I don"t want to do anything illegal...

[StrawberrySu]

Husband and I have 2 rental properties underwater about 25%, currently both are rented but for less than mortgage, both just listed for short sale. Already have an accepted offer on one between us and seller (165k, owe 203k). We are broke have no cash to repair properties. Advised I need to not pay mortgages in order to qualify for short sales. Can I keep the rent to save for future?

Also seems I need to default on CC (about 15k total on 7 cards) to trigger short sales, cause mortgagers don't believe you are in trouble unless you are in trouble across the board.

Plan to go HAFA route on primary home, because it is also underwater (at least $40K), and we want to move to a warmer climate, with our grandkids, in North Carolina. Hubby has decent job, but commute is 3 hrs round trip, and is wearing on his health, job is getting too physically demanding for him as well. We have $1600 a month in military retirement as well.

So..questions:

If we sell off small items here (furniture, pool table, old car, etc), keep cash from renters, stop paying CCs, and save as much cash as possible, can we go to NC and buy a foreclosure for cash ... I mean is it legal, not is it possible..

Once all houses have worked through short sale, and if we have no deficiencies, the CCs would be the only worries as far as credit. If we end up in foreclosure, we would have to file BK next year. The rental properties should allow us to go Chap 7 without means test, right? So it's okay for my husband to get a decent job?

If we do buy a house in NC, the home exemption is a total of $70k for both of us ... so if we buy a cheap house, we can convert our saved cash into a safe place, correct?

We are 55 years old, no retirement other than SS, and his military, no savings no assets, no equity, health issues, just want to go where it is warmer, cheaper, and have less stress for the years we have left...is that so wrong?

[frogger]

Did you sign an assignment of rents with your lender on the rental property?

[Charlie777]

The 2005 bankruptcy law revisions set a waiting period (I think it might be two years) for you to move to another state and use the homestead exemption. This was done to deal with some high profile cases where debtors moved to a state like Florida or Texas with an unlimited homestead exemption and spent millions on a "home" to shield those millions. So you would have to be able to wait out that waiting period after buying the home, and in the meantime the creditors could sue you, and if they got a judgement, might be able to force sale of the new home.

As long as there isn't an assignment clause in the loan agreements for the rental properties, and possibly even if there is, I don't believe you're doing anything illegal by collecting the rents and not paying the mortgage. I don't know whether your state allows deficiencies on owner-occupied homes, and I understand very few people have actually been able to get through the HAFA process, but almost always a deficiency can be assessed on a commercial mortgage. If the short sale you have an offer on can be approved by the bank with the condition that the deficiency is waived you're lucky.

You might consider BK now. If the homes are underwater, with other exemptions you may be able to exempt the "things" you think of selling and some cash, but probably not $70K. But you may be able to regain some ground renting and saving. If your husband is ex-military does he have a VA mortgage eligibility? As long as the home you are letting go, if the VA isn't the mortgage holder taking the loss he might qualify for a mortgage in a couple of years from discharge.

[StrawberrySu]

Did you sign an assignment of rents with your lender on the rental property?

No, first property was a house we bought for our daughter, SIL, and four little granddaughters a few years ago. I had to buy it as an investment property, and after a year of my SIL being unemployed and us wiping out our savings to keep loan current, they moved out and we rented it ... on second renter in the first year, it's an old house, needs new furnace and roof, prolly have to evict this tenant. Other rental was our home, bought in 2005, we lease optioned it in 2009 and moved to a less expensive home. Now our lease optioner is bailing and we can't get someone to pay $1400 a month ... our l/o guy is willing to stay and pay us $900, so it isn't empty.

[keepmine]

I'd suggest you get yourself to a bk lawyer now.
You're better off filing now as opposed to moving and then having to wait 2 years to use NC. state exemptions.
Sounds like you really have little to protect right now so go ahead and pull the trigger, get your discharge and then move.

[StrawberrySu]

The 2005 bankruptcy law revisions set a waiting period (I think it might be two years) for you to move to another state and use the homestead exemption. This was done to deal with some high profile cases where debtors moved to a state like Florida or Texas with an unlimited homestead exemption and spent millions on a "home" to shield those millions. So you would have to be able to wait out that waiting period after buying the home, and in the meantime the creditors could sue you, and if they got a judgement, might be able to force sale of the new home.

As long as there isn't an assignment clause in the loan agreements for the rental properties, and possibly even if there is, I don't believe you're doing anything illegal by collecting the rents and not paying the mortgage. I don't know whether your state allows deficiencies on owner-occupied homes, and I understand very few people have actually been able to get through the HAFA process, but almost always a deficiency can be assessed on a commercial mortgage. If the short sale you have an offer on can be approved by the bank with the condition that the deficiency is waived you're lucky.

You might consider BK now. If the homes are underwater, with other exemptions you may be able to exempt the "things" you think of selling and some cash, but probably not $70K. But you may be able to regain some ground renting and saving. If your husband is ex-military does he have a VA mortgage eligibility? As long as the home you are letting go, if the VA isn't the mortgage holder taking the loss he might qualify for a mortgage in a couple of years from discharge.

Our former home that is now a rental (and is in the short sale process) has a VA loan. I had read that if we moved, our BK filing was based on where we had lived the majority of the last 180 days, but I midssed the part about the 2 year requirement on homestead exemptions.

[StrawberrySu]

well here is the problem with that .... we filed for BK7 in fall 2003, it was completed in Jan. 2004, due to a failed business, so my understanding is we can't file again till Jan 2012. yeah, I know, one BK should be enough for anyone, didn't expect this economy to collapse.

[StrawberrySu]

Thanks for everyone's advice! I guess I am looking to pre-plan the bankruptcy. take advantage of every avenue but also stay legal, and not do anything to land in hot water. We don't pass the means test (especially if we let go of our home), and it sounds like only one of the properties can be classified "business", since the second was our former home. Therefore I don't think we qualify for a non-consumer BK7.

If my husband quits his job and we move to NC and rent, and he takes a lower paying job so we can pass the means test, is this fraud? Can we take the several thousand we may have saved by then and pay 6 months on a rental? I expect our credit will be shot by this summer, and it may be necessary to pre-pay to get someone to rent to us. Everyone says to use the mortgage money you aren't paying to get a fresh start, but then don't you have to worry that the BK court will say "So you didn't make the house payment or pay the credit cards even tho you worked..where is that money?"

We feel like we are in a catch 22 situation. We want to move, and we are going to be unable to make payments on both rentals next month. Gotta stop paying the mortgages and credit cards to get short sales considered, but we still have decent income .... just not enough to pay all of it.

[keepmine]

well here is the problem with that .... we filed for BK7 in fall 2003, it was completed in Jan. 2004, due to a failed business, so my understanding is we can't file again till Jan 2012. yeah, I know, one BK should be enough for anyone, didn't expect this economy to collapse.

It's 8 years between filing dates-not discharge dates. You can file this fall.

[StrawberrySu]

It's 8 years between filing dates-not discharge dates. You can file this fall.

thanks so much, I must have missed that as well, good to know!

[StrawberrySu]

Our former home that is now a rental (and is in the short sale process) has a VA loan. I had read that if we moved, our BK filing was based on where we had lived the majority of the last 180 days, but I midssed the part about the 2 year requirement on homestead exemptions.

I just found out that Ohio's homestead exemption is $21,625 (per person), so can we use that total, like 43k, and buy a house in NC? Actually, we will probably only be able to accumulate around 30k, but in any case, does the HE only apply to the state we file in (IE we have to have a home we are exempting in OH), or can our home be in the state we have moved to, but using OH's exemtion amounts?

[tcreegan]

Hi StrawberrySue,

but in any case, does the HE only apply to the state we file in (IE we have to have a home we are exempting in OH), or can our home be in the state we have moved to, but using OH's exemtion amounts? ...yes, no, sort of...

Ohio has a "domiciled" requirement on their exemptions. You can't use OH exemptions if you move out-of-state. But you can't use NC exemptions until you have been there 2 years. So, if you file after moving to NC but before 2 years, you would use the federal exemptions.

so can we use that total, like 43k, and buy a house in NC? Actually, we will probably only be able to accumulate around 30k

The homestead exemption is for equity in your primary residence, which if underwater, equity = zero. =zero to buy a new house

What you are saying is you will save up 30K or so and put it down on a new house in NC, then file, then exempt it. Here is where you really need a good BK attorney. You are going to take a large, non-exempt cash asset and transfer it into an exempt asset. From the BK trustee point of view, that cash should have gone to pay your creditors first, and they will want to pull that money back for distribution to the creditors. You work w/ a good BK attorney to prevent this from happening.

Good luck with everything, hopefully it all works out and you can enjoy the grandkids in NC !

Tom in Colo

[StrawberrySu]

Hi StrawberrySue,

but in any case, does the HE only apply to the state we file in (IE we have to have a home we are exempting in OH), or can our home be in the state we have moved to, but using OH's exemtion amounts? ...yes, no, sort of...

Ohio has a "domiciled" requirement on their exemptions. You can't use OH exemptions if you move out-of-state. But you can't use NC exemptions until you have been there 2 years. So, if you file after moving to NC but before 2 years, you would use the federal exemptions.

so can we use that total, like 43k, and buy a house in NC? Actually, we will probably only be able to accumulate around 30k

The homestead exemption is for equity in your primary residence, which if underwater, equity = zero. =zero to buy a new house

What you are saying is you will save up 30K or so and put it down on a new house in NC, then file, then exempt it. Here is where you really need a good BK attorney. You are going to take a large, non-exempt cash asset and transfer it into an exempt asset. From the BK trustee point of view, that cash should have gone to pay your creditors first, and they will want to pull that money back for distribution to the creditors. You work w/ a good BK attorney to prevent this from happening.

Good luck with everything, hopefully it all works out and you can enjoy the grandkids in NC !

Tom in Colo

Tom thanks for answering me! I have pretty much come to the same conclusion, that is would be gambling with exemptions, and I am not a gambler, as I said, I don't want to do anything wrong.

So, if we cannot take the cash and buy someplace, we can spend it on dental, health care, etc. But we will have 1600 from retirement, 2600 take home from hubby's job and rental income of 1500 from the two properties. Yikes! No way to legally get rid of it. Does it make sense to have husband quit his job and move to new state, our income would then be 3100 mo/ at least as long as renters paid. this puts us under the means test for bk7, and we could survive on that. We could file bk7 in September, then start to recover next year.

We have to get the bk going soon, don't want to wait a few years to file .. it will limit my husbands ability to earn a better income in our last few years before retirement. We have the two investment properties tied up in short sale, wish I hadn't done that now. Need to be able to file bk before feb 2012 in order to avoid 1099s, right, assuming ss go thru this year.

[StrawberrySu]

Oh, another question. you said
"You are going to take a large, non-exempt cash asset and transfer it into an exempt asset. From the BK trustee point of view, that cash should have gone to pay your creditors first, and they will want to pull that money back for distribution to the creditors. You work w/ a good BK attorney to prevent this from happening."

Did you mean a good bk attorney could help us figure out how to do this, or did you mean a good bk atty could keep us from doing something really stupid? lol

[keepmine]

Your husband will not be the first person on this site who quit a job or turned down OT in order to pass the means test.
You need to understand that the means test is just step 1. You also must fill out schedules I and J to see if yo have enough monthly dispsoable income to fund a Chapter 13.Currently, anything over $182/month will likely land you in a 13.
Here's a good link to help with those calculations. You can be under the median income but still land in a 13 if you have too much MDI.

http://www.legalconsumer.com/bankruptcy/means-test/index.php

FWIW, NC is a pretty debtor friendly state. No wage garnishments except for child support or student loans.