sje123

Total Repair in lieu of bankruptcy

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I posted in this forum several months back to help a friend who is a young widow with children with a house underwater a lot of debt (including medical bills from her husband's illness) and how she didn't want to file for bankruptcy. Several of us convinced her to see a bankruptcy lawyer who told her to stop paying her credit cards, save money to get out of the house (get an apt) and then file for bankruptcy.

She has 2 mortgages on her home and the first is more than her income. She was not happy and although she stopped paying the mortgage and credit cards about 6 months ago and has enough money to move out (and wants to move out of the big house she has with the heating/electric bills), she now has cold feet on filing for bankruptcy.

The banks have not harassed her in months and she thinks if she moves out she can shortsale the house and then settle her other debts without going into bankruptcy. Somehow, to her, bankruptcy is a last resort and she doesn't feel it's necessary until she's tried everything else.

I have no idea of what to say but, either way, a group of us have offered to help her do what she needs to do (she works a lot of hours and has small children).

Do any of the experts here think it's possible to backtrack and shortsale the house and settle the credit card debts? (about 45k). Thanks.

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She is behind 6 months (at least) in everything. A few of her credit cards have gone to collection.

Neither of the mortgage companies appear to be bothering her but how does it work if you short sale a house and have a second mortagor? Do they need to sign off on it too?

I'm just wondering if there are any pitfalls to her plan versus filing for bankruptcy.

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Her mortgage payment for the first mortgage is more than her monthly salary. Her husband became ill and died after a short time and she had to take a job with about half her original salary to take care of the kids (she traveled on her last job and can't travel as a single parent).

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She can short sale the house. Ultimately, if the lender won't accept the short sale offering, then she can file BK. Make sure she gets an experienced short sale agent - not one that is part time or just starting out. She will need to provide her hardship info and current financials. The key is making sure the agent is knowledgeable - and if they are using an attorney's office/title co to negotiate the short sale, that they are experienced too. Once the sale is accepted and closed she may very well have enough money to settle her other debts. If not, then Bk is always an option.

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Do you have the $45k now?

Don't answer that publicly.

When you provide your information to the bank - it is a snap shot in time. You are showing your snap shot as of now. Some items will require a couple of months history, like your bank statements.

The servicer will require all of your financials as well as your hardship letter. You will need to provide, at a minimum, your tax returns for the past two years, your pay stubs, your bank statements for 60 days including any investment accounts, retirement accounts etc. The lender also requires a monthly budget from you. And an affidavit of arems length transaction along with the purchase and sale agreement. There is a list of paperwork that the lenders/servicers require to approve the short sale.

Lets face it, if you are showing lots of cash in savings, they may not approve your short sale or they may approve it but require a lump sum to be paid in cash by you at closing for $X. This amount varies tremendously depending upon the servicer, the amount in savings, etc. This is why you need an experienced agent in your area to consult with you as well as the title co or attorney's office that is communicating with your lender. They will have insights into your specific situation when you show them your financials.

As an alternative you may consider putting your additional cash in your retirement accounts. This is helpful for many reasons, even if you end up having to file BK.

Whatever you do, the bank will see the papertrail. The object here is to show you are in financial distress due to this hardship (the hardship you present). You do not want to look like a strategic default ...this is where you have the funds to pay but choose not to pay.

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