Foreclosure or DIL, not sure what to do

[McMark]

Howdy Y'all,

I've searched but can't seem to find what I am looking for, maybe someone can help.

We filed our chapter 7 on 9/29, and our 341 is scheduled for 11/8. We chose to surrender the house in the chapter 7, as we are upside down in it, and it needs more work than we could afford to do to even try to get it ready for sale. When I spoke with the bank, they asked if we intended to stay through foreclosure, which we are, and they asked that we inform them if that changes so they can secure the property. I agreed that we would keep them informed if we ended up needing to go.

Today, our lawyer called and said the bank contacted him, and asked if he could ask us if we would do a deed in lieu. He said if it were him he would do the DIL, but if we do that we will need to leave much sooner. He also said if we do the DIL, we would be best to wait until after our discharge. I assume that will not be until January 2011, but if we accept their offer to do a DIL, do we have any say as to when that takes place? He also said their is the possibility of a 1099-C if we do the DIL, but again if we don't sign until after discharge, we would probably have the bankruptcy exclusion to negate this.

I have been reading all day, and can't make heads or tails of what the procedure/timeframe of a DIL is, or which is the better way to go.

Anyone else know anything about this that could maybe shed some light for us? Our lawyer said we should let him know what we want to do in the next couple days so he can get back to the lender on it.

Googling all day now has me confused... ...perhaps I need to Bing and decide?

[confident]

Keep looking. The timelines for these kinds of things seem to be ever-changing. What we knew was true about foreclosures in our area in April suddenly changed 180 degrees in August, and changed again in the last month. Consequently, our plans hinging on what was "then true" have also been altered.

Keep searching through the threads, someone is likely to have recent DIL experience who can help.

Good luck!

[ccsjoe]

DIL is basically a mutually agreed to and negotiated surrender of the property and title, so as to your question regarding timeframes, they are negotiated under a deed in lieu. Yes, a DIL is preferrable to a foreclosure, less impact on credit, etc. Foreclosure is technically forcible, DIL is mutual. Yes, there would be no 1099 IF you DIL post-discharge. The discharge takes care of the debt, the DIL takes care of title. No debt = no 1099.

[ryan]

Couple things: You ought to have your atty ask them what date THEY(the bank) are thinking about for turning back house to them?
If its too soon for you, tell them so. They may be willing to extend, since a FC action in Wisconsin will probably be a judicial one, which can take them a lot of time. Also have atty ask if they will give CASH FOR KEYS as well. I have seen atty's and many credit experts say that the difference between DIL and FC in terms of credit score is small. YMMV.

[McMark]

Thanks for the info and advice. My biggest concerns were the tax implication and when we would need to get out by.

Our attorney just got back to us a few minutes ago, and said he contacted the bank with our concerns, and they have agreed to wait until after the discharge to do the DIL if we agree to do it, so no 1099 as you say ccsjoe. YEAH! And then we would not need to be out until after discharge sometime in January. We are fine with that, just didn't want to have to be out within the month or anything.

Hopefully all else goes smooth from here...looking forward to starting over and getting away from this all!

[confident]

Good for you! Glad to see this go well.

[debee]

joe - does it make a difference for his credit if he already filed bk? wouldn't the foreclosure/dil just get subsumed by the bk?

[ccsjoe]

joe - does it make a difference for his credit if he already filed bk? wouldn't the foreclosure/dil just get subsumed by the bk?

Yes, it does make a difference. Please remember that the foreclosure has nothing to do with the mortgage other than one being the cause for the other. Mortgage is discharged in BK, foreclosure and DIL transfer name out of title, one nicer than the other.

[debee]

But in terms of his credit, wouldn't both fall under the IIB?

[McMark]

debee, I believe it would, but doing the DIL will get it over with much quicker, and the clock begins to tick on distancing us from the hit. With the foreclosure apparently that would hit the credit reports 9 months to a year after the BK, and then the clock would begin. I like the idea of the DIL, just to get this over with and get on with starting anew.

[debee]

Makes sense. We'll be letting two properties go and I would love it if we could get DIL too, but I have the feeling it won't go that way. It's nice that you have that option. Hope it works out for you.