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Foreclosure with 2 mortgages - what to expect

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We tried going the short-sale route - the agent had everything lined up: a buyer willing to take it on, estimates on getting the house marketable/livable (roughly 50k because of catastrophic septic system failure and foundation leak plus other major and minor issues), the 2nd mortgage holder (Ocwen) approved the greatly reduced amount they were offered, everything. The senior mortgage holder (Chase) did only an outside+comps based appraisal and said we had to try to sell it for 39k more than any of the potential buyers who looked at it were willing to even consider, and they won't budge on that, so the agent told us to go ahead and shut off utilities and prepare for the foreclosure process. Unfortunately I have no idea *how* to prepare for that.

 

Can I go ahead and cancel the insurance on it or do we have to keep that? We'll still have to pay taxes on it until the foreclosure is complete, right? I'm assuming Ocwen will also begin proceedings, so how does it work with two mortgage holders? Any other ideas on how to be prepared or minimize the coming "hit?"

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Can't see a button to edit my original, so...

 

We're in GA. Mainly I just want to know about maintaining insurance since we always paid it separately - it would save us a nice chunk monthly to drop it, but I don't want to end up shooting myself in the foot by doing so. Also, I'd love info about potential pros/cons of filing BK prior to foreclosure proceedings (according to means test we qualify for ch7, but the mortgages plus some medical debt totaling maybe 2k are our only debts, so not sure if we can do a BK just for the mortgages?)

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My lawyer that I use for consumer law issues when I had to file a couple suits against a couple of creditors last year told me that filing BK to save a home makes no sense. I don't know if I agree 100%.. If I had known at the time what the future was going to bring down the road (a chance to relocate and start over) I don't think that I would have.

 

You have a lot to consider....

 

Is the house worth it to you? Do you owe more than it is worth? Can you make the payment to the bankruptcy court AND your house payment (if you Ch 13) and live with not having any extra money for 3 to 5 years?

 

The first thing will be a notice of default with a intent to foreclose. Then after that a notice of acceleration where the primary lender will ask for all moneis due plus fees within X number of days or they will start foreclosure.

 

If GA is a non judicial foreclosure state they just have to run the notice of foreclosure in the newspaper within a county the house resides for several weeks. Then they will file a foreclosure deed and then you will have x amount of days to leave or they will get a court order to send the sherrif department to your house and remove you and your belongings from the property.

 

It's the same in a judicial state as non judicial except the forclosure process is a court process. You will know when it starts because you will be served papers. In non judicial states you may not know until it has already happened.

 

Until the forclosure is complete you are still responsible for any liability of the property. If it burned down or flooded or was blown away in a tornado your responsible for that. Or if someone is injured on it until the bank owns it, its on you. If you stop paying the insurance they will put insurance on it at a redicious rate and they are the sole beneficiary if there is a loss and you get nothing.

 

If you don't pay the taxes when they are due and the home is still in your name then you will have a tax lien filed against you at worst.. The mortgage company will likely pick up the tab but add it to what you owe.

 

Then you have to worry about being sued for the difference between the amount owed and what it sells for in foreclosure. If you don't pay it they can get your tax returns for however many years it takes satisfy it. The second lien holder will have to take a back seat but they will sue you for the amount owed.

 

If you file a ch. 7 then you will no longer be liable for any of the money owed and you will still likely lose the house after it is discharged unless you reaffirm it (why though?) or you somehow refi it. But you are not going to be able to do so then if you can't now.

 

That will buy you several months in the home due to the bankruptcy process (5 months or longer) and then the foreclosure process is still taking 6-12 months or longer... technically you could live almost rent free for up to a year or more.

 

If you just walk away today your going to be on the hook for a lot of money and still have wrecked credit for 7 years. You can buy a home with a down payment 2 years post bankruptcy and have zero debts coming in to it.

 

Also, if the house is significantly worth less than what is owed on the 1st and 2nd you can have the 2nd mortgage "crammed down" via an adversarial procedure and not owe it upon the completion of a ch 13..

 

Regardless... don't tuck your head in the sand. You must talk to an attorney and prepare yourself a head of time or this will be a mess for a long time. Once this crap storm starts - it's ugly.

 

You need to act accordingly as soon as possible. I doubt I would file BK to save a house again. But I would to keep the vultures from picking me clean for years.

Edited by discopanda

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My lawyer that I use for consumer law issues when I had to file a couple suits against a couple of creditors last year told me that filing BK to save a home makes no sense. I don't know if I agree 100%.. If I had known at the time what the future was going to bring down the road (a chance to relocate and start over) I don't think that I would have.

 

You have a lot to consider....

 

Is the house worth it to you? Do you owe more than it is worth? Can you make the payment to the bankruptcy court AND your house payment (if you Ch 13) and live with not having any extra money for 3 to 5 years?

 

The first thing will be a notice of default with a intent to foreclose. Then after that a notice of acceleration where the primary lender will ask for all moneis due plus fees within X number of days or they will start foreclosure.

 

If GA is a non judicial foreclosure state they just have to run the notice of foreclosure in the newspaper within a county the house resides for several weeks. Then they will file a foreclosure deed and then you will have x amount of days to leave or they will get a court order to send the sherrif department to your house and remove you and your belongings from the property.

 

It's the same in a judicial state as non judicial except the forclosure process is a court process. You will know when it starts because you will be served papers. In non judicial states you may not know until it has already happened.

 

Until the forclosure is complete you are still responsible for any liability of the property. If it burned down or flooded or was blown away in a tornado your responsible for that. Or if someone is injured on it until the bank owns it, its on you. If you stop paying the insurance they will put insurance on it at a redicious rate and they are the sole beneficiary if there is a loss and you get nothing.

 

If you don't pay the taxes when they are due and the home is still in your name then you will have a tax lien filed against you at worst.. The mortgage company will likely pick up the tab but add it to what you owe.

 

Then you have to worry about being sued for the difference between the amount owed and what it sells for in foreclosure. If you don't pay it they can get your tax returns for however many years it takes satisfy it. The second lien holder will have to take a back seat but they will sue you for the amount owed.

 

If you file a ch. 7 then you will no longer be liable for any of the money owed and you will still likely lose the house after it is discharged unless you reaffirm it (why though?) or you somehow refi it. But you are not going to be able to do so then if you can't now.

 

That will buy you several months in the home due to the bankruptcy process (5 months or longer) and then the foreclosure process is still taking 6-12 months or longer... technically you could live almost rent free for up to a year or more.

 

If you just walk away today your going to be on the hook for a lot of money and still have wrecked credit for 7 years. You can buy a home with a down payment 2 years post bankruptcy and have zero debts coming in to it.

 

Also, if the house is significantly worth less than what is owed on the 1st and 2nd you can have the 2nd mortgage "crammed down" via an adversarial procedure and not owe it upon the completion of a ch 13..

 

Regardless... don't tuck your head in the sand. You must talk to an attorney and prepare yourself a head of time or this will be a mess for a long time. Once this crap storm starts - it's ugly.

 

You need to act accordingly as soon as possible. I doubt I would file BK to save a house again. But I would to keep the vultures from picking me clean for years.

 

Thanks for the response!

 

We are not trying to save the house at all - it has multiple major issues (septic, plumbing, and foundation) that we can't even come close to affording to repair. My disabled MIL, who lived in our house with us so we could help care for her, sold her old house, got a mortgage on a house that is much more handicap-accessible, and we moved with her, so we've been out of that house physically since early summer (our names aren't on any part of the "new" house except the cable bill). We last made mortgage payments in April/May and have been working with an agent on a short sale since that time which just fell through because the 1st mortgage holder did only a comps-based appraisal and insists we try to sell the house for 40k more than anyone we've had look at it is willing to pay given the amount they'd have to shell out on repairs. We have kept the utilities on and paid up since we were trying to sell it, but our agent said we could go ahead and cancel them since there's no point paying for utilities no one is using while we wait out the foreclosure process, so I shut them off today. I wasn't sure about insurance, but it's really not all that much per month, so we'll keep it (the company knows the house is vacant - costs a bit more but at least that won't come back to bite us if something happens while no one's there).

 

We have a family thing out of town next week, but once we get back we'll be meeting with a couple of attorneys to find out what our options are - and I certainly wouldn't be opposed to BK if it helped minimize the damages down the road. Will they do BKs just for mortgages? That's the only debt we have other than some fairly small medical bills (we got ourselves into trouble with credit cards a few years ago that we dealt with via payments plans and our credit hasn't recovered from that yet, so the only credit card we have is a secured card with a very low limit and almost nothing on it).

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Bankruptcy is all or nothing. You can't pick and choose. Ch 7 is liquidation meaning you are financially insolvent and you are released from those debts. There are exceptions but I don't think you have any of those like student loans, etc.

 

Chapter 13 is a repayment plan. You still are on the hook for the debts but you make payments to catch up and they can't take anything away from you as long as you are current on the plan.

 

So when you chapter 7 - every debt is discharged unless you reafirm it and then it will survive the discharge.

 

Please talk to a real legal professional but from you have told me I would Chapter 7, try to reaffirm what credit cards you have (since they are secured it will be easier) and once you are discharged from the mortgage debt I would do a deed in lieu of foreclosure and mail them the keys.

 

You basically hand it back to them and they can't come after you for the deficiency. Plus it would get rid of the other bad debt too. Again, talk to a professional and just get it done. Your credit will be a poop show for a couple of years but you will bounce back.

 

Way quicker than two foreclosed mortgage trade lines and the ensuing collections, judgements and garnishments would be.

Edited by discopanda

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Bankruptcy is all or nothing. You can't pick and choose. Ch 7 is liquidation meaning you are financially insolvent and you are released from those debts. There are exceptions but I don't think you have any of those like student loans, etc.

 

Chapter 13 is a repayment plan. You still are on the hook for the debts but you make payments to catch up and they can't take anything away from you as long as you are current on the plan.

 

So when you chapter 7 - every debt is discharged unless you reafirm it and then it will survive the discharge.

 

Please talk to a real legal professional but from you have told me I would Chapter 7, try to reaffirm what credit cards you have (since they are secured it will be easier) and once you are discharged from the mortgage debt I would do a deed in lieu of foreclosure and mail them the keys.

 

You basically hand it back to them and they can't come after you for the deficiency. Plus it would get rid of the other bad debt too. Again, talk to a professional and just get it done. Your credit will be a poop show for a couple of years but you will bounce back.

 

Way quicker than two foreclosed mortgage trade lines and the ensuing collections, judgements and garnishments would be.

 

Not all states allow deficiency judgements in mortgage foreclosures. OP's mortgage insurance (presuming its an FHA mortgage) should cover the lender's losses. Now he will go on the three year clock for CAIVRS before being able to get another FHA mortgage. Since he's living in the inlaws house that doesn't seem to be an issue.

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Bankruptcy is all or nothing. You can't pick and choose. Ch 7 is liquidation meaning you are financially insolvent and you are released from those debts. There are exceptions but I don't think you have any of those like student loans, etc.

 

Chapter 13 is a repayment plan. You still are on the hook for the debts but you make payments to catch up and they can't take anything away from you as long as you are current on the plan.

 

So when you chapter 7 - every debt is discharged unless you reafirm it and then it will survive the discharge.

 

Please talk to a real legal professional but from you have told me I would Chapter 7, try to reaffirm what credit cards you have (since they are secured it will be easier) and once you are discharged from the mortgage debt I would do a deed in lieu of foreclosure and mail them the keys.

 

You basically hand it back to them and they can't come after you for the deficiency. Plus it would get rid of the other bad debt too. Again, talk to a professional and just get it done. Your credit will be a poop show for a couple of years but you will bounce back.

 

Way quicker than two foreclosed mortgage trade lines and the ensuing collections, judgements and garnishments would be.

Not all states allow deficiency judgements in mortgage foreclosures. OP's mortgage insurance (presuming its an FHA mortgage) should cover the lender's losses. Now he will go on the three year clock for CAIVRS before being able to get another FHA mortgage. Since he's living in the inlaws house that doesn't seem to be an issue.

100% correct! I don't know if GA allows it or not and I did not consider the FHA route.

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Bankruptcy is all or nothing. You can't pick and choose. Ch 7 is liquidation meaning you are financially insolvent and you are released from those debts. There are exceptions but I don't think you have any of those like student loans, etc.

 

Chapter 13 is a repayment plan. You still are on the hook for the debts but you make payments to catch up and they can't take anything away from you as long as you are current on the plan.

 

So when you chapter 7 - every debt is discharged unless you reafirm it and then it will survive the discharge.

 

Please talk to a real legal professional but from you have told me I would Chapter 7, try to reaffirm what credit cards you have (since they are secured it will be easier) and once you are discharged from the mortgage debt I would do a deed in lieu of foreclosure and mail them the keys.

 

You basically hand it back to them and they can't come after you for the deficiency. Plus it would get rid of the other bad debt too. Again, talk to a professional and just get it done. Your credit will be a poop show for a couple of years but you will bounce back.

 

Way quicker than two foreclosed mortgage trade lines and the ensuing collections, judgements and garnishments would be.

 

Thanks for the replies, you guys!

 

We're definitely going to set up an appointment to speak with an attorney. It sounds like chapter 7 may be the option with the least fallout if we qualify (our actual annual income would qualify but because of the way our pay periods are structured we got an "extra" paycheck in July, so since bankruptcy court appears to use the previous 6 months to determine annual pay it's skewed a smidge too high), but we'll get as much legal advice as we can before deciding.

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Bankruptcy is all or nothing. You can't pick and choose. Ch 7 is liquidation meaning you are financially insolvent and you are released from those debts. There are exceptions but I don't think you have any of those like student loans, etc.

 

Chapter 13 is a repayment plan. You still are on the hook for the debts but you make payments to catch up and they can't take anything away from you as long as you are current on the plan.

 

So when you chapter 7 - every debt is discharged unless you reafirm it and then it will survive the discharge.

 

Please talk to a real legal professional but from you have told me I would Chapter 7, try to reaffirm what credit cards you have (since they are secured it will be easier) and once you are discharged from the mortgage debt I would do a deed in lieu of foreclosure and mail them the keys.

 

You basically hand it back to them and they can't come after you for the deficiency. Plus it would get rid of the other bad debt too. Again, talk to a professional and just get it done. Your credit will be a poop show for a couple of years but you will bounce back.

 

Way quicker than two foreclosed mortgage trade lines and the ensuing collections, judgements and garnishments would be.

Thanks for the replies, you guys!

 

We're definitely going to set up an appointment to speak with an attorney. It sounds like chapter 7 may be the option with the least fallout if we qualify (our actual annual income would qualify but because of the way our pay periods are structured we got an "extra" paycheck in July, so since bankruptcy court appears to use the previous 6 months to determine annual pay it's skewed a smidge too high), but we'll get as much legal advice as we can before deciding.

I think you're thinking to hard about that. Unless you have very high income and/or lots of assets, you have financial liabilities that you are unable to satisfy.

 

If your liabilities are greater than your assets then you will qualify.

Edited by discopanda

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