No Other Way Out?

[Dannmcg357]

Going to file in one week, Chapter 7. I am filling to avoid a defiency judgement on a bad mortgage. I would not file if I had some other avenue to aviod being sued for best guess $130K. I don't want to get into how I got in this position, I just wanted to see if anyone out there knew of another way, besides leaving the country! lol

[BassBoy]

Unless you're able to prove there's no way for you to repay this debt, or a portion of it, then you're responsible for the debt.

[Hillbilly]

It really depends on where you live, Some 'no recourse' states do not allow deficiency judgments at all, they get nothing more than to repossess the real estate that secured the mortgage. (after all the property was the 'security' (the 'hostage') for the loan, and they should not loan more than what the property is worth for that very reason. Money lending is an investment with a calculated risk factor, there is no inherent guarantee that every loan or investment is going to be profitable, sometimes it is allowable for even the 'big guys' to lose.)
While some states do allow for the pursuit of a deficiency, the Mortgage holders most often choose not to exercise this option.

I was really worried about this when my previous home was foreclosed on, and spent weeks on searching, read lots of Banker/Lawyer generated 'scare stories' but could not find even a single case among the tens of thousands of foreclosures in my state where a mortgage deficiency was actually pursued.
I walked away from a 185k mortgage, and a 26k second, It's been over three years now since my foreclosure, and the house has since been sold and occupied twice.
I never did need to file for BK because the mortgage was my only substantial debt.
The Second does still send out a letter about once a year, offering to 'settle' for a whole lot less.
My Credit is shot of course, and fine with me, as now I am forced to live within my means.
I 'd suggest that Dannmcg do some checking around to see if mortgage deficiencies are actually being pursued in his (or her) area, before filling BK.

This is the 'Foreclosure Forum', has anyone here had to pay a Mortgage deficiency judgment?

[325Falcon]

However in the absence of a discharge if the lender "writes off" a certain dollar amount the IRS will consider that income on your part. (I think)

[Dannmcg357]

Yes, research sounds like a good idea. I have googled it to death, anyone know any other way to investigate a compay/bank past practices regarding DJ? The Mortgagee is CountryPlace Mortgage/Palm Harbor Homes

[Hillbilly]

However in the absence of a discharge if the lender "writes off" a certain dollar amount the IRS will consider that income on your part. (I think)

Yes, But things have changed. I recieved a 1099-C 'income' form from the Mortgage holder.
However as I was 'insolvent' (the total of my debts exceeded my assets at the time of the foreclosure), upon filing the proper Tax forms The IRS 'forgave' the entire amount of default 'income' (search; the "Mortgage Forgiveness Debt Relief Act")
In fact the year that I recieved and filed these forms, not only did I not 'owe' any additional taxes, I actually recieved a 2k+ refund!

[DeadManCrawling]

Hillbilly,

Can you define "time of foreclosure"?

Is it the date of the first foreclosure notice, date of NOD, or date the foreclosure is completed and the deed re-registered in the lender's name?

This question does not apply to me, but I can see others being interested in the answer, if you know.

best,

-dmc

[Hillbilly]

I did not attempt to split hairs on that one, my understanding is that after the required 'Publication', 'Public Sale', and 'Notice' being prominently placed on the property
(and it was) and at the expiration of the statutory 'Redemption Period', The property is irredeemably 'Foreclosed'.
In my case, at no time during this period of time did I have sufficient assets, nor any available means, or any ability to 'redeem' the property. Thus I was legally 'insolvent'.
A change for the better in my financial status -after- the 'redemption period' expired (or was ended) could not retroactively change the substantial facts of my state of 'insolvency' at the time of the foreclosure's commencement or its conclusion.
To be clear, I had enough cash and income to continue to meet the Mortgage payments for a time, however my finances were quickly dwindling, And I did first try to negotiate with the Lender, but they would not make any 'adjustments' to the terms.
Thus I was forced to make the 'strategic decision' to stop paying and get out before it Bankrupted us and left us impoverished (and I'd have still have lost the house)
My income and Credit rating was fine at that time, and I was able to purchase my present (smaller, less expensive) home before discontinuing the payments on my previous house. (I would have sold it...if there had been a market...but at the price there was no chance.)


eta
I need to add that the lender sends out an inspector to determine if anyone is yet living in the property, if on inspection it is determined that the home is no longer occupied, the property is declared to be 'abandoned' and the 'Redemption Period' is ended.
If however, the homeowner so chooses, they may remain and inhabit the property without further payment or obligation for the entire amount of time that is allotted in the legal 'Redemption Period'. (varies from State to State)
This can provide time to save up a substantial amount of cash with which to acquire other suitable living accommodations.
I remained in my Foreclosed home for another 8 months, (and maintained it as usual, even voluntarily 'winterized' it before leaving) while slowly moving everything to a new home 500 miles away, in another State.

To bad that many people feeling 'guilty', move on much too quickly and in so doing deprive themselves of the many thousands of dollars that they could otherwise be saving.

[Hillbilly]

Note, 'redeeming the property' does not just consist of coming up with the 'Past Due' payments. The 'Note' or Contract contains an "Acceleration' clause which upon 'default' of payment the lender can demand the immediate repayment of the entire outstanding Mortgage amount.
For many people (probably most) this situation results in a state of insolvency, unless the person has accessible and readily disposable assets that exceed the value of the demand of the entire Mortgage Note.

This course of action is NOT right, nor practical for everyone. We are elderly, and our principal source of income is from a pension that debt collectors cannot touch.

[DeadManCrawling]

Hillbilly,

Thanks for the detailed reply. This will likely benefit others, to know the process you went through.

Sounds like it worked out as well as it could for you. Congrats,

-dmc

[andy28]

Hillbilly,
I'm in the same boat now.. my debt is just the 1st & 2nd mortgage, hoa & taxes..
I thinking of filing BK but since I read your comment... maybe it's better to let it foreclosure and not file bk..
Just wondering if your credit score improve now after everything.. don't know if better to file bk with foreclosure or not bk..

thanks!
andy

[Hillbilly]

Andy,
I first came to this board seeking information and wondering if I would need to file BK, and I certainly would have, if it had proven necessary, but I had several reasons peculiar to my own circumstances, for avoiding doing so if at all possible.

We were trapped in overwhelming mortgage debt, one that was taking up about 85% of our monthly income, and would have continued to do so until we either gave up and 'lost it', or were past 85 years old, whichever came first.
I won't go into detail how this came about_ We were fools, and the lenders took full advantage of our lack of financial savvy, and took creative liberties with our financial information to arrange loans for us that were beyond our means.
(on one, our loan application as filled out by us, we honestly reported my wife's income as being 20k a year, checking over the information latter however revealed that my wife had somehow 'transformed' into a Professional Seamstress earning 60k a year, whereas we had never even suggested any such thing, and my wife has never did any sewing at all.) Our biggest mistake ever, was signing on their line.

After asking questions, and seeking experienced advice here, and doing a lot of research, I developed a plan. While our credit was still good, we found and bought a place that we knew we could afford, and then, The month that we made our first payment on the new property, we stopped making those outrageous payments on the old.
(No way could we have afforded to keep up with both).
The mortgage lenders on our new place 'understood' that we would be 'selling' our old home. (It didn't really matter to them how we 'disposed' of it, as our new mortgage was not dependent upon any monies derived from its 'sale'.)
In all of this we were careful about keeping all of our other payments and bills paid on time, only the old Mortgage and HELOC were excluded. (this prevents lenders from 'forcing BK', _to do so they have to prove that you are "not regularly paying your debts" and this takes a minimum of THREE lenders to force)

So, we still have the very same Credit Cards as we did back before any of this began,
A Master Card which is through our old Credit Union where we keep an open and active account, making small deposits and transactions, using it as a Debit card only.
Also have half a dozen other 'store' charge cards which we continue to use.
Only our 'Sam's Club' card last year reduced our previous $2500 limit down to $1200, we have reason to believe that this was not a response to, or particular to our case, but an across the board action.

I do not know, or even particularly care what my credit score now is.
Because of the outstanding unpaid HELOC, I do not expect it rise significantly, and no longer depend or 'count on' using credit for major purchases.
If we need something, we now save for it, and if we cannot afford to pay cash, then we cannot afford it. We drive a ten year old Jeep, it is dependable and paid for.
After that it has been simply 'waiting' to see what would happen.
We are now going into our 5th year of 'waiting'.
Meanwhile life has been good, very good to us, we love the life that we have found in our new place, and wouldn't go back even if they were giving our old house away.

I am not advising anyone to avoid filing BK, my circumstances are unique to my situation. Your situation us unique to you, and you will have to make the choices that best fit your situation. That is the thing I recognized early on, either I would make the hard choices, take charge, and be responsible for the outcome, Or I would just become another pawn and victim in other men's games and choices.
It is your quality of life, now and future. Take control, and do your best not to let strangers rob you of the happiness that you are entitled to.

My responses here are primarily to address questions about what happens if you allow a Foreclosure to proceed, and perhaps by relating my experience, help relieve some measure of the fear so that doing generates.
You can find a lot of scare stories about the -possibility- of 'Deficiency Judgments' on the Internet. Look at whom is doing the talking.
Rather than letting yourself be manipulated by fear and guilt incited by the words of Bankers and Lawyers, (both of which stand to profit from inciting feelings of guilt, fear, and hopelessness in you_so that they can 'squeeze more out of you' or offer to 'help you out') dictate your course of action.
I encourage you to check out just how many Mortgage 'Deficiency' Judgments are actually being handed down and paid out in your area.
Millions of people are now losing their homes to Foreclosure, a great many simply being the victims of larger economic factors over which they have little or no control.
The stigma of undergoing a Foreclosure or a Bankruptcy is becoming less significant, and less of a factor in one's future, and future credit worthiness every day.

Best Wishes!
Hillbilly

[DeadManCrawling]

Keen analysis Hillbilly, and I agree completely.

More people are waking up and realizing it is time to do what bankers have always done: Put you and your finances FIRST, ahead of their interests. Good enough for them? Well, good enough for the rest of us too.

Also agree that any perceived stigma regarding BK, foreclosures, and other financial choices will likely be very different now. I know this to be true among my circle of friends and acquaintances. Not a negative word or thought from anyone. In fact, many of them are considering these same questions, and are emotionally detached from every aspect. Good to see people making these decisions based on rational thought rather than emotion.

Thanks fro sharing your experiences, Hillbilly. Very good thoughts.

Best,

-dmc