How do you "surrender" investment properties in chapter 7?

[porkchopcash]

I have read a lot of information about Chapter 7 and foreclosure on this site and apologize if my questions have been addressed already but I have not seen this situation addressed.
Most of the chap 7 foreclosure threads have to do with how long people can keep their houses after discharge. Mine is the other problem.
I have 12 underwater investment properties that are the reason I am filing non-consumer chapter 7. I am current on primary mortgage and car payments.

My question is how do I get rid of these 12 properties. My attorney explained the concept of mortgage discharge vs deed today and said I would still be responsible for "upkeep" of the properties.
I want the bank to take possession of them immediately and want to surrender them.

This is not just to avoid liability but also to insure I do not receive a series of 12 foreclosures hit my credit over the next 18 months when I am trying to rebuild.

On that note, when people refer to a "foreclosure" appearing on credit, how is that defined. I stopped making payments on these properties about a year ago to try and force short sales (that scheme didn't work) so all 12 of them have pending foreclosure lawsuits but not have advanced to judgment yet. My credit report says "foreclosure proceedings started".
Is this a foreclosure on your credit or is there some other designation when the process is finalized?
Also, the houses are all owned by LLC holding companies I set up even though my name is on the mortgage. Once I discharge the mortgage debt, how could the foreclosure be reported as mine if the properties are deeded to LLCs.

Anyway, has anyone been through this with multiple properties and how did they clean their plate quickly?

Thanks in advance for your help

[justbroke]

My question is how do I get rid of these 12 properties. My attorney explained the concept of mortgage discharge vs deed today and said I would still be responsible for "upkeep" of the properties. I want the bank to take possession of them immediately and want to surrender them.

Your attorney is correct. While you will discharge the debt and surrender the properties, that won't change the title and ownership of the properties. You will still be "technically" (and practically as well) liable for the properties. You may be able to arrange with the lender(s) a deed-in-lieu on the properties, but they usually requires that you have had them on the market for some period of time. (I don't know the definition of "period of time" but it could be weeks or several months.)
For what it's worth, one of my investment properties took 15 months from filing to foreclosure. They kept messing up the paperwork and having to refile "assignments". I was not the cause of their grief with the proof of ownership of the Note... it was their own doing. LOL

Is this a foreclosure on your credit or is there some other designation when the process is finalized?

What you shouldn't get on your Credit Report is a "judgment" (public record) about the foreclosure judgment. The accounts may report as "RF" correctly since they were in foreclosure prior to you filing. However, they should also be noted IIB (included in Bankruptcy).

Also, the houses are all owned by LLC holding companies I set up even though my name is on the mortgage. Once I discharge the mortgage debt, how could the foreclosure be reported as mine if the properties are deeded to LLCs.

The credit report is about who owns the debt, not who the property is titled to.

Anyway, has anyone been through this with multiple properties and how did they clean their plate quickly?

I haven't found a quick way. You may want to proceed with it as some "large" companies do with pre-packaged Chapter 11s. That is that you work with the lenders (lienholders) prior to filing and arrange for them to have the properties deeded back to them. They may be more interested in this if these properties are occupied and generating income. However, it reads as though they may not be generating income. Be that as it may, you would want a really great attorney to handle this. What I suggest may not even be a good move -- working with the creditors -- because it may cause them to review your credit applications and claim fraud... not that they may not do that anyhow.

There really is no magic to getting a lender to foreclose. As a matter of fact, there is no law requiring them to foreclose or exercise any of their rights under the terms of the Promissory Note. The bank will usually do what's in their best interest alone. You might also consider short sales as well, but it will be a lot of work. Again, it may be wise to approach the lender(s) first and come up with a pre-package plan to either deed-in-lieu or short-sell the properties and then enter into a non-consumer Chapter 7.

I'm assuming that these are closely held corporations (LLCs).

[despritfreya]

I have 12 underwater investment properties that are the reason I am filing non-consumer chapter 7. . .My question is how do I get rid of these 12 properties.

Four choices:

1. Do a bk and surrender them to the lien holders (eventually they will foreclose)
2. Do a short sale - good luck
3. Get the lender to do a deed in lieu of foreclosure - good luck
4. Let each get foreclosed and don’t file bk

My attorney explained. . . I would still be responsible for "upkeep" of the properties.

To the extent that you file bk, you are responsible for all HOA dues/fees/assessments (including any fine for failure to maintain the properties) that fall due from the day you file bk until the day each property is foreclosed.

I want the bank to take possession of them immediately and want to surrender them.

We don’t always get what we want. You can’t force the bank to do anything. It will take possession when it is good and ready.

This is not just to avoid liability but also to insure I do not receive a series of 12 foreclosures hit my credit over the next 18 months when I am trying to rebuild.

I am going out on a limb here since I rarely cop an attitude with posters but, this really irritates me.

If you did not want to suffer the consequences of purchasing 12 properties that you clearly could not afford, you should not have done so. What appears on your credit report is the least of your problems and rebuilding your credit should be the farthest thing from your mind. (Are you planning on running up a bunch of debt once you unload the debt you already have?) Next time pay cash and you won’t have to worry. Better yet, next time, don’t try to be a real estate mogul. You obviously are not a "Rockefeller" so don’t try to act like one and, if you do, be a little more humble when everything falls apart.

Also, the houses are all owned by LLC holding companies I set up even though my name is on the mortgage. Once I discharge the mortgage debt, how could the foreclosure be reported as mine if the properties are deeded to LLCs.

Let me guess, you went to some dumb seminar that told you to open LLC’s to “protect yourself”. Sorry, you were sold crap. You purchased the homes, the homes were titled to you at the time of purchase, and you signed the loan documents, therefore it is reported on your credit report. What you did with the properties after purchasing them is irrelevant.

Des.

[porkchopcash]

Des,
I guess I can somewhat see your frustration when you say:

"I am going out on a limb here since I rarely cop an attitude with posters but, this really irritates me.

If you did not want to suffer the consequences of purchasing 12 properties that you clearly could not afford, you should not have done so. What appears on your credit report is the least of your problems and rebuilding your credit should be the farthest thing from your mind. (Are you planning on running up a bunch of debt once you unload the debt you already have?) Next time pay cash and you won’t have to worry. Better yet, next time, don’t try to be a real estate mogul. You obviously are not a "Rockefeller" so don’t try to act like one and, if you do, be a little more humble when everything falls apart."

However, I have found that for the most part this forum is pretty non-judgmental. Some people are in BK because of their own doing (extremely bad choices) and some are here because of things they had no control over (medical situations, etc.). Both are accepted and given support and advice because we are all going through this together.

One thing that is true is that none of us have walked in the others shoes so we don't know either their motivations or actions. Although I feel no obligation to justify my actions, let me explain what happened with my situation.
The properties I purchased each had a positive cash flow of over $200 per month between payments and rent. That is a reasonable amount and a good business decision. I did put cash into the purchases but not 100% cash / not many real estate investors did. I built this business over time and did not "run up a bunch of debt" instead I made business investments. For over 8 years I (my wife mostly as I had another job) ran these investments successfully.
A few years ago, the lending crisis happened. The county I own these properties in accounted for 53% of the foreclosures in our entire state last year. As a result of all the empty houses, the values of mine immediately dropped to less than 1/3rd what I paid for them.
The amount of vacant homes then drove down rents immensely. Houses that rented for $750 before now you were lucky to get $400, then the tenant wanted you to put in all new carpet at a cost of $1100.
With these factors, I the best I could hope for is to rent the houses for $100 less per month than the payments and take the rest out of my pocket. I did this for a long time.
The final straw came when the county in it's infinite wisdom decided to change the property tax valuation method and double or triple property taxes on properties. At that time, even with full market rent paid on every property every month (which never happens) the shortfall was over $3000 per month not counting repairs. I paid this shortfall to the mortgage companies every month under the illusion that I could work harder and improve the situation until I had spent all of my families savings. When the money was gone, I could no longer make the payments nor could I make relevant repairs so tenants begin leaving.
Several months back I stopped making the mortgage payments in hope of getting the lenders to work with me on short sales or loan mods. Neither have been successful as the lenders have little incentive to put effort into these programs with a non-homeowner.
While not making payments I did not attempt to rent them cheap and pocket the payments because I have a problem doing something unethical like that.

I did not go to a dumb seminar that told me to use LLCs. It was a respectable real estate attorney who recommended it as protection from "slip and fall" type lawsuits, not to evade creditors. You will find that is very common practice.

At this point, I have depleted my savings and tried to work with uncooperative lenders. Yes, I did take a business risk, but so do many others. I did run the business profitably until outside forces (foreclosure crisis and tripled property taxes) clobbered me. I also provided safe, clean, and affordable housing for several families.
I am not sure what your problem is or what set you off but since you popped off about "Rockefeller" and "humble" and "running up debt" I will give you the benefit of the doubt and say you misinterpreted my comment about rebuilding. Maybe you thought I meant rebuilding a real estate empire. That is not at all what I meant.

I am talking about rebuilding our credit and lives after this. I am talking about being able to get a decent car for my wife to drive to work and being able to get some type of student loans for the next 8 years as my son and daughter go to college. I have not intention of running up debt and really have very little personal debt. In fact I have paid off over half of my personal debt over the last year even while contemplating BK. I have not put anything on a credit card in over a year and most of the charges on them were for materials at Lowes to repair houses.
So yes, I am humble. I was humble before and am definitely humble now. I have seen first hand how the market can turn against you and cause something profitable to become a financial drain no matter how hard you work.

[justbroke]

You did almost exactly what I did... exhausted savings ($80K went real fast) and an un-mentionable amount from my 401(k) -- hence my apprehension when someone mentions depleting their 401(k) to save their property or pay their unsecured creditors). I did that to protect my investment properties! If only hindsight were foresight! Alas, we are here now.

I think Des was just thinking out loud, as we have had posters here who were actually to the point of belligerence on how they obtained multiple mortgages (within a short period of time to mask it from creditors) to amass a small collection of properties. I don't think your case is the same. I had similar rent issues on one property -- a relatively NEW property that I bought when it was still being built on spec in 2006 -- in late 2007 when I couldn't get anyone to pay market! I should have seen it coming, but I kept dipping into cash reserves, then savings, then retirement. Never again!

I think you need a winning strategy and Des' advice and my advice seem to be in alignment. Just parse out the "Trump" references and you'll be fine.

[despritfreya]

Then, Porkchopcash, you are one of the very few.

Most who come into my office with multiple “investment properties” and numerous “LLC’s” thought they could be real estate moguls. They purchased numerous homes (some, purchasing up to 14 properties in 5 months or less with no $$ down) thinking they could make a mint and then are angry that they didn’t. Several of them are real estate “investors” and “landlords” by trade. Some have other jobs and real estate was a “hobby” because their neighbor purchased a property and made a mint by flipping it in a week.

Naturally when I see a poster who appears to be more concerned over a “reestablishing” credit and getting the properties out of his/her name I have to wonder, as the questions raised are the exact same ones raised by the “real estate mogul wanna bees”.

I do hope it works out for you.

Des.

[porkchopcash]

jb,
yes, the savings go faster than what you expect. The reason I asked about this is that other than these mortgages, my credit has been squeaky clean before this debacle and will be squeaky clean after the BK 7.
I need to restore some good credit just to be able to finance vehicles and college loans. I do not plan on moving or purchasing any other real estate.

The whole reason I chose BK7 is to bring this to a close and start fresh. My concern is that the banks will drag out these foreclosures over the next two years and just as I am rebuilding credit a foreclosure bomb will drop on my report. Once or twice would be tolerable but 12 could go on for a few years.

How many properties did you BK?
Was there anything noted on your credit report after the discharge of BK?

[porkchopcash]

Des,
I actually did not want to be a real estate mogul. I wanted to build a business that my wife could manage and maybe make a little profit. Obviously, it would have been nice if the properties appreciated and I could sell them for a retirement nest egg. It was not a hobby, it was a business and we ran it as such.

I am not angry, just disappointed that it did not work out as we put a lot of time and money into it. I probably should have filed BK earlier before spending all my savings but I struggled for a long time with the "morality" of it.

In the end it became a business decision. I have a very good income from a consulting business I started 5 years ago and I do not want to pour all of that into properties that market conditions dictate will not be worth what I paid for them even 10 years from now.

BTW, you are a BK attorney?

[despritfreya]

BTW, you are a BK attorney?

Yes, for over 2 decades so I have seen it all - the good, the bad and the ugly.

Des.

[justbroke]

I only surrendered 2 properties. The other 2 were already disposed of prior to the bankruptcy. There was an additional fifth property that was a joint venture with my brother, but that was sold prior to bankruptcy as well.

Yes, I can only imagine what disposing of 12 properties would be like, if they are all with different lenders.

[porkchopcash]

I only surrendered 2 properties.

How did those report? I assume they were foreclosed.

[justbroke]

How did those report? I assume they were foreclosed.

No public record. Trade line, in credit report, reads as Included In Bankruptcy (IIB) with "RF" and some late reporting before the case was filed in 2008.

[PushRestart]

Hey Porkchop, my sympathies for your situation, I know how it feels to have a nice cash-flowing investment go south on you, it is no fun at all. As a realtor, I know that rental properties are often great investments with many benefits (equity building, tax write offs, etc...) but like any investment, they are not risk free and they can go bad too. And yes, you are not alone, I have done both things, made money and lost money in real estate too. With that said, I could only contribute that short sales are doable but require someone who has done them before and knows how to make them work. I partner with lawyers to make my client's short sales work and my success rate is almost perfect. The caveat about short sales is that they are not short, they take months, with my longest short sale taking just over 2 years to complete. For many people, this time factor (which averages about 5-6 months from taking the listing to closing the sale) is not acceptable... Still, if you want to do a short sale, you can find a short sale expert to list your properties and get the process started. I would recommend following the advice of a good BK lawyer; I have worked with clients who have done both a BK and a short sale at the same time, so I know it can be done.

[porkchopcash]

Push,
Thanks for your input.
A realtor friend of mine has suggested that I should not pursuer BK, still try for the short sales. I see that there are two trains heading down the tracks toward a tunnel. Foreclosure and short sale. It is a gamble which gets there first.
Help me understand, what is the advantage of me pursuing a short sale through bankruptcy and foreclosure.

BTW, spent some time in Seattle, the REI there rocks.

[PushRestart]

My experience with short sales done at the same time as a BK is that the bank is much easier to work with if the owner of the home is under BK protection. My last experience with it had the bank approving the short sale in record time. My negotiator explained to the lien holder's negotiator that they could either accept the short sale offer we brought to them or get nothing because the borrower was going bankrupt. It was the truth and helped to speed things up in a big way. I am working with my BK lawyer and my CPA to figure out my strategy for my primary residence and my 1 rental. I'd like to short sell both to help the bank reduce their losses but only if my lawyer says to do so...
Oh, one other thing, the short sale process can typically get auction dates put off, so if there is any benefit to putting the auction date off, short sales may help.