4 Investment properties going into foreclosure

[Markorious]

I have 4 investment properties going into foreclosure as rental income does not cover taxes, hoa and mortgage payment. I just want rid myself of these properties as I have very little money invested in them. I am way upside as I bought at the peak of the market and each unit is worth 70k less than I paid. I have only my primary residence and no other assets to speak of. Will I get a 1099 once the bank sells the units or a nice deficiency as the 4 units will sell for 100k less than I owe. It seems as if chapter 7 will be knocking as I have very little expendable income once I pay my primary mortgage and car payment.

Any help would be greatly appreciated.

[Tom_Mi]

I'm in a similar situation. I have 2 (4-unit) properties 7 months behind. The bank is mulling over some short sale offers now, but they're lot lower than I owe.

I'm waiting to see what they do. I've heard they might just take the offers. If they do come after me for the deficiency I'm just going to file CH7. I'm too old to spend 20 years paying back 120 grand in capital losses.

[uofaguy]

Markorious & Tom MI - Although I am not in MI, I was in a similar situation. The majority of my debt was from business debt (investment properties) and not consumer debt (e.g. my primary residence & credit cards, etc). It appears that MI allows deficiency judgments (http://www.foreclosure.com/statelaw_MI.html). To the mods, apologies if we are unable to link to other sites - if so, please remove the link.

I would suggest you meet with at least a few Business BK attorneys and research this board and the net as much as possible. I ended up meeting with a number of attorneys - many of whom had no idea how to advise on my situation (as they weren't familiar enough with business BK) and many who insisted I would have to file Ch. 13 BK b/c my income was over the state median - despite the business BK aspect.

For me, it amounted to a roll of the dice. Do I let the properties foreclose and hope they don't pursue a deficiency judgment (accepting that I would probably get a 1099c and have to prove insolvency to the IRS to avoid the taxes) or do I file Ch. 7 now. Note, in my case and possibly yours, my debt was majority business debt because I had the investment property mortgages - - thus enabling me to file Ch. 7. However, once the properties foreclosed, any deficiency balance would have been non-secured debt. Per attorneys I spoke with I would then no longer have had a majority business debt - - and would have had to file a Ch. 13 (as I would have failed the means test which does not apply if the majority of your debt is business debt). For me, I was so fed up with things and did not want to risk having to deal with a Ch. 13 for the next 3-5 years so I filed a Ch. 7.

Good luck.

[Tom_Mi]

Thanks UofAguy,

My 3 apt buildings are in my name.

My atty said "yeah, it's business debt, but you still have to pass means testing".

Do you know anything about this whole "business debt allows ch7" idea?

-t

[busbis]

I was in a similar situation also. I had 2 investment properties that I was very upside down in and very very little unsecured debt. Because I made to much money and the properties were being surrendered it showed a presumption of abuse on actual expenses, (the means test I was a neg, but the other schedules I had a postive income of over $1700). I was pushed into a chp 13 at a 100% plan.

Since my filing, my husband and I seperated and our atty advised us not to divorce since our debt was joint. He moved out, is now renting a home and share custody of our 3 kids. Because of his added living expense we now qualify for a chp 7. We have not went to our 341, that will be on 9/2 but our atty said we shouldn't have any trouble, but we'll see.

[BKParalegal]

Tom Mi,

Your attorney is wrong if you are filing a business bankruptcy. The means test only applies to a consumer bankruptcy. In addition, you technically don't have to be upside down on Schedules I and J(Income and Expenses) but it helps avoid any additional scrutiny. I would go get a new attorney just based on that statement.

Good Luck

[Tom_Mi]

BkParalegal,
Thanks!

And it's a business bankruptcy even if the apts were bought in my name? (No llc owns them.)

Are there separate forms to justify this, or do I just tell the trustee that the apts were a business, and he takes me at my word?

[BKParalegal]

One person/family can't live in 3 apts. as a primary residence, so by default they are business debts.

[uofaguy]

Tom Mi - BK Paralegal is correct - the Means Test does not apply to you if the majority of your debt is business/investment debt (and thanks for the insight BK Paralegal).

My investment properties were in my name (not in an LLC or via a corporation). I was very concerned that I would be pushed to a Ch. 13 as I have a decent job and my income is well above my state's median income. You may want to search this board for other posts by some of us who have been in your situation with a majority biz debt (Busbis, Boscoe, Biotechsolution, et al). I learned a ton from this board and ended up having 8-10 free consultations with different attorneys. It is actually scary to think that many of the attorneys I spoke with (even some of the "bankruptcy specialists" recommended by the ABA in my state) insisted I would have to go Ch. 13, as they either did not know the law or were trying to get more $ out of me.

The U.S. Trustee Handbook actually points out the difference between business & consumer debt & Ch. 7. There have also been cases in different districts affirming this. I would strongly recommend meeting with a few business BK attorneys. If you decide to retain, it will likely cost more, but in my case, has been well worth it.