3 year post CH 7 - what to do with primary home?

[MyFico_704]

Hello,

I just wanted to get some opinion, advise and ideas on the situation we're in and what the best course of option for us.  We filed Ch 7 in Feb 2011.

Included :

 -primary home - 1st, 2nd and HELOC

 -rental property

 -credit cards.

The rental property (fully rented paid for itself since Ch7) was recently sold Nov 2013, which covered  entire balance and bank fully paid.  Bank lost no money!

Here lies our predicament.  The primary home we still live in and have been current on first mortgage ONLY.  2nd and HELOC we have not paid at all.  At the time of the filing the property was probably with 200k.  All three loans at the time totaled 260k. 

balance on mortgages (all with same bank)

 -1st - 180k

 -2nd - 45k

 -3rd - 40k

Considering that the housing market house recovered in the Charlotte NC area, what is our best option at this point?  For my house or houses like mine I believe the value is now around 230k +/-.  But what the bank will do  - suppose the housing market fully recovers and the value "covers" all 3 mortgages?  Can they force us to sell to recover all 3 balances?

We love the house very much and want to stay here.  I'm aware the 2nd & 3rd liens are still attached to the property and when the home is sold all the proceeds will go to the bank first.

Should we sell at current value 230k would we owe the bank the other 30k?  I would guess NO since we've been personally discharged of the debts.

What can the bank do to us and what is our best course of action?  We're not yet at 4 years post BK so we probably won't qualify for a mortgage anywhere.

We have started to rebuild our credit with a few department store cards and secured credit cards. We also were able to get an auto loan and have been on time since.

Any suggestions or recommendations is greatly appreciated.

Thanks

[ezdriver]

Since you have been discharged from all legal responsibility to repay any of the home-secured loans, and the house is currently upside down, all that you can do is a short sale with the bank's approval. You have no say in the matter beyond that. If they accept a short sale, you would avoid a foreclosure on your credit record. Having your name on that deed prevents you from beginning a full credit recovery ... but you probably already knew that.

[grassfeeder]

I was in a close to similar situation as you.  I had a 1st and 2nd (HELOC) on my home with the same lender.  I went through BK 7 and both liens were avoided.  Leading up to the BK I had avoided paying the 2nd for over 2 years as the property vales were sinking.  First I always remained current on.  I really wanted to assure myself as best as possible that I could stay in my home without reaffirming the debt.  With the advice of my attorney, I settlEd with them on the balanced the HELOC to eliminate that lien Taking me down to just the primary.  My attorney had stated, that having just the primary loan, the bank would more than likely leave me alone if I kept paying however she had seen some cases where they foreclosed if multiple loans were held all by the same lender - rare cases - but it had happened.  To eliminate that, I negotiated a settlement with my lender on the HELOC.  I owed approx. $17k on it and payed only $1.5k to close it completely.  Did I have to pay?  Not at all, but it was such a small amount it was worth the piece of mind it brought.

My property was slightly underwater at the time of my BK, and I am maybe in the positive a little bit now.  So if I do sell, I only owe the balance of the primary and can pocket any proceeds.  So paying that $1.5 may yield me the right to walk away with $20-$30k in profits should I sell tomorrow.

Something too think about.

[MyFico_704]

Thank you Grassfeeder!  That is a great solution and glad it worked out for you.  Looks like your lender settled for less than 10% of the balance~

Question - Did you settle the HELOC before or after the Ch 7? 

Both my 2nd and HELOC balances are probably 85k (plus any accrued interest since bk filing).  We really want to stay in the house.  To do a short sale and buy another home is probably not ideal since homes like our are probably in the 230k range.  The balance on our first loan is just 180k.   If I can get rid of the 2nd/HELOC and left with the first loan that would be perfect.  Our home is probably worth 220-225k.. if we're lucky. 

Considering there is "equity" in the home (current value MINUS first loan) if we were to try and settle with the bank on the 2nd/HELOC is that something they would want to do?

I've been thinking about contacting the bank about how to get rid of the 2nd/HELOC liens but wanted to do all my homework first.  I know I am not personally liable for them because of Ch 7, however they are still liens on the house!

So with where we're at now is this something the bank will consider - settle the 2nd/HELOC?

- first 180k

- 2nd 45k

- HELOC 40k

current value - 220k (if we're lucky).

[grassfeeder]

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@MyFico_704 wrote:

Thank you Grassfeeder!  That is a great solution and glad it worked out for you.  Looks like your lender settled for less than 10% of the balance~

Question - Did you settle the HELOC before or after the Ch 7?  I settled my HELOC after filing and before my 341 meeting.

Both my 2nd and HELOC balances are probably 85k (plus any accrued interest since bk filing).  We really want to stay in the house.  To do a short sale and buy another home is probably not ideal since homes like our are probably in the 230k range.  The balance on our first loan is just 180k.   If I can get rid of the 2nd/HELOC and left with the first loan that would be perfect.  Our home is probably worth 220-225k.. if we're lucky. 

Considering there is "equity" in the home (current value MINUS first loan) if we were to try and settle with the bank on the 2nd/HELOC is that something they would want to do?  Not sure.  They may because as of now, they have ZERO ability to capitalize on the loans.  Any money they receive is a bonus at this point as they know you're protected under your BK.  They may be willing to settle with you.  You can always approach and ask/beg

I've been thinking about contacting the bank about how to get rid of the 2nd/HELOC liens but wanted to do all my homework first.  I know I am not personally liable for them because of Ch 7, however they are still liens on the house!

So with where we're at now is this something the bank will consider - settle the 2nd/HELOC?  Remember, always try and get the lowest appraisal possible for your home when trying to settle.  If they can see that you're going to have great equity in it, they won't settle knowing they'll gather than when its sold/foreclosed.

- first 180k

- 2nd 45k

- HELOC 40k

current value - 220k (if we're lucky).

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See my comments above in red

[MyFico_704]

Great points grassfeeder.  Thanks for your input.

I see where you're coming from on the appraisal value.  Honestly we wanted the housing market to recover so that we can sell the rental property.  Which we were finally able to sell this past November - still at a loss but just enough to cover the balance.

With the 3 debts together we're still underwater by about 40k+.  However at the market lows it was probably around 75k if not higher.  The housing market did recover some the past  year and a half. 

I'm sure it won't hurt to reach out to the lender, same for all loans and see what my options are at this point. I'm sure they don't want to foreclose on me and I certainly don't want that either since I already have the Bk as a mark on my credit.

The other thing too is the interest rate on the first is 5.875%, which is the original rate when purchased back in 05'.  I thought of loan modifications, principal reductions... anything.  But wasn't how the bank would view my situation.

[grassfeeder]

I am assuming that all of your loans are through the same lender?

I would write them a "hardship" letter and make it all pittiful and let them know that you realize that you've filed Ch7 however morally you want to make right on as many of the debts that you can  Offer next to nothing to cover the largest of the two that's not primary.  Offer like $3.5k to settle the $48k on - see what kind of reply you get.  Make sure to note the property not being worth a damn due to the market colapse (even if yours has rebounded).  Just make yourself sound pitiful is what I'm saying.  Thats what I did.  After enough back and forth they took $1.25k on $17.9k owed.