

The debt limit applies to non-contingent, unliquidated, unsecured debts at time of filing. If you owe $200k on a proptery with a market value of $180k, the portion that is considered unsecured is $20k.

[addision]

Foreclosure

If a property is foreclosed on by the 1st lender, where the balance of the property is 100k, it sells at auction for 90k, does the 10k get counted as unsecured deficiency, or is it barred by statute because it was a non judicial foreclosure?

If I read everyones comments correctly there would be no deficiency from the 1st lender who forecloses, and the second lender would then have an unsecured claim that would then be discharged and the second lender would get the same percentage as all other unsecured creditors.