Need opinions on what I should do in this situation

[Rabidpolar]

I purchased a new home in June because my family was growing and my old home was a 3/2 and was no longer big enough for us, unfortunately my old home is underwater by over $100,000. During the time that I was in the process of purchasing my home my current lender allowed me to refinance the home and because I wasn’t sure if the sale for my current home would go through I went through with the refinance. I was hoping that if the sale did go through the refinance would bring my mortgage down to a reasonable amount so that I would be able to rent it without a large deficit, unfortunately it only saved me a couple hundred a month, the mortgage is currently $1553 a month and from what I am reading the best I could get for my house per month is $1180, once you add in the extra taxes I will need to pay due to no homestead exemption I was looking at $500-600 a month deficit. Based on that figure and advice from quite a few people I decided to short sale my home. Unfortunately my current lender is Fairwinds and because they are small and because my debts aren’t exorbitant they are unwilling to forgive any of the deficiency and want me to pay them $115,000 over 6 years, which is what is owed now that fees and missed payments have added up. They refuse to negotiate on the amount, and my lawyer and I are in talks with them about increasing the term to hopefully 10 years or more.

My wife and I make over $100K a year combined, have about $60K in unsecured debt. We can afford the payout that they want, but it will be bringing us right to the brink of what we can afford. My question is should I accept this offer? Should I try fighting it in hopes that I can get them to renegotiate the mortgage? Should I try saving the house and rent it, though if I do this at this point the amount I need to put the mortgage back in good standing is over $10,000, which I don’t have so I’m not sure how much of an option this is at this point. I don’t think bankruptcy is an option as from what I have read Chapter 13 would be my only option and that would make me no better off as the monthly payout would most likely be about what I would be paying to settle with Fairwinds. If bankruptcy is an option should I just settle the debt now so that it doesn’t get any large and then deal with bankruptcy afterwards? Any advice would be appreciated.

[keepmine]

Nobody can tell you which chapter of bk ia appliable until you fill out schedules I and J to see if you have sufficent disposable income to fund a Chapter 13. Just because you make 6 figures does not preclude you from filing a 7.
Most bk lawyers give a free or lowcost initial consultation. Speak with a few and get your options explained.

[Rabidpolar]

Nobody can tell you which chapter of bk ia appliable until you fill out schedules I and J to see if you have sufficent disposable income to fund a Chapter 13. Just because you make 6 figures does not preclude you from filing a 7.
Most bk lawyers give a free or lowcost initial consultation. Speak with a few and get your options explained.

That's the issue, I do have the disposable income. I am just trying to see if anyone sees a way out of havin to pay the whole $115K or does it look bleak?

[tobee43]

i haven't heard much about how fairwinds is with their mortgages...they were new to us when we moved to florida.

the only way i know would to file the bk and have the mortgage included however, if your DMI is too high that will not work as you already know. your chances for the 13 may be one of the only way to MAYBE avoid the suit for the deficiency. (if you settle with the bank and it's added to your payments) i really don't understand something, you say you do in fact have DMI then why wouldn't you continue to rent the house...even if you had to pay into it at loss, start claiming depreciation and all the stuffs that go with it. if you can turn this liability into an asset at some point.

i would try to hold off, if chapter 13 isn't an option.

[Rabidpolar]

i haven't heard much about how fairwinds is with their mortgages...they were new to us when we moved to florida.

the only way i know would to file the bk and have the mortgage included however, if your DMI is too high that will not work as you already know. your chances for the 13 may be one of the only way to MAYBE avoid the suit for the deficiency. (if you settle with the bank and it's added to your payments) i really don't understand something, you say you do in fact have DMI then why wouldn't you continue to rent the house...even if you had to pay into it at loss, start claiming depreciation and all the stuffs that go with it. if you can turn this liability into an asset at some point.

i would try to hold off, if chapter 13 isn't an option.

I pretty much figured I am stuck with this payment. The main issue now is becuse I was given some bad advice I haven't been paying the mortgage because I was told that would help facilitate the short sale, and it hasnt had a renter either because I was told having it unoccupied would help as well. So now I have 4 months of non payment along with 4K of legal fees and penalties. I am trying to find out what the reinstatement amount is but if it includes those fees then I am pretty much out of gas as I don't have that kind of cash. I am really just in a bad situation because instead of looking closely at my circumstances they assumed my situation would be the same as all of their other clients were and here I am stuck with $115K deficiency.

[despritfreya]

I would run this by a bk attny. Since I am not in Fl and my state is an anti deficiency state, I am not sure if the lender will react. . .

We know you can afford to pay your debt. We know you are unable, at this time, to catch up the missed mortgage payments and fees. We know you cannot rent the property for a high enough amount to cover its debt service. We know your general debt is only $60k. . .

What if you filed a 13 where the Plan surrenders house #1, you continue to service house #2 and you pay 100% of your general debt. . . We know it takes a long time to foreclose in Fl. We know it will take even longer once the bk is filed. Fairwinds will file a secured claim. You are not paying the secured claim. What is the likelihood that Fairwinds will amend its claim to a general unsecured claim (once it completes the foreclosure process) before you complete payments under the Plan (payments that pay 100% of all allowed claims)? In theory, if you complete payments before the lender reacts then you wipe out the balance with a discharge. (Hope this makes sense).

What I do not know is whether or not there is a procedure in Florida by which lenders secured by first mortgages are given a special opportunity to amend claims from secured to unsecured. Maybe our Florida members can chime in on this.

Des.

[tobee43]

Some Residential Mortgages Can Be Modified Under Bankruptcy Code §1322 in florida i could find no exact case law, but one of cases below i believe happened in south florida.
this was all i could find on florida: (don't know if it helps much)

The first interest was one of the principal motivations behind the. 1978 Code: Congress wanted to give debtors a greater opportunity to ... modify the claims of secured as well ... home loans, many mortgage lenders

Nobelman: Undersecured Home Loans Are Protected



Although Section 1322 protects claims secured by the debtor’s home,the statute is silent (with some exceptions discussed below) about home loans that are undersecured. A debt is considered under secured or partially secured when it exceeds the value of the collateral securing it. On the one hand, the mortgage creates alien on the home and is therefore secured up to the value of the home. On the other hand, technically speaking,that part of the loan that exceeds the value of the home is “unsecured.”If the mortgagee forecloses, it will likely recover no more than the value of the home. Would such a mortgagee’s claim be considered “secured”for antimodification purposes?


The U.S. Supreme Court answered this question in the landmark case of Nobelman v. American Sav. Bank, 508U.S. 324 (1993). American Savings Bank had loaned the debtors $68,000 for the purchase of their home. The loan was secured by a deed of trust,which for purposes of this discussion is the equivalent of a mortgage. When the borrowers filed for bankruptcyy six years later, the outstanding balance on the loan was $71,000.The home, however, was valued at merely $23,000.
The debtors proposed a plan that would “bifurcate” the debt, dividing it into its secured and unsecured parts. They reasoned that the $48,000in debt that exceeded the value of the home was not “secured only by the debtor’s principal residence.”Thus, they urged, this amount could be modified under Section 1322. The result of the debtors’ proposed plan would have been to protect the bank’s interest up to the $23,000 value of the home, but to leave the remaining $48,000 vulnerable to modification. The bank objected to the plan.The Supreme Court ruled in favor of the bank. It agreed with the debtors that under the Code’s definition,technically speaking, the bank held an unsecured claim to the extent
that the claim exceeded the $23,000 value of the house. Nonetheless, the Court held that Section 1322(b) focused on the rights of the creditor in the claim rather than the nature of the claim itself. Justice Thomas, writing for the Court, explained that the mortgage gave the bank numerous rights, including: “[1] the right to repayment of the principal in monthly installments over a fixed term at specified adjustable rates of interest,[2] the right to retain the lien until the debt is paid off, [3] the right to accelerate the loan upon default and to proceed against petitioners’ residence by foreclosure and public sale, and [4] the right to bring an action to recover any deficiency remaining after foreclosure.” Id. at 329 (enumeration )added.

[tobee43]

I would run this by a bk attny. Since I am not in Fl and my state is an anti deficiency state, I am not sure if the lender will react. . .

We know you can afford to pay your debt. We know you are unable, at this time, to catch up the missed mortgage payments and fees. We know you cannot rent the property for a high enough amount to cover its debt service. We know your general debt is only $60k. . .

What if you filed a 13 where the Plan surrenders house #1, you continue to service house #2 and you pay 100% of your general debt. . . We know it takes a long time to foreclose in Fl. We know it will take even longer once the bk is filed. Fairwinds will file a secured claim. You are not paying the secured claim. What is the likelihood that Fairwinds will amend its claim to a general unsecured claim (once it completes the foreclosure process) before you complete payments under the Plan (payments that pay 100% of all allowed claims)? In theory, if you complete payments before the lender reacts then you wipe out the balance with a discharge. (Hope this makes sense).

What I do not know is whether or not there is a procedure in Florida by which lenders secured by first mortgages are given a special opportunity to amend claims from secured to unsecured. Maybe our Florida members can chime in on this.

Des.

des the banks are now beginning to move forward on foreclosures now. we had the bank move on 4 in our sub division which have been empty for over 3 years. so the banks are beginning to move slowly but surely. although, i'm certain the list before the OP's property would be touched could be years as you point out, it takes a while here in florida.

[despritfreya]

Some Residential Mortgages Can Be Modified Under Bankruptcy Code §1322

Tb,

You raise an interesting point but it sounded like OP wanted to just dump the property or would be forced into a 100% payback. If the property is not a debtor’s principal residence it can be modified either under Chapter 11 or 13. There are problems with this idea:

1. It was the debtor’s principal residence. Turning it into a “rental” on the eve of bk can raise an issue of bad faith if the lender is smart enough to figure it out.

2. In the context of a 13 the cram down value must be paid in equal monthly installments (including interest) within the life of the Plan. Depending upon the dollars involved, this may not be feasible.

3. In the context of an 11, the cram down value can be amortized over whatever period you want. We typically set them at your standard 30 years. Unfortunately, the lender can take an 1111(b) election which totally screws the debtor if the debtor is unable to negotiate a settlement of the election. If no settlement, the debtor will be forced to walk.

4. In both Chapters, the monthly rents received must equal or exceed the debt service and any other expenses associated with the property since a debtor cannot be diverting disposable income from their creditors to support an asset that is not necessary for an effective reorganization.

5. If we are dealing with a 100% plan the cram down does not work as the debtor ends up paying the unsecured portion anyway.


Des.

[tobee43]

as you have listed there seemingly are very few options other than just dealing with the possibility of a deficiency suit at the end of all this.

while op may be looked upon as

1. It was the debtor’s principal residence. Turning it into a “rental” on the eve of bk can raise an issue of bad faith if the lender is smart enough to figure it out.

i was more or less thinking about not filing at all and make up the difference in the mortgage shortage from op's excess DMI and wait it out. i know that's far fetched, and i could see it would raise an eyebrow or two on an eve of a bk, if that's the route op wants to go. i mean to me, the longer he can hold on even if he had to put in some dollars it's better than facing the possible deficiency amount that we all know here in florida can be humongous.

des, what would you suggest be the best route to take?

oh! you know des i was thinking about franchising you?? are you up for it LOL!! you know we need you so badly here in florida!

[joshuagraham]

This would be a great time for you or your wife to get fired. OK, that was facetious, but the idea is that any disposable income you would lose now would simply be income denied to the black hole of your creditors - i.e., the 2nd spouse is working for no net income. If somehow you could get your income low enough to qualify for Chapter 7, that would be wonderful.

[keepsmiling]

Some people find that buying a car gets them into a 7.

[Rabidpolar]

To update everyone I decided that the deficiency was too much and we are working with the bank on reinstatement. Unfortunately it is no midnight here and I am agonizing that I made the right decision. Best case scenario I will be out of pocket $600 a month until the market picks up to where I can just break even on the house. Then on top of that I have to deal with if there will be any repairs needed to the house. In black and white having a renter makes sense it is all of that uncertainty that is keeping me up. Did I make the right decision? Should I just have eaten the deficiency for peace of mind? Given that bankruptcy wouldn't help me given my financial situation what would you have done given my situation?

[Rabidpolar]

Also to add moving to our new house was saving us $1000 a month due to reduced mortgage and less gas because we are closer to our jobs. So the magic number for me was that amount. Had I gotten the bank to agree to terms to equal my savings that would have meant we would have had 10 year terms. That's assuming the bank even agreed to that. Just to give everyone some more background. And the fact that I can't sleep.