Foreclosure Math Quiz

[davetedge]

There's been no movement on my foreclosure since my BK7 discharge and I'm starting to get curious how it might play out.

Here's the setup:

Bank debt: 350,000
Bank lien: 200,000
2nd lien: 50,000
Current home value: 425,000

The bank got a lift of the stay on their debt prior to the trustee's report of no distribution (and asset abandoned). When the bank forecloses, they are supposed to hand over the excess money to the estate. At the time of filing, the property was worth less than the debt on it.

Q1: with a foreclosure, does the BK estate get $175,000 or $25,000?

Q2: what happens if I sell my home instead of allowing foreclosure? Does the bank get $200,000 or $350,000 and am I supposed to hand over any balance to the estate?


I've been going under the assumption that the foreclosure would happen soon since the statute of limitations is rapidly approaching. I've been happy to live here and be saving my money, but that can't go on forever.
I remember reading somewhere that, post BK, the bank is only entitled to the lien, but the relief from stay confuses me. Plus getting to keep any excess money seems ludicrous...though if I have a legitimate claim on $25k+ then maybe I should get serious about recouping it...

Hoping to talk to a foreclosure attorney next week, but wanted to ask the question here to see if anyone's seen or lived through anything like this.

[justbroke]

When selling a home or dealing with a foreclosure, don't think about the bankruptcy since the bankruptcy only muddies the waters. You must think about it as if a foreclosure occurred. The likelihood that a foreclosure of the first position mortgage is going to bid more than it's "credit" bid (the balance of your loan), is highly unlikely. In fact, they are not going to do that. They have an amount that they have in their mind for which they will walk away. The bank will bid at the auction up to its credit bid value. It will start, usually, at a predetermined amount that is lower than the foreclosure amount. Then the bank will protect its interest against other bidders by continuing to bid up to the credit bid amount. (It reads as though the "bank debt" that you mention is the "credit bid" amount the bank can use at auction.)

Once it is bank owned, the bank will assign a Realtor to handle the sale. The bank will try to recover its losses or maybe not. Some value will be set for the property and the Realtor will manage the sale. If it sells for less than you owed (the bank debt), then the bank has a theoretical "deficiency" against you. Since you're in bankruptcy, that would be moot, unless you're in a Chapter 13 and the bank filed a proper claim.

I don't know where you've read that a lienholder is only entitled to it's lien value. A lienholder is entitled to the balance of the promissory note. Again, the likelihood of money left after foreclosure is nearly improbable. Additionally, since the Trustee abandoned the property from the bankruptcy estate, then there is nothing for the estate even if the sale mysteriously yielded the $425,000 estimated value. The foreclosure costs alone would probably eat up any perceived equity.

[davetedge]

Thanks, justbroke. This makes more sense.
I should phrase my 2nd question better. It seems possible that the bank will never be able to foreclose. This is in part because they don't seem to own the note, and also because in about 5 months, they'll exceed the statute of limitations.

So if the bank can't foreclose, and I sell the house, who gets the proceeds?

I'm not sure what happens to the liens in that case, nor whether the BK estate plays any role in this scenario.

[justbroke]

Don't be too sure about statute of limitations and the rights of the holder of the note. Not that Florida foreclosure rulings would influence New York judges, but our courts (either at the Appellate and/or the Florida Supreme Court) ruled this year that the statute of limitations for foreclosure, is solely for the single default. For example, if you defaulted on the 1/15/2010 payment, then the statute of limitations (in Florida for a holder of the note to bring a complaint to a judgment) is five (5) years. So on 1/14/2015, that period would expire but only for that specific default. It is very complex, here, and they made a new term for it called "deceleration".

I would not bank on a free house (pun intended).

[davetedge]

I doubt a free house is in the cards, but getting some cash by avoiding foreclosure would be nice as long is it doesn't cost me too much, and as long as the trustee doesn't take it anyways. Still on the fence as to how hard I want to defend keeping a home I felt I was going to lose 5 years ago, my originally strategy was to let it go.

I'd like to go back in time and tell 2009 me not to panic, nothing involving NY courts happens fast.

Florida sounds messy (and it sounds like there was some heavy lobbying by banks). No idea if NY has the same problems, but some local lawyers have blogged about their success with that defense. That's a question for the attorney for sure. I'm frankly shocked that we're even approaching the 6 year mark.