House on the cusp of "under water"

[keptdigging]

Filing Ch 7 in California/San Diego soon. Want to keep my house.

Total of 1st and 2nd on my house is $613K. Earlier this year, my broker estimated its value at $560K, so 53K under water. And in CA that means use System 2, exempt lots of other stuff which means a fresh start with some actual cash.

BUT as I look at what properties are selling for, I come up with 600 to 650 IF I were a motivated seller fixing up my property. (The comp thing is hard too because I live in an area with a lot of dissimilar properties.) Worse, things seem to have ticked up a bit due to the tax credit (which has expired but we're getting sales reports now from before it did.)

Even 650 doesn't seem to be enough to cover selling expenses... but it's getting close. Worried that it'll get close enough to tempt the TT to declare me an asset case, put it on the market, and see.... exactly the opposite of me getting on with my life. And if the market ticks up, the house is gone.

As an alternative I can use California System 1, have a $75K exemption, and know the house is safe. But I've got no current income so giving up System 2's protection of some liquid assets makes life much dicier: only limited retirement funds available for mortgage and.... food!

(And gawd as I write about this I feel for the folks in places which much less generous exemptions.)

I think I know the answer: not protecting the house is a crapshoot depending on the individual TT.

Still: Anyone know a rule of thumb for minimum equity that a TT needs to see to bother selling a house? Is there a rule of thumb for discount a house sold by a BK trustee goes for? (Deferred maintenance etc.) Any angles I'm not seeing?

[LadyInTheRed]

I'd call your broker who gave you the estimate and ask whether the value has changed since the last estimate.

You could file using system 2 and then amend Schedule C to use system 1 instead if you have to fight the trustee on value and lose. I believe you can amend anytime before you are discharged.

[justbroke]

I wouldn't go crazy over this. I especially wouldn't go about "speculating" about comps and if I did this and if I did that, and if this were this. Too many "ifs".

The Trustee may attempt to sell a home even with $1K in equity. The Trustee's job is to get as much as he can for the unsecured creditors. While the Trustee will threaten to sell, he really just wants money, so negotiating is always good. The Trustee will be hit with all types of costs of sale should they choose to sell something.

In any event... stop worrying about the selling part now. Go get a comparative market analysis (CMA) to get an idea of what it's actually worth, rather than sit here worrying about these things.

[keptdigging]

Incidentally, my attorney told me the rule of thumb is 10%... gotta have 10% equity before a TT here will bother. Anyway getting a new market analysis now. Actually know two very experienced brokers, asking both.

[newbie2]

Incidentally, my attorney told me the rule of thumb is 10%... gotta have 10% equity before a TT here will bother. Anyway getting a new market analysis now. Actually know two very experienced brokers, asking both.

This doesn't make sense to me. Let's say a $100,000 has 10% equity = $10,000. Now that $10,000 may or may not be worth it to a trustee to try and sell.

However, look at a $500,000 with 10% equity= $50,000. That would be juicy enough don't you think?

[justbroke]

However, look at a $500,000 with 10% equity= $50,000. That would be juicy enough don't you think?

Hmmmm... JUICY! And yes, that's what the Trustee likes. Even $10K could be "worth" it for the Trustee... at least to use it as leverage and get you to "buy" it back. This is the combination of a good attorney and a great overall strategy are important.

[keptdigging]

The TT isn't a real estate broker and has the same transaction and closing costs as the rest of us... and less time on his/her hands. Most costs of sale are a percentage of the price. Rule of thumb (at least here in CA) has always been that it costs 8% to sell a house. Plus there's a lot of uncertainty in real estate as to what a property will really bring... certainly more than a 2% margin of error.

Of course the strategy is to convince the TT there's nothing there in the first place... that they're only going to get their $60 and motivate them to move on quickly.

Anyway according to my atty's rule of thumb your 50,000 equity on a $500K house WOULD motivate the trustee. Just barely. But very little of that 50K would end up in the hands of creditors.