Now What? BoA moratorium v. bankruptcy

[sje123]

If someone planned to file for bk 7 and has a BoA mortgage, does it make any sense to wait if she can pay all her other bills if she doesn't have to make a mortgage payment?

[Methuss]

That's a little out of whack priority wise.... being delinquent on mortgage but current on credit cards is stupid. If you are having trouble paying bills you pay secured debts first. Primarily because lenders can still go after deficiency judgments on things like cars and real estate once they dispose of the property they take back.

Deal with the four walls first: Food, clothing, shelter (which includes basic utilities; not cell phones or cable TV), and transportation. If there is not much left over after that, then save that little bit and prepare for BK7. If the house is going back with the BK, may as wells top making payments on it only if you live in a judicial foreclosure state where it can take six to eigtheen months before you're forced out. Places like Nevada where they don't have to go through court have much shorter timelines for reposession, as little as 30 days.

[2ndTimeAround]

That's a little out of whack priority wise.... being delinquent on mortgage but current on credit cards is stupid. If you are having trouble paying bills you pay secured debts first. Primarily because lenders can still go after deficiency judgments on things like cars and real estate once they dispose of the property they take back.

I agree with Methuss - your prioritys are not in order...........

First - Do Not File Bankruptcy for your credit cards, that is exactly what BoA wants you to do. They see you as clearing other bills, so you have money available to pay them......

Credit cards can be negotiated to a lower settlement. (There is more involved, have to explain that later).

Aside from your health of you and your family - your home is next in line, then your debts, and after that a recovery plan for your credit.

First work on a loan modification with BoA, to get a payment to 31% of your income. This is not going through the "Making Home Affordable Program".

BoA has been given us excellent modifications, today just had one of my clients completed

Sent: Monday, October 12, 2010 3:49 PM

Subject: Violante w/ BOA

Above borrower obtained loan mod

years 1-5 2%

6 3%

7 4%

8 to Life of loan 4.375%

Paralegal - Stacie Scoppettone

Law Office of .....

Again do not do a bankruptcy - a chapter 7 will be on your credit report for 10 years. Work on your mortgage first!!!!!!!!!!!!!!!!!!

.

[sje123]

The phrasing was bad on my part. My friend has a mortgage that is higher than what she makes and a house worth 150k less than she owes. Her husband died 2 years ago and most of their savings were wiped out with his illness. She did pay down a lot of things with his small life insurance but she's still in a huge hole. BoA won't accept partial payments either.

She was all set (after much prodding from her friends) to file bankruptcy. Then the moratorium came up and she is thinking that she can stay in the house while the moratorium is on and pay her other bills so she's not harassed and maybe the BoA situation will work in her favor (though she has no equity in the house and doesn't want to stay there).

so I was wondering if there is any utitily in what she is thinking of doing--holding off bankruptcy until the BoA situation is resolved.

[Methuss]

I see your point.

If I was in that situation, I would stop paying the mortgage, stop paying all other unsecured debt. Pay for food, and utilities. Save up the $2500 or so a bankruptcy lawyer will cost and keep that in cash, not in any bank account that could be seized. Keep any excess cash above exempt amounts in a fire safe. Then file bankruptcy a day or two before the foreclosure suit court date. Bring the notice of BK filing to the foreclosure court session and give to the judge with a motion to dismiss. That will derail the foreclosure so they have to start over after getting relief from the BK court. This method will maximize time in the house without having payments.

Credit cards and judgments on any unsecured debt will get wiped out and as along as funds are not being kept in a place they can be seized, there is little to worry about. It takes 90-180days for credit card companies to get to the point where lawsuits become an issue.

Oh, and change the phone number to the house to an unlisted, different number....tell any friends/family that are given the new number not to give it out under any circumstances. Debt collectors will be calling and there is no sense in letting them start the harassment game when you already have a plan of action.

[sje123]

Thank you so much. Very helpful. And I assume (tell me if I'm wrong) that the house being in NY and BoA being the mortgagor, the foreclosure notice might not come for some time.

[Methuss]

Probably not. No one knows how long the self-imposed moratorium will last, but now that today all 50 state Attorney Generals have stepped up and said they are investigating all lenders for foreclosure fraud, it is likely to be a while.

Once they file the foreclosure suit it may be a few months before the actual first court date. Then upon filing BK it will be another 60 days before they get in front of the BK judge to ask for relief from the stay...which given the current foreclosure fraud mess may not be granted so easily. Then they have to start the foreclosure all over again which may be several more months to complete.

She does not have to leave the house until it is sold at the foreclosure auction, at which point it is no longer hers. Contrary to popular belief, the bank does not own the house, they merely have a security interest in it for the cash borrowed to buy it. Even after the sale, many lenders offer to pay former homeowners that are still in the house to leave peacefully and "broom clean." That amount they pay to avoid having to go through yet another court case for the eviction can be a few thousand dollars. Combbined with many months of no mortgage payments, it can be quite a tidy sum to start over with.

[2ndTimeAround]

.

If you still want the home -

The issue is since the Mr pasted, and the Mrs as wiped out the savings. The question is is there enough income to support the mortgage?

Below is part of a test used to show affordability to qualify for a modification. BoA use's this method.

Part A - take to gross income (before deductions and multiply by 31%.

Example $3000 x .31% = $930 (how much you modified payment could be, including escrows.

Part B

Use a mortgage calculator put in amount owed, 2%, 30yrs See link for mortgage calculator.

http://www.mortgage-calc.com/mortgage/simple_results.html

Example 1 $200,000 owed x 2% x 30yr = $ 739.24

since you payment is calculated on your gross income - your modified payment is going to be closer to $930.00 month.

Example 2 $300,000 owed x 2% x 30yr = $1,108.86

This is a problem becuase now there is not enough money to support the loan. Two options show more income or let the property go.

Since you are going to let the property go - I strongly disagree filing a bankruptcy. What is it going to save you - 6 or 7 months? Short term it might help you, long term you will hurt you more. Not making your payments - hopefully this moratorium will buy you some time.

I remember back in the 70's my father yelling at me "think about your credit,....credit,....credit" Early 80's was in the Navy, getting out working for the government flying around the country. I always paid my bills on time, so I would have good credit. In the 1990's brought my house and started my own business, moving to a C Corp, if my credit wasn't good, wouldn't of being able to keep my business going as long as it did. 9/11 washed my business as it did for many others.

Over the last decade I have been involved primarily with mortgages, spoken the thousands of people in many different states.

Let me ask you a question - have you ever thought to yourself - if you could turn back the hands of time, you would of done things differently?

A chapter 7 hits your credit even worst - staying on the report for ten years. Yes you wash all your revolving dept down the drain, you will be for it for years to come. Home and Car Insurance, high interest rates on loans, if not getting out right denied for any future credit.

Filing a bankruptcy for the house will involve a chapter 13. This is reported and stays on your credit report for seven years. Your will be making payments to a trustee of up to five years.

Methuss - the bankruptcy cases I worked on, the only way a Lender can get a house back with a relief of stay, the home owner has to default on the bankruptcy. Then when you become late on the payments, the Lender can file a Relief of Stay" and legally remove the home from the bankruptcy.

Letting your home go to foreclosure - that is the worst thing your can ever let happen to your credit report. It will be on there for the next ten years, it will be impossible to get any type of credit for years to come. Once there is a Foreclosure listed, creditors view this has it can happen again.

There are so many more options than letting a home go into foreclosure. The cheapest option, and the most easiest is doing a short sale.

Most of the time you can do a short sale for much less than a bankruptcy, that way in you walk away from the property free and clear will a repairable credit report. Then when the economy gets back on track in 2012, you can qualify to buy another home.

You already said the house is upside down, it should be very easy to negotiate a Short Sale. I do not do short sales, but know reasonable attorneys both in New York and Florida that can recommend if you need some help.

The term "Cash for Keys" - this was the term used many years ago, where a Lender allowed the homeowner to live in the property to upkeep it. We work with close to 35 lenders around the country - nobody is doing that any longer. What is happening - Lenders are allowing homeowners to live in the property without making the mortgage payments. The Lender is hoping the homeowner will up-keep the homes.

Here in Long Island - last month in my county, 20,800 homes where in foreclosure status. On my street - we had a foreclosure, my value took a nose drive. I am almost $300k lower than what my value was four years ago. My wife and I have lived in our home for 18 yrs, the value is almost as low as what we brought it for.

Agree nobody knows how long the moratorium will last, with all the fraud and lack of attention. Bank of America - one person supposedly reviewed and approved 84,000 homes in Florida, which is feasibly impossible. think to solution will be more levels of bank sign off's before a foreclosure is granted.

Which ever way you go - it is important to have a good recovery plan.

Good Luck....

.

:)

Edited October 14, 2010 by 2ndTimeAround

[sje123]

She doesn't want, nor can she afford, the house. It simply is not feasible. She's tried to hold onto it for a year taking odd jobs and hoping the economy would bounce back so she can sell it, but she's finally convinced it's not going to happen.

I thought that bk was better than short sale which is better than foreclosure. Please PM me about a short sale with attorney recs. Thanks.

[Methuss]

A warning on short-sales: Many lenders are slipping in waivers with the documents so the homeowner is still on the hook for any deficiency*...that is the difference between what is owed and what the hosue sells for becomes an unsecured debt obligation. Be very careful and have a real estate attorney review any short sale documents for this.

*especially in States where foreclosures do not allow deficiency balances.

[sje123]

She met with a lawyer last night who said that with her second mortgage neither foreclosure nor short sale is going to give her the relief she wants (as someone mentioned, the second mortgage holder is often going after the homeowner for the deficiency.)

[jq26]

Does she have any non-exempt assets? A deficiency judgment is only worth pursuing if the lender has a good shot of being paid at least a portion of the debt. If she is judgment proof, then I would not get worked up over the advice she received. Sure it is possible, but you have ask yourself if it is probable.

[vettegirl]

She met with a lawyer last night who said that with her second mortgage neither foreclosure nor short sale is going to give her the relief she wants (as someone mentioned, the second mortgage holder is often going after the homeowner for the deficiency.)

Once the 1st mortgage forecloses the 2nd becomes an unsecured debt as I understand it. If they tried to come after her she could discharge in CH7, like a credit card. But as stated above, if she has no assets it's probably nothing to worry about.

[2ndTimeAround]

...... the second mortgage holder is often going after the homeowner for the deficiency.)

I think I mentioned this a few times.... The 2nd Lender can take this to court to file a judgment. Similar to unsecured dept.

Troubled homeowners can solve their growing mortgage problems. First, they can choose to modify their loans to get better rates and lower payments. Second, they may opt to sell their homes to have a fresh start.

Can suggest three options to your friend -

1st Option - file Chapter 7 Bankruptcy to clear the debts - and have it listed on the credit report for the next 10year. Over the next decade getting denied for loans. Then when she can obtaining financing, over the long term you will pay more. Due to her credit being destroyed.

2nd option - negotiate the debt down, settling at a lower amount. In the short term she pay's more, where in the long term she pay's less. Her credit report can be repaired quickly.

Where does your friend live? Upstate, , Manhattan, S.I. or L. I.? Here in the state of New York - the court system is backed up at least a year. The waiting period is different, in different county's of our state. Nassau County here on Long Island is the worst, has the most Foreclosures than any other county in the state. People are getting court notices 2 years out.

For two months have been speaking to a man in Queens - hasn't made payments on the 1st and 2nd in 15 months. Last week his 2nd Lender was awarded a judgment and froze his checking account at his bank. Yesterday his first Lender (BoA), required him to attended a mediation hearing. He has less then one month before the 1st foreclosure hearing. It amazes me why people wait so long to get legal assistance.

With the 2nd option - it is obvious she has a little time, she can wait if she has to, to file a bankruptcy at the last minute. Since she is not making any mortgage payments, over time she can set aside money in an account. To satisfy a lower settlement - free and clear. (Noting we don't know how much she owes on the 2nd loan).

3rd option is under the Federal Home Affordable Foreclosure Alternative or HAFA. This program seeks to provide protection for homeowners and also offers incentives. The HAFA program provides a move out allowance for borrowers amounting to $3,000.

Borrowers are also given complete release from any future liability.

* $3000 given to home owner at the closing for a successful short sale

* Servicer on the loan gets $1,500

* Junior lien holders get up to $6,000 to release the liens for short sale

** Paid for by the U.S. Treasury**

HAFA is a streamlined process for home owners to try to get a loan modification on their property, if the home owner is denied on the loan modification then the bank will encourage a short sale and incentives it for the home owner.

I am surprised the attorney she spoke with to didn't mention this? I don't do short sales - but can recommend a knowledgeable mortgage attorney here in New York that can help her. PM me if she needs assistance.

[Methuss]

4th option.

Chapter 13 bankruptcy, which if you are so far underwater on the home that the 2nd mortgage is wholly unsecured, you can wipe out their lien and it is treated as unsecured in the repayment plan. Any amount unpaid at the end of the plan is discharged and the 2nd lender has no claim to the property.

2nd lienholders fight like hell to prevent their lien from being wiped, so any bk lawyer taking such a case has to be willing to litigate. But the costs may be worth it if it is a couple thousand in litigation costs to save tens of thousands.