ch7 and the power to renegotiate a mortgage

[signal]

I plan to file Ch7, and my mortgage is upside down (I owe 360k, house is worth 200k). I plan to include the house in the Ch7. I would gladly stay in this house if I could refinance it at fair market value or even slightly above it (240k for example). Do I have any power here? At what point should I approach the bank? I am current on my mortgage, and I have called and asked about loan mod, but they give me the whole song and dance about how your mortgage has to be >31% of your gross income, yadda yadda. I have heard from some that the banks wont work with you until you start foreclosure.

Should I maybe start foreclosure before BK? I want to make sure I use this situation (the BK) in the best way to have a chance at a better situation with my mortgage, any advice please?

[justbroke]

I plan to file Ch7, and my mortgage is upside down (I owe 360k, house is worth 200k). I plan to include the house in the Ch7.

So you'll be discharged from the debt and not owe anything on it. The lender will proceed with foreclosure (and relief from stay) if you are not current on payments.

I would gladly stay in this house if I could refinance it at fair market value or even slightly above it (240k for example). Do I have any power here? At what point should I approach the bank?

You have no power. I don't know if you have PMI or the bank purchased PMI, but that's a factor. Also, most banks won't negotiate with someone who is current on the mortgage. The downside is that should you fall behind, you risk foreclosure. It's a vicious circle!

I am current on my mortgage, and I have called and asked about loan mod, but they give me the whole song and dance about how your mortgage has to be >31% of your gross income, yadda yadda. I have heard from some that the banks wont work with you until you start foreclosure.

Well, you don't have to be in foreclosure, but for most banks, you certainly need to demonstrate a need... such as >31% of gross income and actually behind in payments!

Should I maybe start foreclosure before BK? I want to make sure I use this situation (the BK) in the best way to have a chance at a better situation with my mortgage, any advice please?

Remember, what you are contemplating is a strategy and may not be a winning strategy. Some people have been successful, but many have not. I think we have a few people on this board who have received various modifications. You're better to get a modification before the bankruptcy, as getting one after you have discharged the debt is difficult.

Personally, and don't construe this as legal advice... I might be inclined to keep paying even after you filed for bankruptcy. Mark your Statement of Intentions as "Retain - continue to pay". This is the so-called ride-through. After discharge, then miss some payments to tickle the bank. Then you might be able to get a modification. Worse case, they foreclose. Trust me, you do not want that mortgage on a home that is worth 55% of the mortgage value. That's really upside down.

You must be prepared to lose the property, because it's just not worth keeping. Even if you continued the ride-through over several years, you'd still be throwing money away.

[DeadManCrawling]

The best chance, IMHO, is to delay the CH 7 filing. Once you are on the other side of BK 7 you are no longer in debt, including your house. In essence, there is nothing to modify, since you do not owe the mortgage company. You can do a ride-through, but the underlying obligation is gone, so, again, there is nothing to modify. A very small few have succeeded with what you are suggesting, but it seems to be a roll of the dice I would not advice if you truly need the mod and want to keep the place.

our story: We received a mod offer from BoA a month and a half ago. Still awaiting paperwork. The offer is to reduce principal owed from 380k to 320k. So, a 60k reduction. And a 2 percent life of loan rate. At first glance this sounds attractive, and it is actually reducing our payment from 3400 per month to about 1200 per month. But, I am undecided.

If the paperwork arrives before we file next week, I will have to give it some thought. The reason we are undecided is that we have other possible options that I won't go into, but make even more sense. Ours is a particularly different kind of scenario than most, so won't necesarily apply to you. I only bring this up to give you an idea of the type and terms of mod we were offered by BoA.

In any case, I think it is important to get the mod before filing. If there is a trial period, I would try to make it through THAT as well, before filing, since they can yank the mod any time for any reason during the trial period.

[signal]

I worry that if I stop paying my mortgage that a) the trustee may challenge an intention to keep my house, since I am not paying on it, and the reason I would file that intention is to use the mortgage payments to lower DMI, b) that pretty much the same thing, lack of paying the mortgage will be looked at as DMI.

Technically, I don't feel that whether you are paying or are not paying should be an issue for the courts. The fact is if you have the debt, and you wish to keep the debt then it should (imho) be looked at as one of your expenses.

Not paying your house before BK isn't as appealing as not paying after, because you can't really use the money pre-BK in the same way as it will be scrutinized. but post-BK it can just go to pure cash saving for a new place.

If someone starts foreclosure, then say 6 months into it files BK, so the BK puts the foreclosure on hold. After the BK does the foreclosure pick right up where it left off, or does it sort of start it over? I mean I realize the BK can delay the Foreclosure 4 months or so, but can you be like 10 months into not paying on your house, file BK and then get another 10 months? just trying to see if I was going to be in foreclosure what spread of time is most beneficial.

Thanks for all the helpful insight, this forum is really a relief.

[justbroke]

I worry that if I stop paying my mortgage that a) the trustee may challenge an intention to keep my house, since I am not paying on it, and the reason I would file that intention is to use the mortgage payments to lower DMI, b) that pretty much the same thing, lack of paying the mortgage will be looked at as DMI.

That's why my posts suggests to "ride-through" and be current during filing and through discharge.

Technically, I don't feel that whether you are paying or are not paying should be an issue for the courts. The fact is if you have the debt, and you wish to keep the debt then it should (imho) be looked at as one of your expenses.

Actually, it use to be that way, but then the BAPCPA (Bankruptcy Abuse amendments) came along in 2005 to stop the "rich" from filing Chapter 7s. The ability to pay and "totality of circumstances" was codified in the new bankruptcy code.

Not paying your house before BK isn't as appealing as not paying after, because you can't really use the money pre-BK in the same way as it will be scrutinized. but post-BK it can just go to pure cash saving for a new place.

Now you're thinking!

If someone starts foreclosure, then say 6 months into it files BK, so the BK puts the foreclosure on hold. After the BK does the foreclosure pick right up where it left off, or does it sort of start it over?

Depends on where you live. In some States, such as North Carolina, the "trustee" doesn't even need to re-notify you for anything but a new sale date.

I mean I realize the BK can delay the Foreclosure 4 months or so, but can you be like 10 months into not paying on your house, file BK and then get another 10 months? just trying to see if I was going to be in foreclosure what spread of time is most beneficial.

No one can give definitive times for foreclosure these days. There are people who have literally been in their homes for years before the actual foreclosure sale took place (or still hasn't taken place).