CH7 and Loan modification question

[copaaz2005]

Hello, great discussion board. Lot's of wonderful information.

Wife and I going to be filling ch7 next month and are thinking of going late on house payments to get bank to possibly work a loan modification with us. Question is how will late payments affect the ch7 filing. We do want to keep the house. Were are just thinking of going late to get banks attention since our credit will be trashed with the ch7 filing. If we are late could the ch7 possibly take the house? Their's no positive equity in the house, underwater.

[justbroke]

Well, the first question, since you're underwater, is going to be how much and by what percentage? If it's more than 10%, then you need to just let that house go. Seriously. This is a financial decision and too many debtors want to keep their homes. I learned that the hard way, but I was trying to keep investment property! Been there, done that.

My case is scheduled to be discharged in about 17 days. I have not reaffirmed my home even though it's less than 5% underwater. I even received a modification, but mine was strategic and it took a lot of work. You must be willing to let the home go. The best is to not reaffirm and get a modification, which is what I have. I can walk at any time after my discharge.

Please know that a modification doesn't heal all wounds and keeping the home may be a nightmare waiting to happen. Most modifications don't work anyhow, and only delay the inevitable. You must divest yourself of the personal attachment to the four walls you call home and start thinking of it from a long term financial viewpoint.

[copaaz2005]

It's under more than 10%. Im in one of the hard hit areas in AZ. At this time we've got to much in the house to walk. everything the way we want.

So to "not reaffirm and get a modification", how does that work? If I don't reaffirm, cant the lender take the house then since i'm not reaffirming the loan?

[justbroke]

It's under more than 10%. Im in one of the hard hit areas in AZ. At this time we've got to much in the house to walk. everything the way we want.

You're making this an emotional and not a business decision. If it's 10% or more under, it will take you 10-20 years to recover the lost equity. The market analysts are saying a generation to restore the housing market. You need to take the "we've got too much in the house" to walk. You don't have too much in. You've lost it already and are going to be buying it back over the next 10-20 years. Be smart.

So to "not reaffirm and get a modification", how does that work? If I don't reaffirm, cant the lender take the house then since i'm not reaffirming the loan?

You would need to be current for them not to take it. A Modification brings the loan current.

You really need to sit down and divest yourself of this notion to keep the home. You are in a bad position and will probably loose it anyhow. I want you to understand what the real financial impact is of keeping it. How much are you really below? 10%... 20%... 50%? Would you take $200K and just light a match to it?

[midnight]

We received HAMP papers right before we filed 7. Paid all trial period payments on time for 3 months, submitted paperwork, resubmitted, and finally we were denied b/c we have not enough debt compared to income (discharged about 6 months after starting trial HAMP. So now instead of being 3 months behind, we are 8 due to the reduced trial payments. Currently they are reviewing us for an alt mod. We'll see. We are not upside down, have maybe. 5-10 in equity. If we were totally upside down, not sure we'd go through all this, be easier to surrender and walk away. This has been a long 8 months.

Good luck!

[yomann]

We filed BK7 in April after being behind on 1st/2nd for 9 months.
Not reaffirming either loan. Probably 10% underwater.
Now, if the banks give us an affordable loan mod we will take it.
If not, they can foreclose and take the house while we live rent free for 6-8 months.
As JB pointed out, we took the emotions out of the equation, and that feels quite liberating
The fast ball is in their court.
After taking the credit hit of a BK, nothing bothers us anymore .......

[msm859]

You're making this an emotional and not a business decision. If it's 10% or more under, it will take you 10-20 years to recover the lost equity. The market analysts are saying a generation to restore the housing market. You need to take the "we've got too much in the house" to walk. You don't have too much in. You've lost it already and are going to be buying it back over the next 10-20 years. Be smart.

You would need to be current for them not to take it. A Modification brings the loan current.

You really need to sit down and divest yourself of this notion to keep the home. You are in a bad position and will probably loose it anyhow. I want you to understand what the real financial impact is of keeping it. How much are you really below? 10%... 20%... 50%? Would you take $200K and just light a match to it?

Not true. I agree that you should make a business decision about your house. However, the historical appreciation of homes is @ 4% a year. Following the "rule of 72" It would take 18 years for the value of your house to double. If you are 10% under you should be able to recover that in @ 3 years.

[HHM]

Not true. I agree that you should make a business decision about your house. However, the historical appreciation of homes is @ 4% a year. Following the "rule of 72" It would take 18 years for the value of your house to double. If you are 10% under you should be able to recover that in @ 3 years.

That historical appreciation is inflated...the housing market goes through booms and busts like any other market. Plus, with the tax credit incentive going away, the housing market is going to crash again. Prices have been reset and really aren't going anywhere anytime soon. There is about 3-4 years of foreclosed inventory still to go through. So there will be NO appreciation in the nest 3-4 years, thus, it is financially better to walk now, and buy again in 3 years than try to dig out of a negative position.

[justbroke]

Not true. I agree that you should make a business decision about your house. However, the historical appreciation of homes is @ 4% a year. Following the "rule of 72" It would take 18 years for the value of your house to double. If you are 10% under you should be able to recover that in @ 3 years.

If history is any precedence, with the last 3 years showing a 15-20% decrease in home equity per year, in the major housing centres over the last 10 years, then it's not 4% appreciation. Please tell that to the people in Detroit where the average home price in the inner city hit $18,000 last year. The vast shadow inventory is yet to rear it's ugly head.

The market was only great when there was a shortage of inventory. I don't see any shortages happening in the next 5-6 years.

The thinking you just posted, is what was happening in 2001-2007... everyone bet on it increasing. If you purchased your home in 2005-2007 you (more than likely) paid top dollar.

Where do you get this data anyhow? I would love to be somewhere I had a guaranteed 4% return on investment. You can't even get that in a certificate of deposit these days.

[msm859]

http://www.freeby50.com/2008/05/more-on-historical-home-appreciation.html

I agree that at some point it makes sense to walk away if you are so far underwater -- if you cannot get a modification. I modified my first to a fixed 3.5% interest. I am now negotiating my second to settle for 15% on 190K loan. If I do that I will owe @ what my house is worth -- close enough to stay.

[MarieT]

Wow msm...that's a great modification at 3.5% permanent! Mine is at 2.21% for 5 years then goes up 1% a year until it hits 5.21% for a permanent rate. We will possibly sell it at the 5 year mark.

We bought relatively low in 1998, at one point it was appraised for $400,000 more than we owed on it and right now we probably owe about $50,000 to $100,000 more than the appraisal would be today which is good for the BK situation. We also had to get behind on payments in order to get a loan mod which added about $45,000 to the principal. The good thing is we do have an affordable payment now.

[justbroke]

http://www.freeby50.com/2008/05/more...reciation.html

Unfortunately, that's not a recognized source and it certainly hasn't accounted for the current issue nor the housing glut (and shadow inventory). As a matter of fact, that report is from May 2008... two years old and certainly not considering any of the relevant data from this very very very significant change in the housing market. (The author even talks about the data coming from some other non-traditional source and that there was no adjustment for inflation.)

So, I can't trust that number. I dont' want anyone falling into a false reality that they are going to see 5% on each of the next 5 years.

[copaaz2005]

thanks for the reply's. We are going to try for a loan mod once we have filed our ch7 petition.

[nc73]

people I know have tried for loan mods but it's not happening so far. let the house go.

[copaaz2005]

I'll keep the post updated as I progress through it. I'm eligble through the hamp guidelines. Problem is most banks are only working with people who are 30_60 days late and not customers who are at risk of imminant default.