Need Advice/Aganozing w/ Stress

[howdydoody]

Hello Fellow Warriors--

I could really use some feedback. Here's my situation, scenarios 1st, more info beneath. The biggest advantage to Bankruptcy as I see it is to gain certainty of a situation and move forward. My stress about possible deficiency judgments and how a bankrupcty might affect my job search/future has given me terrible stomach pains, and more for weeks. It's highly affecting my health and sleep.

The real question is how much I want to risk a most likely better scenario involving a short-sale but having to wait to find out and losing my chance to file chap.7 BK and stressing versus a guaranteed BK and whatever negatives will come about with a BK:

IF I FILE BANKRUPTCY--House Debt (270K b/f back payments, potential foreclosure fees, etc.) goes away completely, Credit Cards (28K) and SBA (14K) go away completely, I then just have Bankruptcy on record (and non-dischargeable student loans). I eliminate probably a maximum of 90K in possible deficiencies/CC.

IF I DON'T FILE BANKRUPTCY (if I wait longer to find out I will lose my window to file Chap. 7 BK)--

Scenario 1: house is sold at short-sale, I hire a debt consolidation company, and I owe approx. 28K in cc/sba

Scenario 2: Banks don't agree to short-sale or glitch prevents, mortgage 1 may or may not go after me for deficiency (approximately 60K). This assumes that I settle for pennies on dollar with 2nd mortgage company.
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I'm in my low 30's, finishing my MBA at a decent school. I have no income and no savings as a result (aside from financial aid monies). I have owned a house for 4 years that has steadily dropped in value, my renters have lost jobs and rent income has dropped, and I am 7 months behind on payments. I financed w/ 2 mortgages (80/20) I have listed for sale and have 3 offers, but every offer is less than the first mortgage. The offer seems within range of 85% of the banks BPO so they should accept a short-sell versus a foreclosure. The first mortgage is $215K and my best offer should net after realtor/closing costs $185K. My second mortgage is $50K and I am requesting that they settle the mortgage completely for 3K.

If both of these occur, I can then negotiate my 28K in credit cards down to 14K and I am only left with an SBA loan of 14K (gov't Katrina disaster loan so I can't negotiate).

HERE'S THE PROBLEM--I only have about another 1.5 months to file Chapter 7 bankruptcy b/f I am ineligible (b/c of my financial aid installment and/or hopefully employment). The banks are so slow that they will not make a final decision for a few more months and buyers could walk away. If short-sale does not go through, then I am liable for the first mortgage deficiency plus attorney fees, etc. (even if I settle with my 2nd mortgage company) AND I can't afford to be a LL especially since there's no guarantee the 1st mortgage will modify down my loan.

Please give your advice! Thank you so very much!

[BobMango]

My advice would be to consult an attorney. It looks like the short sale might be the best approach for you if you're only looking at $28K in unsecured debt after that. Of course that depends on your income and other expenses, but avoiding a bankruptcy would be a good thing. Then of course there may be tax consequences associated with the short sale if you can't pass the IRS test for insolvency.

It's not clear from your posting why you would be ineligible to file after another month and a half. Are you going to get a job that puts you over the six month median within that time? The means test for qualifying for a Chapter 7 is a six-month look back, not a forward projection.

Again, getting a free consultation with a few attorneys can provide you with a much better view of your options than we can, given how little we know of your situation.

[DebtHater]

If both of these occur, I can then negotiate my 28K in credit cards down to 14K

Keep in mind if you do this you will get a nice present at the end of the year in the form of a 1099-C for the amount forgiven. In simpler terms you will owe income taxes on the amount forgiven as it's considered income.

[jribe]

Do you think you will become ineligible for a Ch.7 because you may find a job after your MBA is finished?

First, unless you have some steady job offers out there, that really shouldn't be your first concern.

BK sounds like the most plausable action for you to take- you can't afford to keep carrying the debt you have.

BK is not the end of the world either. I work in investments at a big firm- and am attending law school. Everything's been ok for me

Good luck

Hello Fellow Warriors--

I could really use some feedback. Here's my situation, scenarios 1st, more info beneath. The biggest advantage to Bankruptcy as I see it is to gain certainty of a situation and move forward. My stress about possible deficiency judgments and how a bankrupcty might affect my job search/future has given me terrible stomach pains, and more for weeks. It's highly affecting my health and sleep.

The real question is how much I want to risk a most likely better scenario involving a short-sale but having to wait to find out and losing my chance to file chap.7 BK and stressing versus a guaranteed BK and whatever negatives will come about with a BK:

IF I FILE BANKRUPTCY--House Debt (270K b/f back payments, potential foreclosure fees, etc.) goes away completely, Credit Cards (28K) and SBA (14K) go away completely, I then just have Bankruptcy on record (and non-dischargeable student loans). I eliminate probably a maximum of 90K in possible deficiencies/CC.

IF I DON'T FILE BANKRUPTCY (if I wait longer to find out I will lose my window to file Chap. 7 BK)--

Scenario 1: house is sold at short-sale, I hire a debt consolidation company, and I owe approx. 28K in cc/sba

Scenario 2: Banks don't agree to short-sale or glitch prevents, mortgage 1 may or may not go after me for deficiency (approximately 60K). This assumes that I settle for pennies on dollar with 2nd mortgage company.
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I'm in my low 30's, finishing my MBA at a decent school. I have no income and no savings as a result (aside from financial aid monies). I have owned a house for 4 years that has steadily dropped in value, my renters have lost jobs and rent income has dropped, and I am 7 months behind on payments. I financed w/ 2 mortgages (80/20) I have listed for sale and have 3 offers, but every offer is less than the first mortgage. The offer seems within range of 85% of the banks BPO so they should accept a short-sell versus a foreclosure. The first mortgage is $215K and my best offer should net after realtor/closing costs $185K. My second mortgage is $50K and I am requesting that they settle the mortgage completely for 3K.

If both of these occur, I can then negotiate my 28K in credit cards down to 14K and I am only left with an SBA loan of 14K (gov't Katrina disaster loan so I can't negotiate).

HERE'S THE PROBLEM--I only have about another 1.5 months to file Chapter 7 bankruptcy b/f I am ineligible (b/c of my financial aid installment and/or hopefully employment). The banks are so slow that they will not make a final decision for a few more months and buyers could walk away. If short-sale does not go through, then I am liable for the first mortgage deficiency plus attorney fees, etc. (even if I settle with my 2nd mortgage company) AND I can't afford to be a LL especially since there's no guarantee the 1st mortgage will modify down my loan.

Please give your advice! Thank you so very much!

[howdydoody]

BobMango/DebtHater, thank you for the responses.

1) I hired an attorney to file Chap.7 but I put on the brakes after realizing that I might be able to do a short-sale. He seems to think that a job offer with high income might disqualify me at the trustee meeting. Also, I receive my lump sum financial aid soon, but can delay for only about 1.5 months. The courts do not necessarily exclude this money when/if I file so it presents a chap.7 problem. These two issues, if correct, limit my Chapter 7 window

Agreed, BK is not work the 28K, but I am overly worried that if a short-sale does not go through, then I'm sitting with an additional 60K or so in deficiency to my first mortgage.

I also have to get the SBA to release their lien on my home for a short-sale and they don't make it easy, so combine that with my second mortgage with the backed up 1st mortgage and a lot of uncertainty and work remains to complete a short-sale. I have just really been trying to avoid the foreclosure but maybe it is the best thing to do!



2) I was not aware of the 1099-C. I assume that this is not administered after a BK?

[StartingOver08]

Who is the servicer for the first and second mortgage? Some are more cooperative than others in the short sale process. Ask your agent for the actual percentage of successfully closed short sale transactions within the past 6 mths. It will be slightly skewed to a higher closing rate because of year end closings (more approvals and closings in the last quarter are typical). In our area we have a small percentage of short sales that actually close, because at the end the lender/servicer asks the seller to either bring in a lump sum in cash to closing or to sign a note. Especially on the 80%/20% loans that are non-owner occupied.

Given your situation, IMO I would file BK. If your current attorney is unsure of obtaining a Ch 7 - check other BK attorney's. One of the biggest mistakes we see here is hiring the wrong attorney. It will not hurt you to interview others. If you have confidence in this attorney, and he has a good track record, then you can always go back to him to file.

If you file BK and are successfully discharged you will not have the 1099 issue that you will have if you decide to settle your debts instead.

[ToughTimes]

One of our properties had a short sale offer already in with the lender prior to our filing bankruptcy. It was approved and the short sale completed after discharge.

Timing:
Short sale offer submitted 6-19-09
Chapter 7 BK filed 7-23-09 (surrendered this property in BK)
341 meeting 9-15-09
Discharge 11-20-09
Short Sale approved by lender 12-3-09
Short Sale Completed (deed recorded) 12-23-09

The point here is that we didn't actually have to choose one over the other. The BK discharged the debt, and that is what we needed. We stopped worrying whether our buyer might get tired of waiting for our lender to make a decision.

If I were you, I would be consulting my attorney; hiring a seasoned, patient, and tenacious real estate agent willing to represent me in the short sale (lender will pay them); and also consulting a tax professional (regarding the 1099--"insolvent" is very different from "bankrupt"). I would also be reading everything I could find on this forum regarding Short Sales.

You're describing a 1099 for $47,000 if you are successful in negotiating the settlement as you want on your second mortgage. I know our household could not afford to pay the income tax on that.

I am really gratified that we were able to complete our short sale, as it means we don't have to figure out how to afford to hire someone to mow acreage on it next spring. (We've left that state.) Still, it was the second offer on the property. The first buyer did not care to sign another extension after two months with no response from our lender. Short sales can take a long, long time and the uncertainty can definitely be stressful. Are your buyers going to be willing to hang around for the duration?

Best fortune to you, regardless of what you choose to do going forward.

[howdydoody]

Tough Times,

Thank you. Quick question--why did you pursue short-sale after BK? What advantages for you? Moreover, why were you (or would have been) still responsible for cutting grass (or maintenance, etc.)?

Doesn't the BK get rid of your liability and therefore you basically "turn over the keys?" On that note, do you still need to carry property insurance after the BK? It seems that the mortgage company would assume the property.

Thank you,

[ForumReader]

Scenario 1: house is sold at short-sale, I hire a debt consolidation company, and I owe approx. 28K in cc/sba

Howdydoody,

I would recommend not hiring a debt consolidation company to help settle your cc debt. These DCCs are not worth it. I was scammed by one before filing an emergency BK. Good luck!

[ToughTimes]

howdydoody,

What I know about BK & how real estate works within the BK context is not a lot and has mostly been learned by reading posts in this forum. The rest of my info is what my own BK attorney has given me as counsel.

I have been told by my attorney in no uncertain terms, and you'll find many posts on this forum explaining this in one way or another: The BK discharges the debt. Just the debt. You cannot force your lender to take title (grant) deed to the property. If the bank chooses to take title, they'll have to perform a foreclosure in order to do so. That's the law, unless you can persuade them to accept a deed in lieu. (If the foreclosure is coincident with the BK, it is widely posted, though I don't know personally, that the foreclosure will not count separately on one's credit report. My attorney says the foreclosure is a public record and therefore may well appear on one's credit report separately. It is widely posted as well that, even if the foreclosure is not posted on your credit report, lenders will find out/ask/know about it when you next attempt to obtain a mortgage. I hope not to find out.)

Regarding the likelihood of the lender accepting a deed in lieu: My lender was B of A. As I suspect is likely the case with most, if not all lenders, they have a specific set of hoops through which one must jump in order to even be considered for a deed in lieu. The first hoop with B of A is that the property must have been on the market (as in, MLS listed) for 90 days. That's how we came to have a short sale offer.

The owner of record (name on the title deed) is who the township/city/county/local-power-that-is will contact for remedy if the property violates local codes, covenants and/or restrictions. In addition, the owner of record is the responsible party if someone is injured on the property.

In many jurisdictions there are rules as to how property must be kept. In the township where the property I've been discussing is located, you can be cited for not maintaining the lawn at a reasonable height (or something to that effect; I have not actually sought out the verbiage). When the trustee says one must mow, one mows. If one does not comply, the citation issued becomes a lien on the property's title. The lien must be satisfied (paid) in order to change title on the property. More, I'm told that the township trustee can (and likely will) arrange for whatever the property needs to be up to code and the bill for that work will become a lien on the property as well.

I've been given to understand that, in general, when a lender forecloses, the lender satisfies the various liens of this sort on a property, though I have no personal experience with this. If it's so that the lender will satisfy the various liens, I don't greatly understand how they would have been significant to us. I am ignorant in many ways. Maybe someone with greater knowledge on this forum might address this particular issue. I do have personal knowledge that the trustee for this township will call when the lawn gets too high.

The lender never had the keys/garage door opener. If you read posts, you'll see that lenders just now aren't much interested in accepting custodial responsibility for more properties than they absolutely must. They for sure don't want to accept that responsibility until they absolutely must.

My attorney made a huge point of telling me I absolutely should keep the property insured until the deed was out of my name. Again I am ignorant, but what I am sensing from what I read is that it is widely held that the lender can, in some way I don't understand, hold the owner responsible if the property is materially damaged prior to the bank taking title. Again, I'd welcome comment from those who know more than I do. Attorney also required us to provide proof of insurance on both real estate and financed vehicles with our bankruptcy filing. I don't know how universal that requirement may or may not be.

What I actually did, once discharged, is drop my homeowner's policy and obtain an umbrella liability policy and "renter's insurance" for my personal possessions. The liability policy will cover me if someone sprains their ankle while picking berries, hunting deer, or just looking at the real estate with an eye to buying it. A friend (who's pretty sharp, but who is definitely not any kind of legal counsel) points out that the obvious party to sue would be the lender, as they surely have more assets than I do. I don't know if an injured party could do that; another item where comment from those more knowledgeable would interest me. Please note I changed my insurance policy as my own decision and that the path I chose was not the one my attorney had suggested. Note also that I really could not care less if the place did burn to the ground and I would not be inclined to rebuild. Ever. These are, IMO, important factors to consider before making such a decision. As it turned out, my lender placed insurance. I did have to assign any refund of that insurance premium to the lender as part of the short sale agreement. Not an issue, since I had not paid the premium(s) in the first place.

Please also again note that, in our case, the property is in a bucolic rural area heavily populated by Amish and other people who subscribe to pretty simple and traditional cultural mores. The risk of vandalism, etc., to the property was a lot less than would likely be the case nearly anywhere else. If you read even a little about the current rash of foreclosures, you'll notice that it's not uncommon for "things" in these vacant houses to be "MIA" after they've been vacant. "Things" like the plumbing fixtures, light fixtures, and even woodstoves and/or drywall. I'd insure accordingly.

And your first question answered last: We had accepted the short sale offer prior to filing the BK. While we are unable to pay debts for which we accepted responsibility, we are not inclined to use inability in one area as an excuse to stop keeping our word/commitments in areas where we still have the ability to do so. I could have refused to sign one of the time extensions, but that's not what I would have someone to do unto me, so it would not have been a right action. More, our attorney told us repeatedly that foreclosure in Ohio could easily take 1 1/2 years. We really, really do not want to have lingering responsibilities 2500 miles from where we live now.