Have you ever seen this?? Crazy...

[frodo123]

Hey there. Thanks for stopping by.

I've got single family investment properties that are currently in default. They are not properties that make sense to save, but my question relates to bk vs letting them go back to the bank.

I have heard that even if you do a bk, the bank will still foreclose, and you will still have a bk and foreclosure on your record, so does it matter what I do? Should I try to short sale or just let them go? Does it make a difference to my credit after this bk is final?

Thanks

[Shaoline]

Bankruptcy before foreclosure? Depends

When you file bankruptcy the foreclosures come to a dead halt and all the collection letters and phone calls stop.

It is better to try and short sale rather then foreclose. If you choose to let the bank foreclose and you have a second mortgage you may have a deficiency judgement filed againest you and at that point you will need to file for bankruptcy. That deficiency judgement becomes an unsecured loan.

When the bankruptcy is done it will improve your debt to income ratio dramatically.

In my case it is not necessary for me to file bankruptcy unless I have a deficiency judgement against me. I'm attempting to do shorts sales on 2 of my properties. The lenders want to get at least 65% of the payoff amount. So in my case my house can easily sell within that 65% range or more. If the houses sell then the loans are satisfied and I can go on about my life.

If the houses don't sell then the banks will foreclose there will be a deficiency judgement against me and I will have to file bankruptcy. So it is a waiting game.

I strongly encourage - if you don't have a foreclose sale date then put your house (or houses) up for sale. If they don't sale then your no worse off then before, if they do sell - You'll be free.

Whether you file bankruptcy or have foreclosures on your credit - you will be able to buy a house again. Both are bad but not insurmountable. The decision you make will just depend on the details of your situation. For me I choose to allow the foreclosures first and then deal with any deficiency judgements later.

But try to sell your house(s) first. It'll make life easier for you if they sell. The lenders will make you jump through hoops and it is a hassle, but for me that it is a hassle that is worth it to not go through the bigger hassle of bankruptcy and possibly losing other properties that I'm current on.

There is a great forum and you will learn alot here and the government has alot of information on line too.

In conclusion: it really depends on your circumstance and your investment goals in the future. Gather all the info you can to be as well informed as possible then it will be much easier to make your decision.

[Shaoline]

BK versus foreclosure

I want to add this other point as well: If you do not have a sale date for your houses then call your lenders and tell them that you are going to do a short sale (hire a realtor), they will post pone the sale date - this is a very good thing. This is totally to the discretion of the lender. If these are big lenders your dealing with they will extend for a long time, if they are small lenders you might have problems.

Your lenders will send you a short sale package, and they will have on record that your houses are listed.

By all means do sell your homes. Calculate the 65% of your payout amount. Sometimes the lenders will take less. The foreclosure sales usually start the bidding at 75% of the homes market value. You can use this as a guideline for selling your houses. Make sure the realtor sells the homes at a price that covers realtor fees and any other fees. You're going to sell you homes as is. NO concessions. IF the home sells for more then the pay off amount then it all profit that goes to you. You can collect rent while this is going on, because the houses still belong to you.

List your house today! Make sure you hire a super experienced, assertive, well connected realtor that is an expert in your area. With the right realtor your houses should sell quickly.

I wish you the best.

[HHM]

Just a quick note, and I will try to come back later and add more:

Short Sale on investment properties may not make sense from a tax perspective. The forgiven debt (assuming the bank forgives the debt and does not keep it collectabe), is taxable income and you will probably get a 1099. The other caveat is, I do not think you can claim insolvency to get out of the income tax because these properties are not your primary residence (I will have to double check).

[Shaoline]

taxes and short sales

Wow, that is a good point that you bring up HHM. I had not thought about the tax liabilites. I look forward to your resulting research.

[Shaoline]

short sale on investment properties

Just so I can better understand - If I owe a lender 300K and the house sells for 250K. Is the 50k part that maybe considered income?

[HHM]

Just so I can better understand - If I owe a lender 300K and the house sells for 250K. Is the 50k part that maybe considered income?

Yes, the $50K is considered Income (for tax purposes, but not for BK purposes).

[r.m]

The forgiven debt (assuming the bank forgives the debt and does not keep it collectabe), is taxable income and you will probably get a 1099. The other caveat is, I do not think you can claim insolvency to get out of the income tax because these properties are not your primary residence (I will have to double check).

Great, great point.

IF your attorney is a real go-getter [RARE], I've seen a few cases where the mortgage companies have paid a decent amount of money for a DIL, particularly if the properties are currently occupied and you empty them out for them.

[CH33 Paralegal]

in a BK, you'll be protected from owing any deficient amount, and with the way home prices are going down, that's a possibility. in the BK, you can treat those amounts.

If you short sale, you still owe the deficiency and most firms won't want to deal with you with a recent transfer of property like that.

[Faithfullymovin]

CH33 Paralegal:

So you are saying that if you are planning on filing BK (7 or 13) it would be better to let your house go back to the lender than do a short sale or DIL because most attorneys will not want to take this on?

I am in the first stages of having to let my house go and I do plan on filing BK so I am trying to get all the info up front to make the correct desicison.

Thanks,

Faith

P.S. I have another questions and would it be okay to PM you and ask it.

[outofluck07]

Foreclosure on rental property - What to do!?

I have a single family home that I tried to sell for a year, finally rented, and am now filing for BK. I don't want to keep the house. Is it better to:
1) Have the tenants pay the rent directtly to the bank (does not cover the payment)
2) Let the house foreclose by not accepting any more rent and not paying the mortgage. (and...let the tenants stay until they're kicked out, or make them move?)
3) Keep the house even though were upside down on it, but would qualify for Ch.7 if we will be paying the mortgage (future secured payment) with the so-called "rental income" ?? I don't understand how it's called income since I can never use a dime of it! I just deposit a check and then write a higher amount check to the bank for the mortgage, and that doesn't even include taxes. AAAGGGHHH!

I have the August rent check and I don't want to deposit it! Anybody go through this?