In a Chapter 13, looking to surrender house

[comandercody]

I have posted before, but have some new circumstances.

We are 2.5 years into a 5 year Chapter 13. Both cars, the house and credit card debt went into the CH13. I have never missed a payment. There is a possible job opportunity in Florida. We are way upside down on the house, and one car, the other car is almost paid off(through the plan, like $1800 left). If job offer comes through, we plan to surrender the house, and the upside down car, and convert to a 7. My lawyer says i might make too much to do that.

My question is, if i stop making the plan payments like, this month, how long till they come to repo the cars? I dont want to pay the mortgage if we are leaving, and need some starter cash to get set up in the new state(rent, etc).

[justbroke]

Well, you may not qualify for a Chapter 7 especially if you're not going to have a mortgage payment or car payments. The best is to sit down with the numbers and work them every way that you can. You can surrender the home in the Chapter 13; your attorney would Motion for Modification of the Plan. If you stop making plan payments, then your case will get dismissed and the creditors will all start coming at you with a vengeance -- with all the accrued interest and probably new vigor.

These are tough questions and you must look at it from a financial perspective.

[comandercody]

Well, you may not qualify for a Chapter 7 especially if you're not going to have a mortgage payment or car payments. The best is to sit down with the numbers and work them every way that you can. You can surrender the home in the Chapter 13; your attorney would Motion for Modification of the Plan. If you stop making plan payments, then your case will get dismissed and the creditors will all start coming at you with a vengeance -- with all the accrued interest and probably new vigor.

These are tough questions and you must look at it from a financial perspective.

But if i stop plan payments, then file for a modification within 2-3 weeks, is that a big deal? Payment is due at the end of this month.....

Thanks for all your advice.

[justbroke]

I don't know the process in your District, but purposely missing the payments and then seeking the Modification may work in your case. Every case has its own nuances and I don't want to say that it will all be okay by missing payments. The Trustee would probably seek dismissal after the first or second missed payment. Your attorney could then seek to modify the confirmed plan, but that would not make up for the payments.

I think the big issues is that your payment includes both your cars and your home. If you could convert to a Chapter 7, it may be the better "strategic" thing, but that's where you need to work the numbers and leverage your attorney.

[comandercody]

I got the job. But, we hit a roadblock. Wife has a previous chapter 7 less than 8 years ago. We cant convert to 7. Need advice please. "New" lawyer laid out 3 possible options:

1-Convert "My' debts to a chapter 7, modify her ch13 for the remainder of the plan.
2-Modify current ch13 and make plan payments based on new income level(she is working now, but will stay at home with our little one in the new state).
3-Convert my debts to chapter 7, seek dismissal(not discharge)on hers($20,000). Lawyer thinks un secured debtors will not go after CC debt that has already been written off.(another concern here is that debt being considered income by uncle sam)

Also, after we move, I am thinking about renting the current house, up until the Bank forecloses(which I understand may take a while). I would disclose that to any potential tenant. Any advice on that?

Thank you.

[justbroke]

I got the job. But, we hit a roadblock. Wife has a previous chapter 7 less than 8 years ago. We cant convert to 7. Need advice please.

Congratulations on the job!

1-Convert "My' debts to a chapter 7, modify her ch13 for the remainder of the plan.

You would need to run the numbers.

2-Modify current ch13 and make plan payments based on new income level(she is working now, but will stay at home with our little one in the new state).

Again, as in #1, you would need to run the numbers. See which Chapter 13 option works better. Remember that you income would count as well, except for any spousal "deduction" that you may have for paying your own debts (which should be low since you would have received a discharge).

3-Convert my debts to chapter 7, seek dismissal(not discharge)on hers($20,000). Lawyer thinks un secured debtors will not go after CC debt that has already been written off.(another concern here is that debt being considered income by uncle sam)

I don't know what attorney would say that the CCs would probably not go after you! Some of the debt collectors are really aggressive in collections. He may mean to just try to stave off getting a judgment and hopefully time will elapse to the point where she might be able to file for Chapter 7. However, there are too many "what ifs" and variables to make this the better option.

Also, after we move, I am thinking about renting the current house, up until the Bank forecloses(which I understand may take a while). I would disclose that to any potential tenant. Any advice on that?

None at all. You would be doing it the right way. You may want to enlist a rental agent to do this as many are experts at this. They can ensure the proper lease, so that your tenants are protected. They could collect payments and pursue any evictions. (Yes, when the tenant knows that you are in foreclosure, they could just squat.) This could cost 1 month's rent and 10% each month, but could be worth it. Otherwise, and as a former landlord, I would not try to become a landlord especially if I lived in another State; been there, done that... have the T-shirt!

[comandercody]

It looks like Wife has about $4000 in our 13 that was her debt. If I convert my debt to a 7, and dismiss hers, could she be asked to pay all 4000 if/when the creditors come calling?

I am just trying to get a fresh start in the new state.

[justbroke]

If she does not have protection from the automatic stay, or a confirmed Chapter 13 Plan, or a discharge, then she would be left to the wolves, so to speak. I cannot tell you how aggressive the creditors will be.

[comandercody]

I dont want to have to keep looking over my shoulder for a creditor. So, if I covert to a 7, surrender the house, and my vehicle, and we amend the 13 to keep her in the 13, will she only be responsible for her debt? If that is an option, the plan payments would be based on $5200($4000 plus her car) owed as opposed to all of my debt.

Thanks again for any and all advice.

[comandercody]

You may want to enlist a rental agent to do this as many are experts at this. They can ensure the proper lease, so that your tenants are protected. They could collect payments and pursue any evictions. (Yes, when the tenant knows that you are in foreclosure, they could just squat.) This could cost 1 month's rent and 10% each month, but could be worth it. Otherwise, and as a former landlord, I would not try to become a landlord especially if I lived in another State; been there, done that... have the T-shirt!

I ended up renting the house using a property management company. It is still rented, with full disclosure to the tenants.

They want to go another year. How will I know when the bank forecloses? Will an active lease be observed and recognized by the bank?

I have paid the insurance and hoa fees.

Thanks.

[justbroke]

In every State that I can recall, the bank must recognize the lease and the lease terms.

[Slingerland]

In every State that I can recall, the bank must recognize the lease and the lease terms.

Actually, JB that may be specific to the state and the lease itself. My lease in Arkansas has the following language:

d) Subordination of Lease. This Lease and Resident(s)’ interest are and shall be subordinate to any and all mortgages, liens or encumbrances now or hereafter placed on the Premises by Landlord, all advances made under any such mortgages, liens or encumbrances (including but not limited to future advances), the interest payable on such mortgages, liens or encumbrances and any and all renewals, extensions or modifications of such mortgages, liens or encumbrances. Residents(s) hereby agree to execute any document reasonably requested by Landlord or its mortgagee relating to such subordination.

The local courts have ruled this clause to mean the bank has superior rights to a foreclosed property over tenants. However there is Federal law giving tenants something like 4 months to vacate a foreclosed rental. If the rental were sold from investor to another investor, the lease would follow, of course.

To the OP, I would recommend staying month-to-month with the tenants if it is legal in your state.

[justbroke]

I don't disagree but State law would supersede anything in the lease. Many States added such "must recognize existing lease" language to statutes almost entirely in response to the housing crisis. I think the language should be standard in every lease and standard in every State. I would not want a foreclosure on a home that I lease and have the bank kick me out right after the foreclosure sale is completed.

The Federal rules are actually that a tenant on a month-to-month lease would have no less than 3 months (90 days) before they could be evicted. However, a tenant with an existing and active lease must honor the lease duration. There is an exception where if the new owner is going to occupy the premises, then the new owner could seek to demand the current renter cease and vacate.

So, to summarize, if a bank forecloses and takes title to the property, then under the Federal (and maybe even a particular State's rules), an unexpired lease remains in full force and the duration of the lease is unchanged. If the bank foreclosure yields a purchaser other than the bank and that purchase intends to occupy the property, then the purchaser can seek to force the resident to quit/vacate... but they'd still get the 90 days.

That's my understanding of the Federal rules. State rules also come into play, but the Federal would be the minimal. The Federal law was enacted in 2009 in response to the housing crisis. Florida, my State, also took some proactive moves.

[comandercody]

So, to summarize, if a bank forecloses and takes title to the property, then under the Federal (and maybe even a particular State's rules), an unexpired lease remains in full force and the duration of the lease is unchanged. If the bank foreclosure yields a purchaser other than the bank and that purchase intends to occupy the property, then the purchaser can seek to force the resident to quit/vacate... but they'd still get the 90 days.

Thank you once again for your responses and experience.

Update:

The bank has started the foreclosure process. The sheriff served Papers to the house, tenants delivered the documents to the property management company. The hearing was on 10-22, i did not attend.

These are the same tenants who originally rented the property, again, full disclosure was made to them about the pending foreclosure, i even agreed to reduced rent when we renewed the lease.

Now, they are refusing to pay rent. Lease agreement is supposed to be until April, 2016. They have obtained a lawyer(so they say) and a realtor, and want to buy the house, but are refusing to pay rent. They are claiming a fraudulent bankruptcy, paying rent to their lawyer in escrow, blah blah blah. They refuse to pay the rent to the property management company.

I have a signed lease agreement with them through April 2016. They were fully aware of the impending foreclosure.

What, if anything, can i do to to collect the rent until that date? Am I pressing my luck? Am i doing anything illegal??

Thanks again for your expertise.

[justbroke]

If they are not paying an enforceable lease, then you simply evict them. Please make sure you follow the process for your City/County/State so that there are no legal questions (as to notice, service of the notice, and the eviction lawsuit itself). Typically, when someone doesn't pay me their rent, I sent a Notice to Quit/Vacate or some other demand notice, as required by law, with the threat of eviction. Again, follow the specific process for your City/County/State.