Starting Chapter 7 - Help! Home loan and lease questions

[Esidedude88]

To put it lightly, this year has been awful. I closed on my first home last September. I've put $12,000 worth of work into it, and my partner (who is not on the mortgage) and I decided to separate. In addition to the money I've flushed down the toilet on the place already (electrical issues, etc) I was now just informed that I need to rip out my entire patio and have mold remediation done. The AC also died and so did the dryer. I cannot afford to repair the place anymore. My savings are tapped, and NONE of this was found in the inspection. There are no loan medications programs that can help me, because I can "technically" pay the bills (despite the fact that I have about $92.00 left per paycheck after mortgage, car payment, student loans, HOA fees, credit card debt, medical expenses, personal loan, and utilities). I want to walk away, but because I utilized down payment assistance I'll be hit with a deficiency fee because its counted as a second mortgage. This why I'm considering BK. I've never felt so caged in my life. I'd like to to just go rent an apartment and walk away without dealing with a short sale. I feel nothing but anger when I even step into the house. My question is this. Isn't it against BK rules to rent an apartment prior to starting the BK process? Does that look fraudulent? I need to get out of this house, but my credit is going to be destroyed after the BK and renting will be VERY hard. Thoughts?

[justbroke]

My question is this. Isn't it against BK rules to rent an apartment prior to starting the BK process? Does that look fraudulent? I need to get out of this house, but my credit is going to be destroyed after the BK and renting will be VERY hard. Thoughts?

I don't know where you learned that renting an apartment/house prior to filing is some sort of taboo for Bankruptcy; I did exactly that. Just 2 weeks prior to filing, I leased a home and moved into that home and then filed. I went through 4 months of the bankruptcy and then realized I could have stayed in my home. At that point, I ordered an appraisal and the home was underwater just below the value of the first lien (plus the arrears). I immediately moved back in, filed a motion to reject lease, and filed a motion to value and strip lien. The rest is history.

Yes, your credit will be toast and many apartment complexes will not rent with an ACTIVE bankruptcy. Some are even more strict in that the bankruptcy must be seasoned at least 2 years. With purpose, I rented the home prior to filing so my credit wasn't "that" bad at the time. It worked to my advantage.

I would only say that you should see if it's worth stripping that second mortgage. I will also say that given all the repair issues, you really should just discharge (surrender) it in bankruptcy and never look back.

[Esidedude88]

I have HOA dues because it's a townhouse. I don;t want to be sued by them after the fact. If I understand correctly, I will need to continue to pay these until the foreclosure and BK are finalized. Anyone had experience with this?

[justbroke]

I have direct experience with HOA dues for Florida. The problem that you mention is that the bankruptcy code specifically does not discharge "future" (post-petition) HOA dues that come due. You remain personally responsible for those dues. If your foreclosure takes forever, then you would be stuck paying them. You do not need to wait for the bankruptcy to be discharged (and/or closed) since the any new HOA dues/assessments will be your responsibility after the filing date and until a foreclosure "sale" occurs and there is a new owner.

If it's a condo association, you may ask the board to allow you to surrender the townhouse/condo to them or have them foreclose on the past due condo/HOA fees. You could also try a short sale.

The HOA dues/assessment problem is probably one of the most significant post-filing issues facing bankruptcy filers.

[Esidedude88]

Am allowed to pay them during BK? This is where I'm confused, as would;t that be considered showing "preferential treatment" to a creditor? I can hang on for a year if I have to as long as it's just the dues and insurance until they sell it. Would hinder my ability to file or for a discharge. Would I have to reaffirm them. My HOA is awful. They don't work with residents at all. It feels like it would be more stress than anything else. AS long as it doesn't mess with my ability to file or get a discharge. Also, any thoughts on how likely the Mortgage Forgiveness Debt Relief Act will get extended into 2017. I wish I never would have bought. This just sucks.

[justbroke]

That's the tricky part about the HOA dues and how they are treated in your particular State. I'll speak about Florida. While you certainly can and will discharge the dues prior to filing, the HOA still holds a lien against the property. The HOA can then file a foreclosure action and foreclose for the discharged dues (as well as any post-filing dues). It is not considered a preference because the payments are to a "secured" creditor. (Preferences are only when an "unsecured" creditor receives more value.)

I also can't tell you about the Mortgage Forgiveness act, but you have a different way to deal with any deficiency. The bankruptcy would discharge the deficiency and the IRS' Form 982 allows you to exclude ANY debt that was discharged under Title 11 of the United States Code (which covers Bankruptcy).

[LadyInTheRed]

Why not move out and stop paying the mortgage and HOA fees, then wait until after the bank forecloses to file BK? Also, encourage the HOA to foreclose as justbroke suggests in case they move more quickly than the bank. According to Nolo, in Minnesota the first mortgage has priority over the HOA, but the second mortgage does not. So, if there is no equity after paying off the first, the HOA isn't likely to foreclose.

You would want to make sure you can pass the means test without the mortgage and HOA payment.

[bcohen]

So what exactly is your hurry to file for bankruptcy? If you can no longer afford the upkeep on your condo, or if you simply don't wish to live there anymore, you can simply quit paying the mortgage, HOA dues, insurance, utilities, etc, and wait for someone to foreclose. Once the condo is foreclosed on, if someone tries to come after you for a deficiency, or for unpaid HOA dues/fees then you can file for bankruptcy if debt is large enough. If you aren't pursued for any alleged debt, then there would be no reason to file.