Attorney recommended foreclosure AFTER bankruptcy

[alo]

I consulted with a couple BK attorneys that actually made very persuasive arguments to me re: foreclosing after I file Ch 13. How I could stop paying my mortgage a few months after filing/discharge and save up cash (less $500/month for their foreclosure defense fee).

They looked at my home value v. debt. I'm upside down by about 20% (60K). I agree with what they said...that if I was offered this home today as an investment, I'd run because it's over priced. So, it is a strategic foreclosure or a way to pressure the bank for a loan mod principle reduction.

But they certainly wanted me to consider it. Note: That's $6K a year for them to monitor documents.

Curiously, they dismissed the idea that I may qualify as an over the medium Ch 7 with my high mortgage and health insurance. (I technically pass the means test with a DMI of -$250).

Maybe it only works to file a Ch 13 and then foreclose a few months later. This goes beyond BK pre-planning and into foreclosure pre-planning. Is there such a thing?!? Has anyone had similar advice? Taken it?

[tobee43]

if your DMI is $-250 what is their reasoning (other than it's more money in their pockets) or logic on the filing of a 13 as opposed to the 7.

we had more attys suggest 13's to us than going 7. we also interviewed 5 attys and would have continued until we found the "right" one for us. we filed a no asset 7 and it went fine despite what we had been told by the attys who insisted we were absolutely not candidates to file for a 7.

a 13 may, in fact be the right direction for you, however, i would really make certain before agreeing to do anything unless there are no questions in your mind that this is the correct decision for you. (although, in a way that's nearly impossible), so lets just say, you need to be as comfortable with this decision as you possibly can be.

if it were me, i would consult a few more attys, and i would also ask these other atty's to explain exactly why it is that they do not feel you can file a 7. if they can't make it clear enough to be totally and absolutely logical to you, i'd find the nearest door.

i'm sure it will all work out! it's a highly emotional time for you now, so sometimes it's best to wait and revisit your goals and plans in a few days or so, just to give yourself a break, as your decisions now you make now, (in the case of a 13) affect your life's for the at least 3-5 years with payments, not withstanding the time the bk will be listed on your credit report.

[ld2366eh]

We thought for sure we would be filing a Chapter 13. After finally running all the schedules, we filed a no asset Chapter 7 (and we are over the median income). We also have a high mortgage, and actually, with the mortgage arrears, that's what contributed to us qualifying for a 7 on the means test. We are behind on our mortgage, but if we can get a successful modification (after discharge), we plan to stay and pay and that's what our schedules show. Our attorney is doing a foreclosure defense/request for loan modification outside of the BK.

We filed mid October, 341 end of November. So far, not a word from the US trustee. Discharge will be end of January as long as nothing comes up between now and then. If your DMI on the means test is negative and schedule I/J is also negative, I agree with tobee43. Why aren't you eligible to file Chapter 7? I would schedule a few more consultations.

And BTW, my attorney took a retainer for the FD/loan mod.

[Pjmax]

$500 a month for foreclosure defense? Considering fc can drag on for a looonng while, an open-ended fee like that seems unreasonable. I don't know much about fc legal fees, but I would keep on lawyer shopping. Keep in mind, is the lawyer looking out for your best interest, or just looking to increase his/her income.

[Pjmax]

I can see additional charges/fees/retainer for the extras like loan mods, etc., but is an open-ended $500/mo. To 'monitor' documents reasonable or usual? Just curious.

[tobee43]

pj, i so agree.

with civil litigation cases dwindling, more and more attys are attempting to find creative ways to maintain their firms. i can understand that. however, a loan modification can be done by the owner of the mortgage. now all of a sudden we are lead to believe that these attys have some ins with the banks? i do believe there are some excellent attys out there that can maybe get somewhere doing this, but it seems to me, it's just a new twist to keep their firms alive. can't blame them really, but one certainly doesn't want that to happen at their expense.

going through a loan mod myself it's nothing more than submitting the correct documentation, really just so the bank can say they never rec'd it even if you delivered it in person LOL! i know we went around and round in circles for over 18 months and by the time we vacated our home of 30 plus years we still didn't have a answer on the mod.

now, that being said, an atty certainly can attempt using well written letters and communications with the banks in an effort to achieve the loan, or if not, at best, make certain good records are kept in order to build a defense for your foreclosure, although, and hopefully a bk atty can answer this, how does that help in non judicial states, unless one initiates the process, which could become extremely costly to the debtor.

[HHM]

In chapter 13, you need to decide, up front, whether you are going to keep or surrender your house. Reason being, a chapter 13 does not discharge a mortgage debt on a primary residence if the debtor proposes to cure the arrears and make payments in the chapter 13. So, hopefully, what these attorneys are telling you is to simply maximize your time in the files, file BK, and allow the foreclosure to proceed after. Also, from a debt perspective, you want to BK first to eliminate any risk of a tax consequence or deficiency issue.

On the foreclosure defense side...$500 a month is not inherently unreasonable, but you need to get a better sense of what the attorney is going to do. But to put in perspective, if the attorney hourly rate is $250 per hour, that $500 buys you only 2 hours per month, managing a foreclosure and the issues with mounting a foreclosure defense could easily occupy that time depending on the circumstances. However, there should minimally be some sort of fee cap and the firm needs to outline the scope for you as to what is included for that fee. I could certainly see $500 per month in a judicial foreclosure state, and also in non-judicial foreclosure if the defense is going to include a filing of a legal action to try and stop the foreclosure. Cases like that could EASILY run $5000+ if there is really a defense to be made.

[bcohen]

$500 a month to "monitor foreclosure documents"? What a joke. Even $500 flat rate for the life of the case to do this "service" would be a waste of money. You do realize that you can periodicaly check the county court records online and/or visit the courthouse once a month to view your records for free, right? Why would you pay an attorney to do that (or really to have their secretary or a paralegal do it)?

Also, with a house that is "upside down" by so much, I assume your desired endgame is to walk, so you might as well quit paying, drag the foreclosure out as long as possible, and eventually move into a rental. You can do this all yourself, no need to waste thousands for attorney fees.

[tobee43]

thank you hhm.

interesting, it would really only be beneficial to the firm ( and, of course, their client), who's handling a 13, where the payments can be merged into the monthly distributions. clients filing a 7 would have a problem coming up with that type of money to establish a defense, especially trying to explain to a trustee if listed as as monthly expense needed for a non-judicial foreclosure .

[alo]

HHM, this would be a strategic foreclosure after BK. Would foreclosure after a Ch7 still eliminate any risk of a tax consequence or deficiency issue as it would in Ch13??

Tobee43, the $500 fee wouldn't even be an issue in Ch13 plan. They proposed we stop paying the mortgage a few months after ch13 discharge and just let the foreclosure process start.

ld2366eh, thanks for sharing your experience. So, you did not reaffirm your home loan(s) in Ch7? When did you stop paying the mortgage? Without the mortgage payment expense, I would not qualify for a Ch 7. What kind of timeframe has your attorney estimated you'll be the home before you have some resolution (one way or the other?)

We are currently on time with our home mortgage payments (both to the first and to the very small 5K second). We are not in arrears. I was not intending on reaffirming our mortgage debt in the BK. While we can afford the home now, it clearly is not a good investment but I hadn't planned on leaving. Then, this option was presented to me.

The goal would be to keep me in the home for as long as possible without making a mortgage payment while they tried to get the principle reduced in a loan modification. I will get an outline of what this monthly fee includes from the attorneys and make sure the whole thing makes sense.

[ld2366eh]

We stopped paying in May. We intend to stay if we can get a successful loan mod. We were allowed the mortgage payment and arrearages on the means test. We also kept our mortgage payments on schedule j as ongoing expense. We would not have qualified for a 7 without that expense either. On our statement of intentions we checked "other" (no surrender and no reaffirm). We aren't even starting the loan mod process until after discharge. If you intend to stay, why did the lawyer tell you that you couldn't list your mortgage expense?

[alo]

My misunderstanding/assumption. I thought if you stopped paying the mortgage before you file BK, then you couldn't claim that expense. The lawyer never told me that.

If you don't mind, I have some more questions about your experience: Were you paying home insurance and property taxes from May to October? Are you paying anything now? What kind of retainer did you have to pay? And, did he provide any case information like that 25% of his cases end up loan modification? Or, average time in home before foreclosure?

I'm just curious what others have done. TIA

[HHM]

Would foreclosure after a Ch7 still eliminate any risk of a tax consequence or deficiency issue as it would in Ch13??

Yes. in fact, if the goal is not to stay in the home, if you qualify for chapter 7, and if there is no other reason to be in chapter 13, then chapter 7 is the better exit strategy.

[ld2366eh]

I would be happy to answer any questions you have. Yes we have continued to pay our homeowners insurance. No, we have not paid our property taxes. Just to give you a bit of background, we had tried 3 times ourselves to get a loan modification through our servicer. The reason for the 2nd and 3rd rejection was that we were not in "imminent default" because we were running about 31 - 59 days late on our mortgage payment. The last time we applied ourselves for a loan mod was Sept 2011, and as a part of our hardship letter, we mentioned that we did not/we would not able to pay our property taxes that were due June/Sept. The servicer paid our property taxes for us. The mod stayed in underwriting from Sept 2011 - Feb 2012. We started consults in March when we finally fessed up to the fact that we were a train wreck waiting to happen. The servicer did not set up an escrow for us for the unpaid property taxes until about that time as well (after the loan mod was turned down). And then they paid our property taxes again in 2012!

Upon recommendation from our attorney, we stopped paying on the mortgage in May, really thinking that we would be filing a 13 and we would get the arrearages caught up going that route. When they ran the numbers in June/July, we qualified for a 7 based on means test and I/J. They ran both a 7 and a 13 scenario. They could not figure out a way to fund a 13 for us based on our current income and expense. We decided that we were willing to walk away from our home (we are underwater as well) if we couldn't get a mod, so our attorney suggested we file a 7, then try to get a mod after discharge.

I contacted him again in August after we were serve. He took a look at our note (we were served papers end of July) and said that he could drag out the defense a pretty long time because our mortgage is tied up in securities. He knows we want to stay in our home if the mod makes sense so he will push for a mod "but he's not in a hurry" so we can save up some money in case we ultimately need to walk. He did not give me any case information as to what % of his cases ended up with a loan mod, but we figured, we tried 3 times - I was done trying, and I needed help. I have a good friend whose husband is in the loan mod business (no, I didn't give him mine) and she says he has some contacts at the various banks, perhaps my attorney does too? Do I think my attorney will be successful? I honestly have no idea, but I was willing to gamble on it.

My retainer was $2,500. He hasn't done much work on the defense yet, filed an appearance and answer in December and showed up in court representing us in November after the bank lifted the automatic stay. They've asked me to start filing out the paperwork for a potential loan mod, but no real work will be done until after we are discharged (we are in a judicial state and have a little time still).

If you have any other questions, let me know...

[tobee43]

HHM, this would be a strategic foreclosure after BK. Would foreclosure after a Ch7 still eliminate any risk of a tax consequence or deficiency issue as it would in Ch13??

Tobee43, the $500 fee wouldn't even be an issue in Ch13 plan. They proposed we stop paying the mortgage a few months after ch13 discharge and just let the foreclosure process start.

ld2366eh, thanks for sharing your experience. So, you did not reaffirm your home loan(s) in Ch7? When did you stop paying the mortgage? Without the mortgage payment expense, I would not qualify for a Ch 7. What kind of timeframe has your attorney estimated you'll be the home before you have some resolution (one way or the other?)

We are currently on time with our home mortgage payments (both to the first and to the very small 5K second). We are not in arrears. I was not intending on reaffirming our mortgage debt in the BK. While we can afford the home now, it clearly is not a good investment but I hadn't planned on leaving. Then, this option was presented to me.

The goal would be to keep me in the home for as long as possible without making a mortgage payment while they tried to get the principle reduced in a loan modification. I will get an outline of what this monthly fee includes from the attorneys and make sure the whole thing makes sense.

sorry you misunderstood, i'm was talking about listing the expense on your means test and schedule of expenditures with respect to qualifying for a chapter 7. of course it's legitimate and wouldn't be questioned if you filed a chapter 13.

as hhm as pointed out, and while this was directly at him, i will also add, as well, there should be no tax ramifications with a chapter 7, and since the mortgage debt relief act was just extended as well. the 7 however if you list the mortgage on your petition and it was discharged you wouldn't have to worry about the tax ramifications nor deficiency amounts as the entire amount of the mortgage would be IIB.