investment property going to foreclose

[sprocket]

We borrowed 100k against our home to buy a commercial property. My wife has lost her income and the property has been bleeedong us for the past 3 years. The rents from the property only cover 3/5 of the mortgage and we can no longer make up the difference about $2800/month. I own a incorperated business that is still doing ok, but I've not paid some sales tax and have been getting behind on some vendors trying to keep our property out of forclosure. The winter hit my business hard and I lost alot of cash flow and dont see a way of getting caught up again. I am not sure what to do. Commercial property is not moving at all right now I paid 565K for the property and I owe 381K. Still owe 100k of the down payment as a second on my home. If I had more time I could probaly sell for 400K but if people know it is going to forclose I don't think would. I am still current on my home mortgage and want to keep my house and business.

What should I do?

[justbroke]

Seek out a professional asset protection or bankruptcy attorney. This may be a good opportunity to think about your business dealings and whether it's time to get out. The good thing is, I think that you could file Chapter 7 since it appears most of your debt is "non-consumer" debt, so you don't even need to do the means test and deal with some of the other issues associated with a consumer bankruptcy.

You may be able to keep your business, but it would depend on the organization of the business. For example, if it's closely held or an LLC, this could cause issues as far as being an actual separate legal entity (based on caselaw).

Again, you really need to re-evaluate where you are, and where you want to be. Whether a straight liquidation may be good, or a re-organization instead.

[sprocket]

Let me try and clarify my first statement.
This winter hit hard and I dont think I will be able to catch back up on my property mortgage. Feb. 2010 went 90 days behind. What I would like is to keep my business and my home. My banker has told me they would start the foreslosure process. I am unsure how it will affect my business and my home though. I owe 300k on my home plus the 100k 2nd. It is worth 350 to 400 if they could sell it. 25k in cc and a personal loan of 8k.

With this property gone I believe with time we can stabalize and start the process of recovery. I just dont want this foreclosure cause me to loose everything.

Any thoughts

[justbroke]

My thoughts are that you need some serious professional assistance. I'm unsure if your business is protected enough or if there are assets of the business that the Trustee may be able to "reach" through stepping in your shoes. This is just the problem of LLCs and closely held corporations where the Trustee gets to act as you and can do things on your behalf.

You really need to seek out some consultations with some attorneys who are good with individual debtors who own an incorporated business.

[BCA2009]

You say in your first post that you have failed to remit some sales tax. That should be paid before you pay ANYTHING ELSE. I don't know about other states, but in Florida the penalty can be 100% of the sales tax not remitted plus interest. Eventually it could lead to criminal charges. Not re-mitting sales tax is very different from not paying federal or state income tax. You are basically stealing from the state. I just don't want you to get in worse situation than you already are.

Good luck!!

[BKOnce]

300K (primary) + 100K (secondary) + 381K (business) = 781K + 33K (CC) ?

Let's see, mortgage is almost ~9K but only ~4K rent collectable + some non-constant income/salary ==>> Chapter 7 (case closed)!

[Tom_Mi]

Sprocket, you and I are very similar. I had 3 (4-unit) apts go belly up 2yrs ago. Back then the banks wouldn't deal -- constantly threataned deficiency judgments, so I had to file BK7.

You might have other options..it depends. So here are my thoughts....

1.) You could probably get a good lawyer to negotiate deed-in-lieu for the commercial property, with language that states they won't seek deficiency. This is a luxury I didn't have 2yrs ago.

2.) Note that the above option (and BK7) will NOT SOLVE your house problem. How do I know this? I filed BK7, and am sitting in a house that's over-mortgaged like yours. I took a big second, thinking my failed business would pay the 2nd off.
...so what to do about the house???

-BK13? - nope, can't cram-down the home. Thanks Republicans. You're a bunch of great guys. We entrepeneurs salute you.

-If your 1st on the home is reasonable, then you might be able to bk7 (and bankrupt your home notes) then negotiate a 10% payboff on the 2nd with the original lender. It's a gamble, but possible. Don't go BK7 just for this reason alone.

-Call your mortgage company and see if the loan was funded with "Freddie/Fannie" money. This means it's USA-funded and your lender might be more williing to talk about workouts/short refinances. My home loan is tied to the LIBOR because it was funded with overseas money. My bank won't even discuss workouts.

-Don't let people here tell you that bankrupted property won't put a foreclosure on your record. True, it won't be on your credit, but your next home lender will find out how the homes sold and hold it against you. All the FHA 3-yr waiting periods will come back to bite you also.

What did we do?
-We're pretty much screwed on the house. Our in-laws live next door. We bought the land from them. The kids like having grandma/grandpa next door. ..and our bank won't deal. It's a financial mistake to stay and pay this hyper-inflated note, so we have to suck it up and go. But we're going to drag our heels and hoard cash as long as we can. Then we'll try to sell short near the end of our redemption period (6 months in mi) and keep foreclosure off our record. A couple small banks will self-fund a loan to us next year with 20% down...so we're just piling up cash as quickly as we can, and hoping the house doesn't get foreclosed before we hit 20%.