1/4/2012 2:51 PM ET|
Go bankrupt, keep your home?
It's possible that filing for bankruptcy can actually increase the chances that you'll be able to stay in your home. Here's how it could work.
Despite the apparent economic improvement -- with the unemployment rate finally moving below 9% back in November -- millions still face the possibility of losing their homes through foreclosure.
While it's not a "magic bullet" that can discharge a first mortgage loan on your residence, filing for bankruptcy can buy you some time, force a mortgage lender or servicer to negotiate with you, and eliminate a significant portion of other unsecured debt, depending on your circumstances.
According to regulatory data provided by SNL Financial, the "big four" U.S. banks had huge amounts of one- to four-family residential loans on their balance sheets and serviced for others, for which the underlying homes were in the midst of the foreclosure process as of Sept. 30:
- Bank of America had $23 billion in residential mortgage loans on its balance sheet with homes in foreclosure, while loans serviced for others in foreclosure totaled a whopping $90.6 billion.
- For JPMorgan Chase, residential mortgage loans in foreclosure totaled $28.9 billion, while loans serviced for others in foreclosure totaled $54.7 billion.
- For Wells Fargo, residential mortgage loans on the balance sheet with collateral homes in some phase of foreclosure totaled $18.1 billion, while loans serviced for others in foreclosure totaled $37.7 billion.
- Citigroup reported $6.9 billion in residential mortgage loans in foreclosure on its balance sheet, and $10.3 billion serviced for others that were in foreclosure.
While President Barack Obama's expansion of the Home Affordable Refinance Program, or HARP, will allow millions of borrowers with mortgage loans held by Fannie Mae and Freddie Mac to refinance their balances at today's low rates -- even if the borrowers owe significantly more than the homes are worth -- HARP is available only to borrowers who have been current on their loans over the past six months, and the Fannie/Freddie loans represent only about half of U.S. mortgages.
Filing for bankruptcy, of course, can't be taken lightly, and you will need the help of a lawyer.
According to Geoff Walsh, a staff attorney with the National Consumer Law Center, "the first threshold question that people need to consider when they're looking at bankruptcy as an option for foreclosure is whether all of their major assets are covered by state exemption laws."
In New York, for example, $100,000 in home equity is exempt if you go through bankruptcy. This means that if the difference between the market value of your home and the outstanding liens on your home is less than $100,000, you will emerge from bankruptcy still owning your home. If you have more than $100,000 in home equity, the bankruptcy trustee will sell the home, give you $100,000, and pay the rest to the mortgage lien holder.
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After having seen the expenditures that some people think are mandatory, I'm pretty jaded about bankruptcy.
There are literally people who won't cut off cable tv, but will declare bankruptcy.
I know that many will stick their fingers in their ears when I say this - the vast majority of Americans can cut expenses by half - and still live like the middle class did in the 1950's.
We all forget that they had few recurring expenses for entertainment and convinience like internet, cable, and cell phones. They didn't eat out every month - let alone several times a week. They had less cars, and used less heat and a/c. They used less lighting, and had no devices that used power when they were "off". They kept clothes longer, and had less of them. They would wear the same clothes more than once if they didn't get dirty.
Add it all up and most people can save $500-$1000 a month. (Far more for some) That's generally enough to avert bankruptcy.
Check out Dave Ramsey's Financial Peace. (He's the radio guy who has people that say: "We're debt free!!").
I don't blame banks for loaning money. I do blame people who want to live a life of luxury on other people's money. Live within your means. Make more or spend less. Period.
All the major banks are commiting banking fraud
They are keeping foreclosed houses on their books at fraudulent values to make their balance sheets apear far higher than they actualy are
Legaly they are suposed to list their assests at their actual CURRENT value NOT the amount they loaned on the property
This is why they are not selling forclosed houses, to sell them at their true market value would functionaly put the banks into default
They are declaring them at fraud values waiting for the economy to come back up raising the value of their currently worthless houses
But we only enforce fraud laws against little people in this country not big banks
I know of dozens of people that filled bankruptcy and still have the same jobs and income but chose to bail out of their own mess.
I also know of people that walked away from their mortgage, (intentionally) that have good jobs and the same income before and after they decided to walk.
I know of persons that did short sales on their homes and maintained here same job earning. They keep putting there money in safe deposit boxes, taking vacations, exotic trips, buying new cars, and are now trying to buy another short sale through straw buyers.
I guess the government didn't set a good example when they bailed out the crooks.
The way I see it, is that the banks created this mess with there credit default swaps. Betting that the person was not going to be able to pay for the loan. They where just selling loans, when I got my mortgage you had to put 20% down.
And then have the our tax dollars bail them crumbs out after they got there nice bonuses. If that's what you have to do to save your home then do it.
Lenders should consider (or be mandated) to convert existing defaulting mortgages to a "Shared Equity Mortgage" where the current mortgage balance is reduced by 50% and the Lender is given a 50% equity ownership in the property. The current Homeowner will make payments on the new mortgage amount. On the 2nd anniversary of the new mortgage and every anniversary date thereafter, the lender will transfer 5% of their equity ownership to the homeowner and add the 5% equity value (dollar amount) to the homeowners mortgage balance. This 5% transfer process will continue until the homeowner again owns 100% of the property.
Should the property be sold or transferred prior to the homeowners’ 100% ownership, the Lender would share in the Gain or Loss of the resulting sale based on the Equity Ownership percentages.
This will allow the homeowners to continue their home ownership and not be forced into foreclosure. The owners will make payments on the new mortgage balances, maintain the property, pay property taxes, and insurance premiums. The Lenders will benefit by not acquiring unwanted properties through foreclosure which they will ultimately sell at 50% to 60% of prior market value. Should the properties be sold prior to the homeowner obtaining 100% equity, the Lender could actually make a profit as property values rise (values will rise over time).
When I bought my home in 5/09 I paid for an inspector, says house is in good condition. 6 months in the roof started to leak (rainy season had started) , plumbing problems (not major), some electrical issues, water in the basement (seller says this was an issue in the past but was fixed)......... but 2/10 the furnace went out.
I found out that not only did my realtor lie to me, so did the sellers disclosure report and their realtor, and the inspector I hired.....
The expenses were to much so I contacted the lender just to see if I could have 2 months payment/exemptions added on at the end of the loan so repairs can be made...... the woman was sort of laughing when she said there "WAS NOTHING THEY COULD DO" I quit making payments as my bank account was $000000 after replacing the furnace, roof repair, plumbing n electrical repaires..... and no $$$$ left to fix water in basement problem.... nothing could go in basement because of the smelly mildew issue due to the dampness/water...... and moved out. I haven't gone into foreclosure yet but I am planning on filing bankruptcy.......
So it's not always about managing your money, some realtors, inspectors and banks are HEARTLESS......all that matters is the $$$$$$$.... I was a homeowner prior to this home for 10 years..... never missed a payment..
I think most people who are underwater on their mortgages are not looking for the forgiveness of the debt, on a restructuring to help them stay until things improve. Banks and financial institutions are not saintly here. If many of them had "truly" performed their fiduciary duties, they would have (1) made sure the underlying asset would cover the mortgage, providing ample buffer in case of downturn, (2) investigated source of income further than a desperate homeowner stating they can handle it, I swear!. Yeah, but how about some 1040 copies, w-2 statements, and oh, by the way, "overtime isn't guaranteed.". But nooooo, they saw dollars, charged unfairly high interest so they can require lower downpymts and do less underwriting. I love how so many want to blame this "housing crisis" on the buyer. The financers were the big boys and girls in the room, and should have been watching out for their money. Now, after so many have pocketed the underwriting fees, and moved on, those remaining are shocked to the point of trusting no one.
DId I just read this? You are encouraging people to go into Bankruptcy if they are behind on their mortgage payments? This is blatantly irresponsible.
First of all 50 states have 50 different sets of laws regarding foreclosure and the first thing everyone facing foreclosure needs to do is understand the laws in their state. Generally the best way to "buy time" is go to a HUD approved housing counselor (they get paid by the federal government) and negotiate a loan modification.
Second, if anyone with $100,000 or more in equity who can't make their mortgage payment should sell the house and then they will have $100,000 or more in cash. That may help out!
Third, if you can not make payments and you owe more than the home is worth; short sale, deed-in-lieu of foreclosure or foreclosure are the options. Bankruptcy is far more damaging to your credit than either of the three alternatives.
Bankruptcy is an alternative for some people with certain types of unsecured debt. A bankruptcy filing will temporarily suspend a foreclosure. It will also ruin your credit for the next 10 years and it may or may not actually help with your real problem; debt that you can not pay.
There is one good piece of advice here; consult an attorney but make sure it is an experienced bankruptcy attorney and get financial advice/counselling first. Remember that not every person who wants you to pay a fee for their service is necessarily concerned with giving the best advice for your particular situation. The US attorney has a special office for investigating foreclosure scams which target desperate people who are losing their homes.
Go Bankrupt, keep your home? The answer is NO!
Count me as a “default by choice” proponent. The comps in my area prevent me from doing anything else. Neighbor short sold for 65% of the estimated tax value of 5 years ago. That’s when we bought. I can pay, but once I realized that emotion is what was keeping me from acting, it was easy to realize that I don’t have a moral obligation to pay my mortgage, I have a mortgage agreement that states that if I pay, I get the keys, If I don’t they get the keys. I would be more than happy to negotiate with the bank, but they are my servicer, and have no obligation or incentive to work with me, so, I am doing as the bank would do, evaluate my position, and take the actions I have. I just missed my first payment. BTW, I have another mortgage on a piece of rental property, so I have a place to move to when this is over. And to cut some of you off at the pass, I live in a non-recourse state.
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