Foreclosure + BK or Promissory Note (Short Sale) + BK?

[Dancer]

We're trying to do a short sale on DH's house but the bank is refusing to approve without DH signing a promissory note for $85K. Based on the online calculator it looks like DH will be able to do a Chapter 7 by the end of year. My earnings are still inflating his average and pushing him above the means test right now.

Is there any benefit to DH signing the promissory note to get his name off the title and then file instead of waiting for the foreclosure and then filing (or perhaps filing before the foreclosure)? Could DH be accused of fraud if he signed a promissory note that we know he cannot afford to pay?

I haven't through this yet but the promissory note is unsecured while the mortgage is secured. Deficiency judgment would also be unsecured I think.

The only benefit I can see to the short sale/promissory note is that my DH's name would be off the title.

Any idea how quickly they would come after us for the unpaid promissory note?

[bcohen]

I would not recommend signing any contract which you have no intention of honoring. Once you file for bankruptcy, your personal liability for the house is discharged. You can, of course, continue to live there without paying your mortgage until they finally foreclose.

[Dancer]

Thanks for the reply. We actually don't live in the house anymore. We now live in my house (house in my name only). So we're not getting the benefit of living anywhere for free now so there's no reason why we would want to hang onto the house.

The only benefit to the short sale and promissory note is that DH's name gets off the title and we can begin the process of moving on with our lives. I know that the waiting period for when he'll be eligible for a mortgage again starts when the foreclosure is finalized which could take another year.