Advice Needed on Mortgage and BK7

[ace300s]

This site has been so helpful in helping us through the BK7 process....

Our BK7 was discharged in July 2012. Our Attorney says our house was included in the BK7.

We have not made a payment since Dec 2011. The house is about $70,000 underwater. Our lender is willing do a loan modification process with us. Looks like they'll lower the interest rate, add the arrears to the loan, but no principle reduction.

If we don't do a loan modification, the lender would like to discuss a short sale or deed in lieu. The lender says we don't want a foreclosure on my credit.

Here's where we need advice...

I'm thinking a loan modification would be stupid without a principle reductions? Correct?

If our house was included in the BK7. Is there any advantage in doing a short sale or deed in lieu? The lender says they'd give us a few thousand with these options. Does it do any further damage to our credit if we do nothing and let them foreclose?

I'm thinking we still have 4-6 months before we have to move. Haven't received a notice to foreclose yet?

Looking for advice or suggestions. Should we just wait it out and continue to save our money for as long as we can and then move? My wife and I are in our 60's and feel we would be right back in the same place with a underwater home if we do a loan mod.....

Any help and suggestions....

[Drazil65]

We have not made a payment since January and we were discharged in March. We are just saving our money and building up our moving fund and emergency fund. They sent a preforclosure notice and gave 45 more days to contact the bank to do modification just this week. So we have 45 days (mid October) before they even start the process. We are preparing and saving, thats it...just making life simple. If you have no reason to stay there then just save up and get prepared for your new life...

[memama]

Ace,
Filing for bankruptcy is like dropping an atomic bomb on your credit...I think your lender is trying to use a scare tactic because it's much cheaper for them to do a short-sale or DIL than have to go through the process of foreclosing, especially if you're in a judicial state. That could mean months and months of foreclosure business for your lender, and months and months of a free place to live for you.

I wouldn't do a loan modification, especially if you're already underwater on your house and they're not willing to do a principal reduction. And even *with* a foreclosure you have the slight chance of them offering you cash for keys when the deal is done.

My husband and I chose to include our house in the bankruptcy and are letting them foreclose. That's been the best decision we've made in the last six years ;) However, we already had a different place set up in a different state so there was no incentive for us to save the underwater house.

[btbeme]

First - you did the right thing to not reaffirm. Trying to keep a house that is $70k underwater is bad juju.

A loan modification without a reduction in principle is, for most people, a poor proposition. And since very few modifications ever contain a reduction...well, I say that it may be worth the effort if only to stretch out the timeline before taking the next step.

Is there an advantage to a short sale? Mmmmmaybe... There is a federal HAFA program that will pay you up to $3000 to close a short sale, and the other players (bank, buyer, agents, etc) might be willing to pitch in a few bucks for you to keep the place intact while the sale goes through. Also, banks MIGHT look more favorably on a short sale rather than a foreclosure if and when you eventually want to purchase again - but that is a big MIGHT.

A short sale takes time and effort, which might be worth your while if you are able to save your payments for another few months while the sale closes. Realize that less than half of all short sales actually close, and the bank is not obligated to accept the deal, stretch your foreclosure timeline, or generally do you any favors.

Foreclosure might be faster than a short sale, and that can be a good thing. The clock for qualifying for a new mortgage does not start ticking - three years - until after the deed is out of your name. A Deed in Lieu is fastest; a foreclosure or short sale might lag a few months, but you live for free during that time.

It is all about your level of tolerance, really.

Here is a link with a lot of great info regarding your situation - a long-running discussion with the pros and cons of the options, as well as a good rundown of what a loan mod actually looks like (since the bank will not tell you): http://www.bkforum.com/showthread.ph...-Ch7-Discharge

[ace300s]

First - you did the right thing to not reaffirm. Trying to keep a house that is $70k underwater is bad juju.

A loan modification without a reduction in principle is, for most people, a poor proposition. And since very few modifications ever contain a reduction...well, I say that it may be worth the effort if only to stretch out the timeline before taking the next step.

Is there an advantage to a short sale? Mmmmmaybe... There is a federal HAFA program that will pay you up to $3000 to close a short sale, and the other players (bank, buyer, agents, etc) might be willing to pitch in a few bucks for you to keep the place intact while the sale goes through. Also, banks MIGHT look more favorably on a short sale rather than a foreclosure if and when you eventually want to purchase again - but that is a big MIGHT.

A short sale takes time and effort, which might be worth your while if you are able to save your payments for another few months while the sale closes. Realize that less than half of all short sales actually close, and the bank is not obligated to accept the deal, stretch your foreclosure timeline, or generally do you any favors.

Foreclosure might be faster than a short sale, and that can be a good thing. The clock for qualifying for a new mortgage does not start ticking - three years - until after the deed is out of your name. A Deed in Lieu is fastest; a foreclosure or short sale might lag a few months, but you live for free during that time.

It is all about your level of tolerance, really.

Here is a link with a lot of great info regarding your situation - a long-running discussion with the pros and cons of the options, as well as a good rundown of what a loan mod actually looks like (since the bank will not tell you): http://www.bkforum.com/showthread.ph...-Ch7-Discharge

Can't get the link to open. Is it the correct link?

[SMinGA2]

A modification would not make you liable for the balance should you later decide to walk away - there should be terminology to the effect that it does not negate a bankruptcy discharge.

As to whether or not you should try for a mod, there is a major thing to consider: can you rent elsewhere for less than you'd pay in mortgage, insurance, taxes? Don't forget to consider both the tax savings and maintenance expense in your comparison. If not, staying and modifying FOR NOW may be the right thing for you. If things change down the road and you're still underwater/can't sell - then you can stop paying and let it go.

Or if you decide you want to let the house go yet stall as long as possible, going thru the motions with a modification could give you more time.

[KatieGirl]

I agree! Don't hold on to a house that you cannot afford. Make life easier for yourself. Also, if you are underwater that much it is best just to let it go. That's what I did.

[KatieGirl]

Most people are underwater on their houses these days. I agree with the above comment. I included my house in my bankruptcy also. Best decision I ever made.

[ace300s]

Thank you to everyone that took the time to give me advice and suggestions.....

This is a scary process for us. We've lived in the house for a while. Kids are gone and we just feel we don't need a big house that's $70,000 underwater.

We're hoping we won't have a problem renting something nice. I'm sure having the BK7 on our credit report will hurt us. Has anyone had problems renting after BK7.

[btbeme]

Can't get the link to open. Is it the correct link?

http://www.bkforum.com/showthread.php?75047-Loan-Mod-(BoA)-after-Ch7-Discharge