Bankruptcy After Third Lienholder Refuse Short Sale

[swanse]

Hello all. I have a urgent situation regarding my home. I purchased my home in 2006 for 530K (Countrywide/BOFA=450K, Chase 80K). Took out a fixed HELOC in 2007 for 85K with Navy Federal Credit Union. Property was valued at it highest in 2007 for 650K. Long story short, we've being experiencing an hardship with our daycare costs. Essentially, our daycare cost for part time (3 kids) is 3200. Full time would run us 4400. Our mortgage as well as HOA runs $4300 monthly. Net income is only 8500. So, obviously in order to work we have to have daycare. However, with the market continue to crashing (house value is 320K), we can't sale normally and have put in for a short sale. BOFA approved, full lien release/debt forgiveness, Chase approved with 5K out of pocket with full debt forgiveness/lien release. Navy Federal Credit Union originally wanted the full 80K with 8.75% over 15 years. We presented a counter offer of over 10K out of pocket from our 401K account (loan) They are not budging much from full repayment. So, essentially we cannot do a short sale if they don't approve.

Here's my problem. We are not trying to keep the house. For point of clarification, we stopped making payments in October 2009 on all mortgages.When I reiterate the short sale negotiator that if we declare bankruptcy, then we will likely get nothing or little to nothing. They seem to think they can request a lifting of the stay and go after me that way.

Right now, we would not qualify for Chapter 7. If my wife stopped working and we took our kids out of daycare, then after 6 months we would qualify based on expenses according to the means testing. However, how would our home play in this scenario. We're already behind six motnhs and if we 're lucky BOFA doesn't foreclose within the next six months, wouldn't it be obvious that we are not going to keep the house and we could get it discharged.

What happens if Navy Federal (third lien holder) does a charge-off before we declare bankruptcy and they're able to get a judgment. Can we just ignore that and include it in bankruptcy and get it discharged.

BTW, we live in Virginia.

[helpmeout]

If you file bankruptcy, they can request (and probably will get) a lift of the stay so that they can foreclose. But they can't come after you for the debt. Only the house. Personally, I would go the bankruptcy route and not use your 401K (an exempt asset) to pay off debt. Especially when you are not planning on keeping the house.

What makes you think that you won't qualify for a 7? You may be over the median, but that isn't the only qualifier. Read some of the stickies and do a search on being over the median.

[swanse]

I did the nolo.com means test online calculator.

I guss the interesting that the third lien holder can foreclose. Wouldn't they haveto pay off the first and second lien as well?

[OhioFiler]

I did the nolo.com means test online calculator.

I guss the interesting that the third lien holder can foreclose. Wouldn't they haveto pay off the first and second lien as well?

There is nothing in the equity of the home for the 2nd or 3rd lien holders. You may want to do a Chapter 13 and strip the 2nd and 3rd mortgage holders liens which converts their debt to unsecured status. You can probably then convert to a Chapter 7 shortly thereafter.

I would focus on that plan and research the benefits of it to you.

[iv65536]

Does the $4300/mo motrage, taxes, & HOA include the 2nd and 3rd? Also I would factor in the loss of the tax deductions related to mortgage interest and property taxes, plus the expiration of tax reductions in the 2001 tax bill and the 2009 stimulus bill, in the means test as well. This alone should help significantly on the DMI.

[iv65536]

I also ran what information you had given through the Nolo means test using a zip code in the Herndon area - it looks like you would likely pass the means test, since the childcare expenses would be allowable.

[swanse]

Well, thats where my confusion lies. Do we factor in the mortgage payments if we haven't made payments at all. We're still paying HOA though. I read that if you're surrendering the property, then you can't factor that into the means test?

[aljohnson007]

You can include anything that you are contractually obligated to pay. What you DO NOT want to do is state you will surrender the house. Just state your intention is to reaffirm and ride it out to discharge. From my experience with BOA, if you don't have equity and have HOA fees, they will be in no rush to foreclose. The other lienholders probably won't attempt to foreclose either as they would have to pay off the first. JMO

[swanse]

If we have made no payments for six months, doesn't it look it like we're surrendering the property?

[HakunaMatata]

If we have made no payments for six months, doesn't it look it like we're surrendering the property?

Not necessarily. From your title, I thought you were attempting a short sale and continuing negotiations with your lenders.

[swanse]

We are. the third lien holder is not playing ball. Somehow, they believe they can come after us after foreclosure for the full deficiency. When I told them we would file bankruptcy (as leverage for them to accept a reasonable offer), they basically laughed at me. I only have fie more days before my second lienholder approval 5k has to be wired or their approval goes away.

[aljohnson007]

Perhaps I don't understand where you are trying to go with this. If you are not trying to keep the house, why in the world would you want to pay any of the lienholders any amount? If included in bk, none can come after you.

[iv65536]

I think the OP is trying to avoid BK altogether.

My thinking is that the OP may want to consider closing the deal anyway and challenging NFCU to go ahead and make his day.

[swanse]

Well, it's been a long journey for us. We have decided that life is worth more living and enjoying to its fullest and that doesn't include worrying about debt and these mortgage companies. I talked to Navy Federal two weeks ago and I got offered the following compromise: $10,000 at closing and a promissory not for $45,000 over 15 years @ 4% interest. Payment would be something like $353 monthly. The way I calculate it, they would get back most of their money. Naturally, this is not a good deal for us. So, I talked to them again and they told me this classic line; 5 out of 6 people who put money up front and sign the promissory note end up defaulting after several months and declare bankruptcy. Gee whiz, I wonder why, lol.

Good-by NFCU. See you in BK court later this year.