Stripping 2nd Mortgage in Chapter 7?

[jeb]

H, I guess we will just have to wait and see. So far, no one has questioned it and no 1099's have been issued. I am not going to lose any sleep over it happening at this point. - jb

[fltoo]

I thought I was clear in that I am referring to the realtors running around pitching short sales and mis-representing the consequences. As for lawyers looking to sue...they are really looking to right a wrong; after all, these realtors mis-represented the benefits to the seller, how is that bad?

Sure they are, and there really is a tooth fairy.

[justbroke]

Sure they are, and there really is a tooth fairy.

fltoo, you don't think that there are actually true believer type lawyers out there? I would say, the pro bono ones, are definately true believers.

[HHM]

The lawyers looking into this, at least the ones that I am aware of, are hard core consumer advocate types.

[fltoo]

fltoo, you don't think that there are actually true believer type lawyers out there? I would say, the pro bono ones, are definately true believers.

Absolutely, yes. The legal aid society has many good lawyers that really want to help. But, they are so swamped, I doubt they would go looking for business.

The BK lawyer I used is top notch and only charges people 1000. for chapter 7. He makes a good living and truly has a helping attitude.

There are good and bad in all professions. Just hate to see an entire profession take a rap for the greedy and bad in their profession.

By the same token, I know so many mortgage brokers that would never put someone in a loan just for the commission and yet, we know how many have done it. I have seen them explain a loan to a customer so that they fully understand the ramifications of the loan. Same with title closers and real estate attorneys.

Over the years, I have found that the best professionals have a huge following from referrals. The cream usually floats to the top. Greed, or lack of, is what sets a professional apart from the rest.

[jeb]

Jeb, I know its done, but it is not binding. A lender cannot agree to violate the law, those provisions about not issuing 1099's are void as a matter of a law. You would actually have no recourse against the lender if, in fact, they issued a 1099. If you sued the lender for breach of contract, the judge would throw out the provision as void. And guess who is going to eventually get sued, the real estate agents that advised clients about the short sales. I know several attorney's gearing up for these types of law suits when the "sh-t hits the fan" with all these short sales.

The problem with short sales is all the realtors running around playing lawyer telling clients that the bank won't collect the debt and they won't issue a 1099...WRONG. This will eventually catch up with some realtors who advise people on short sales. I know several attorneys who are actively looking for plaintiffs to sue realtors in this regard.

H, sorry but have not had time to get back to you.

I understand what you are saying - for my part, I did short sales for people that were going to lose there homes no matter what and I tried to leave them in a better position than they were in.

The investors, of course, were looking for a good deal which a short sale done right can give them - I made very little on my end - a 3% commission less expenses was about normal.

Also, up front, I told the homeowners that we would TRY to have no 1099's issued and if the lender refused to agree to that I would come back to them and let them make the decision to go forward or not.

Also, it is not legal for the homeowner to receive any monies from a short sale but I always purchased something - stove, frig, garden tools, something - to get $2,000.00 or so to them so they have the money to move and help get settled.

I have done some in which I have lost money and would do so again.

As for the lender required to issue a 1099, I believe it has to do with how they report the transaction that triggers but not sure. - jb

[lizbebe]

Chapter 7 and Servicing of Loans -- Just say NO

I filed Chap 7 last year. I did not reaffirm my 2nd mortgage (Citi), which the BK judge thought was a good idea. I did reaffirm my 1st mortgage (Chase) because I plan to remain in my home for a long period of time.

I live in Sacramento County, CA and the value of my home has dropped 33% (445K to 300K).

I tried to negotiate with Citi who services my 2nd (owned by Fannie Mae), but they would not budge. They never pretended like they cared, they did not try to cooperate in any way, they "lost" my workout package and never returned any of my phone calls. I hired a Loan Mod firm to help me, but their incompetence was even greater than that of Citi. We parted ways with the Loan Mod firm, and thankfully, we were able to get our money back.

In the meantime, I had told Citi that we had hired an attorney. Within days of telling them this, they put our loan through the pre-foreclosure process and realized that there was no point in foreclosing because their was no equity in the home (duh).

The loan then went to the charge off dept and that's the last time I bothered to call them. They continue to send monthly statements, but there has been no more default letters or threats to foreclose. They don't call, they don't write, nada. And I do not waste my precious time calling them.

I now know that a loan modification was not in my best interest, given my Chapter 7 discharge.

I am expecting the loan to be sold to a debt collector. Once this happens, I *might* offer them 10% of the loan (approx $6600). But, under Chap 7 I am not required to make any payments against a loan that was effectively discharged without reaffirmation and for which there is no equity covering the loan. I have no personal liability for this loan, as established by my Chap 7discharge.

Recourse or non-recourse statutes do not seem to come into play here (I believe, based on my research) since my debt has been discharged under federal BK law. Forget the fact that I never refinanced the loan -- the recourse/non-recourse law seems moot in this situation.

Here is a great link that covers loan servicing under Chapter 7.

It is a MUST read:

http://www.wolffirm.com/publications/54.htm

Chap 7 filed 3/08
Chap 7 discharge 7/08

[pcn]

What is your understanding of the position of 2nd if they do not take your offer, and you want/have to sell your house?

[HHM]

I am expecting the loan to be sold to a debt collector. Once this happens, I *might* offer them 10% of the loan (approx $6600). But, under Chap 7 I am not required to make any payments against a loan that was effectively discharged without reaffirmation and for which there is no equity covering the loan. I have no personal liability for this loan, as established by my Chap 7discharge.

That is true, but as you understand, the lien will survive, and will probably be sold.

To answer PCN's question, when it comes time to sell the house, the lender (or whoever is holding the note), will need to authorize release of the lien, which means they will probably want to be paid something.

[pcn]

That was my understanding as well, looking of some confirmation. IF they were willing to settle for less than the balance owed, would it be treated the same as settling with a cc, meaning, would they send a 1099, and the seller be liable for the additional taxes?

[HHM]

That was my understanding as well, looking of some confirmation. IF they were willing to settle for less than the balance owed, would it be treated the same as settling with a cc, meaning, would they send a 1099, and the seller be liable for the additional taxes?

Because the underlying personal liability was discharged in BK, there would be no tax implications from the 2nd lien holder accepting less than is owed.

[albacore44]

that was a good post

from someone with experiience. be interesting to see in a few years how this pans out, if a Jdb tries to force forclosure if the property value starts to go back up. I personallly would have no problem doing what this poster is with my 2nd, and paying them/jdb off at a reduced rate when i retire and sell. but it's like the sword of Damacleas hanging over your head, wondering if they will call in their note and decide to forclose.

[HHM]

from someone with experiience. be interesting to see in a few years how this pans out, if a Jdb tries to force forclosure if the property value starts to go back up. I personallly would have no problem doing what this poster is with my 2nd, and paying them/jdb off at a reduced rate when i retire and sell. but it's like the sword of Damacleas hanging over your head, wondering if they will call in their note and decide to forclose.

Yep, that is the big unknown. I imagine the defense would be similar to that of defending against JDB's that buy credit card debt, i.e. they simply can't sufficiently prove the underlying debt or that they have the right to foreclose.

[albacore44]

Yep, that is the big unknown. I imagine the defense would be similar to that of defending against JDB's that buy credit card debt, i.e. they simply can't sufficiently prove the underlying debt or that they have the right to foreclose.

Well I would think that the JDB possesing the Lien/title (2nd) would be all they need in a court to prove they own it. but i'm not a lawyer, and this is kinda uncharted territory. boy it would sure be great to find a few more examples, so we have a path to follow.

[lizbebe]

Since I have no intention of selling my home, I don't really care what happens to the lien. Nor am I afraid of foreclosure, because I know the housing market will not rebound in my area for many, many years.

I am more concerned with my ability to refi the 1st at some point, so I could end up settling with the debt collector after all. OTW, I plan to die in this home.