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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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.
The ones who'll wind up doing it to keep their home are likely the ones who're behind & always were.
(not those who suddenly lost their jobs or were hit with sudden debt other than their mortgages.) Why is it that the more honest U are, the more U get rooked ? It makes some good people start to think.."Why shouldn't I get a break this time"? They're tired of footing the bills for the non-payers.
I know I am.
The banks really should be made to reduce the principles of people who hold those mortgages & who made a large down payment, & who are still paying; but owe more or just as much as their homes are worth today. With this mess happening, they completely lost that large down payment to the banks. Claiming a bankruptcy would serve the banks right. I think they should run to a lawyer & just do it !! It might be worth the lawyer's fees. It may only get them down by $100,000., but better than nothing. That would be like they did get the principal lowered & they would only need to pay the remaining balance with smaller payments to get it done. I think it's deserving all the way around.
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.
I can't imagine the New York bankruptcy court allowing $100 k in equity and still let you keep your home. In Alabama a married couple is only allowed 10k equity and a single person is allowed 5k in equity. We need to update our laws to reflect the higher costs of homes really bad. Keeping secured debt in a Chapter 7 bkcy if you can afford the monthly payments is the best way to jump start your credit after bkcy. You must be current on the payments and sign a Reaffirmation Agreement, continue to pay for your secured property and you can keep it.
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!
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.
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.
This goes to scooby67. Are you actually telling people that car loans (depreciating assets) are better than home loans (appreciating assets)? Where are you getting information? Paying rent gets you nowhere, as you are not building equity in anything. I agree that paying with cash is the best solution to all purchases, but don't talk down 30 yr mortgages in favor of renting. I live in a very modest home, paid 60k for a 2 BR 1 Bath and have a 30 yr mortgage, some months I pay more, some months I just pay the normal payment.
Over the course of 30 years the appreciation in value of a house will make up for a very significant portion of the interest paid to the bank. For instance: say you buy a house for $100,000 and you have an average appreciating value of 2.5% over 30yrs. comes out to almost 210k not accounting for inflation. While were on that subject this example doesn't even consider that you are actually paying "less" each year due to inflation of the dollar, and your money buys less each year. So that equal amount paid each month is worth far less in 20-30 years
And if you think you are going to have to live in an assisted living facility or nursing home in your 60s, you need to change your health practices.
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