Solve this real estate mess.

[lj210]

Long story short, my mother has a $40,000 first mortgage, a 80,000 second, owed $8,000 in back property taxes, for a total of $128,000.00. She also has about $5K in credit card debt on top of it and she wants out. She cannot take care of the house anymore as well as servicing the debt. She has fallen behind on both mortgages and if nothing is done foreclosure will be barking at the door. Some options we have investigated:

Option A: Put the house up for sale. With luck it could sell for 135,000.00. Add on on real estate commissions and closing costs she would be upside down. Possibly negotiate with the bank to sell short if the goal amount isn't achieved in an offer on the house. She would still be left with her credit card which she can handle.

Option B: File Chapter 7 and walk away from the whole mess.


Option c: Make the second mortgage holder a lower ball offer, Say $40-50K to pay off the second mortgage and basically tell them she will file a Chpt 7 if they don't accept and may mother could possibly put some cash in her pocket if they accept. This way they will get something sooner instead of letting the property drag through the whole foreclosure process for a year or two....if this is even legal. Would a bank even consider this.
Please help. Any new suggestions are very welcome.

[frogger]

Option B is probably going to be the only choice. Even if you could find a buyer for the house, they probably can't borrow the money to pay for it.

[phsunny]

I would choose B. We filed Chapter 7 and lived rent free in our home for 15 months.......could have probably stayed a lot longer but wanted the kids to have the stability of staying in our current school district and the "fun" of looking at homes to rent - we treated it like an adventure - and it was! We also had our home up for sale the whole time, but with few lookers and NO buyers we knew where that was headed. Life is so much better now!!!

[Pandora]

what is house worth exactly? Everything depends on that - is there equity? Say house is valued at 100K - so essentially after deducting 1st of 40K, you have 60K in equity; 2nd is 80K -...2nd will probably foreclose over the 1st as they have more vested and would still walk away with $ regardless.

Tough spot because either way, either mortgage co. can foreclose and get paid close to whats owed, depending on value of house.

Filing BK could help, however - again, everything hinges on the value of her house - as exemptions would come into play. You mentioned trying to settle with the 2nd for 40-50K - where would that money come from exactly? If your mom has it in the bank and she files BK - again, exemptions will come into play to allow her to keep that money.

[lj210]

what is house worth exactly? Everything depends on that - is there equity? Say house is valued at 100K - so essentially after deducting 1st of 40K, you have 60K in equity; 2nd is 80K -...2nd will probably foreclose over the 1st as they have more vested and would still walk away with $ regardless.

Tough spot because either way, either mortgage co. can foreclose and get paid close to whats owed, depending on value of house.

Filing BK could help, however - again, everything hinges on the value of her house - as exemptions would come into play. You mentioned trying to settle with the 2nd for 40-50K - where would that money come from exactly? If your mom has it in the bank and she files BK - again, exemptions will come into play to allow her to keep that money.

Realistically speaking in todays market it might bring $125k. If we had an offer we would try to negotiate a short sale with the 2nd mortgage holder. Or should the sale attempt be forgotton and just do a 7. Without a sale it would end up there any way. Thanks

[bcohen]

If she does a short sale, she will have to be out of the house immediately, once the buyer's offer is approved. This means that she will have to come up with money for moving expenses, and start paying rent immediately, as she will need someplace to live. On the other hand, if she simply quits paying the mortgages and instead sets aside the money for security deposits, moving expenses, etc, she can easily enjoy a year or more of rent-free living, which has a significant value. Instead of coming out of this with nothing--and still having to move--she can come out ahead financially by letting the house go to foreclosure!