Chapter 7 w/Foreclosure - Option Review

[NextLevel]

Background

1. Filed Chapter 13 in December 2004 for $39K in Debt. Mortgage foreclosure had just started (was served).
2. During Ch13 - fell behind in both trustee and mortgage payments.
3. Converted to Chapter 7 in June 2006. New debts bring the total BK value (debt) up to $67K (IRS stuff when I was self-employed).
4. I owe $252K to the bank for my Home. I believe I can get $350K for it if it were in immaculate condition (paint, doors, windows, central AC, new carpet, floors done, painting inside and out, new sidewalks), but it isn't, so I subtracted quotes and estimates on those (which I took the time to obtain) and I've come up with a price of $295K, which is $30K less than what my real estate agent friend said I could probably get for it if I waited 6 months.

My Future as I know It

1. I'm leaving Illinois and moving to North Carolina. This is non-negotiable, and has to do more with my family and our recent decisions about where to live. We already have a lease signed on a brand new house which we'll rent out for several years until our kids are through school. Then it's on to Life 2.0 for me and the misses.
2. I'm going to want the best situation possible regarding the house in foreclosure. I'm doing (very) minor repairs, and some lawn care, a thorough cleaning, etc. Nothing more, nothing over $500 in total improvements. My realtor friend said CURB appeal is key, so that's where I spent most of my efforts.

The Short List of Questions

1. Foreclosure: Already started but stayed due to 13 and now 7 proceedings. After 341 meeting (this Thursday), trustee may let them continue process. Or may opt to hold property and sell themselves (see next question).
   
2. Deed in Lieu: This is where it gets rough. If the Trustee passes on the property (they think it's worth $280K [based on my 12/04 self-assessment]), they may not try to sell and then it becomes the mortgage company's headache via foreclosure. If I opt for a DILOF, do they HAVE to accept that? They can probably get $300K on the market immediately, or $280 at an auction. Would they accept? I owe them $252. Is the DILOF better than a Foreclosure on my already destroyed credit reports?
   
3. Forbearance: Not a great alternative now, because in theory, I'm already moving to another state in 1 month. If they and I go into a FA, doesn't this require me to pay 'rent' (same as mortgage payment) during the (assumedly) 120-180 days to sell the house on my own? If I cannot pay, or if I fall behind, do they pick up foreclosure again and just ignore my other requests thereafter? I could potentially sell it this way (and pay them out, and avoid a foreclosure), but I don't think I can pay that rent. This really sucks as an option.
   
4. Auction by Trustee: I'm thinking, looks more and more juicy. Why? The lack of requirement to do ANYTHING on my part. I can leave the house early (in one month as I've stated), not pay rent, and the sale it up to the trustee. In fact, I avoid a FC on my record as well! It's all wonderful. I even get the cash back from the state exemption [see next question]. Sounds like this is my BEST option.
   
5. Me Selling During Foreclosure: If I let it go into foreclosure, and let's say, I don't expect FC to complete until November, what if I come up with a buyer and contract before the sale? How much before the sale must I do this? Must they accept the sale contract, or can I sue in separate court (outside of the assumedly now-discharged Ch 7 bankruptcy [it's November, probably a discharge in Sept])? I don't think they'd have to accept, but this would preclude them from possibly losing money and avoid me having a foreclosure on my trashed records.

And now, the final question:

My attorney doesn't know this one. Does the old law for state exemptions apply ($7.5K for each spouse in Illinois) for bankruptcies (Ch7), or does the new one (double that) apply in a case filed under old law, and converted during the new laws?

There was no interruption in the case, although we narrowly missed getting in a motion to vacate dismissal based on my nonpayment to the trustee. Our motion to vacate dismissal was approved and the court allowed us to convert.



thanks all!

[NextLevel]

Very comprehensive post, thanks for the info.

Yes, it's a close race to call. Key to this are:

(1) I know the trustee MAY take the property if they believe it's worth that much. At the time of foreclosure initiation in Nov 2004 and then again at the filing of my Ch13 in December 04, I noted that I believed the worth of the house to be $280K. This was based on empirical evidence and soley based on my opinion only. Now, today -- this house COULD sell for $320K with minor (and I mean <$1000 worth of work) improvements, albeit sitting on the market for 120+ days. It could sell within 30-60 days for $310K, and probably almost immediately at $295K. I don't know that the trustee would be so bold as to trust a debtor (not that I'd lie), but couldn't they order an auction? And, further, if this were my strategy (hang on here for the finale), how can I assert that the home is worth more irrespective of my equity in the house and/or my State allowed exemptions (totaling $15K for me/spouse [or $7.5K individually]). What I'd love is a Trustee auction -- sell the house for me (thanks!), avoid foreclosure (thanks x 2) and refund my exemption (thanks x 3). Is is just this simple or what? I know that during that time the interest on the mortgage will accrue, but heck, I know that I'll still be able to possibly walk away with some decent cash. This goes into the bank account and starts life 2.0 at some time.

(2) Let's say in 30 days the payoff will be $255K on the property (accrued interest - worst case). Let's say I can find a buyer for $265K (I know of a speculator). The most I'm going to have to pay on this is what - closing costs? I should get back nearly $10K in profit? I do have to report that, however, to the trustee and unfortunately, they're going to snatch that. Or *are* they? Homestead exemption includes the SALE of the house, not just the standing and real asset itself, correct? So the proceeds of the sale are exempt, up to the state allowed limits, correct? The issue here is (and it's very real) I could get a buyer at this price almost immediately, and this would be some great walking-away cash for us, no doubt. And it's quick, as she can arrainge financing in 3 weeks. What would hold this process up and what hidden costs am I not thinking about? Some other posts I've read about buyers is that if they know it's an in-foreclosure, then they can pull out and wait for the auction and snatch it at thousands less (tens of thousands usually).

Sheesh. I have more questions now than when I started. But, gosh, thanks again for everything you've provided - all great info and it's nice to know someone else has been through the (almost exactly) same situation.

Thing is -- I have signed a rental contract on a new (never lived in) house that my family and I will live in Raleigh, NC -- and we're excited. But it's like finding paradise island, getting off the boat, wading up the shore and then something tugs at your leg. Looking back, you see a chain tied to the mast of the ship - which is still sinking. Can life suck more?

What is the primary means of determing whether the 'house will be included in the bankruptcy'? If, when I converted to 7 - my attorney asked me if I wanted to keep the house, was that the time I should have said no?

I have a 341 meeting Thursday. Where, how and may I change my answer to: "No, keep the damned money pit and have fun."?

[SinkingFast]

[/list]
The Short List of Questions

1. Foreclosure: Already started but stayed due to 13 and now 7 proceedings. After 341 meeting (this Thursday), trustee may let them continue process. Or may opt to hold property and sell themselves (see next question).
   
   The Trustee can allow the Lender to lift the Automatic Stay and proceed with the Foreclosure. Most likely, that's what will happen.
   
2. Deed in Lieu: This is where it gets rough. If the Trustee passes on the property (they think it's worth $280K [based on my 12/04 self-assessment]), they may not try to sell and then it becomes the mortgage company's headache via foreclosure. If I opt for a DILOF, do they HAVE to accept that? They can probably get $300K on the market immediately, or $280 at an auction. Would they accept? I owe them $252. Is the DILOF better than a Foreclosure on my already destroyed credit reports?
   
   You have to "apply" to the Lender for a DIL. You can't just do it. The Lender has to agree. There'll be an agreement drawn up that both you and the Lender will sign. But you have to get the Lender to agree to accept a DIL in advance first.
   
   Generally speaking, many Lenders almost "require" that you've tried to market the property for at least 90 days prior to offering a DIL. Also, it's gonna be a process similar to applying for the original mortgage only in reverse. A sob story Hardship Letter written by you about why you cannot afford the payments any longer. Last year's income tax returns. Recent pay stubs. List of monthly expenses. Then the Lender makes the call whether they'll accept a DIL from you.
   
3. Forbearance: Not a great alternative now, because in theory, I'm already moving to another state in 1 month. If they and I go into a FA, doesn't this require me to pay 'rent' (same as mortgage payment) during the (assumedly) 120-180 days to sell the house on my own? If I cannot pay, or if I fall behind, do they pick up foreclosure again and just ignore my other requests thereafter? I could potentially sell it this way (and pay them out, and avoid a foreclosure), but I don't think I can pay that rent. This really sucks as an option.
   
   You don't have to pay rent while you're in Forebearance. Forebearance is where the Lender "allows" you to not make payments for a period of time. But getting approved for Forebearance will be very similar to applying for DIL. See above.
   
4. Auction by Trustee: I'm thinking, looks more and more juicy. Why? The lack of requirement to do ANYTHING on my part. I can leave the house early (in one month as I've stated), not pay rent, and the sale it up to the trustee. In fact, I avoid a FC on my record as well! It's all wonderful. I even get the cash back from the state exemption [see next question]. Sounds like this is my BEST option.
   
   Honey,......... You don't sell anything to the Trustee. Or allow the Trustee to sell anything. The day you file BK, the Trustee controls your estate and everything in it. Including your house. The Trustee either siezes it or he/she doesn't. You have no control once you file BK.
   
   A broker has posted in the "Getting a Mortgage" Section, in one thread that a Foreclosure and BK timed right together are viewed as one event. If you file BK and then 6 months later have a Foreclosure, then that's 2 events. But back to back, credit wise, future Lenders will see it as one event for purposes of obtaining a new mortgage.
   
   Generally, Trustees figure about 10% costs to sell a house. Like Wenderful said, you get paid your Exemptions, the Lender gets paid, and then the Trustee takes the remainder of the proceeds from the sale of your house. If the Trustee will make money, he/she will sieze and sell your house. If not, they won't.
   
5. Me Selling During Foreclosure: If I let it go into foreclosure, and let's say, I don't expect FC to complete until November, what if I come up with a buyer and contract before the sale? How much before the sale must I do this? Must they accept the sale contract, or can I sue in separate court (outside of the assumedly now-discharged Ch 7 bankruptcy [it's November, probably a discharge in Sept])? I don't think they'd have to accept, but this would preclude them from possibly losing money and avoid me having a foreclosure on my trashed records.

You can sell the property yourself while you're in Foreclosure. We did it. We took an offer one week before our Auction was scheduled. That's probably about as close as you can cut it, because your Lender will have a list of demands that MUST be met by the borrowers. A copy of the signed and accepted purchase offer, and the offer cannot be contingent. The buyers must be approved for financing. A copy of your Title work from the Title Company. Whatever else your Lender requires. And it all has to be in their office before the Lender will stop the execution of the Auction.

As Wenderful says, you'll be responsible for the Lender's legal expenses. And your late fees, and interest incurred, and penalties. All that added $8K on top of our principal balance.
And now, the final question:

My attorney doesn't know this one. Does the old law for state exemptions apply ($7.5K for each spouse in Illinois) for bankruptcies (Ch7), or does the new one (double that) apply in a case filed under old law, and converted during the new laws?

There was no interruption in the case, although we narrowly missed getting in a motion to vacate dismissal based on my nonpayment to the trustee. Our motion to vacate dismissal was approved and the court allowed us to convert.

thanks all!

You started Old Law, you stay Old Law. As long as your Ch 13 is still in effect in good standing, you convert to Ch 7 under Old Law.

[NextLevel]

...Lots of useful and helpful information...

Greatness. I'm looking forward to foreclosure (explanation below). But, first, a couple of clarifications:

(1) I do realize the Trustee has power to seize the house and/or not. What I *wished* for was the Trustee to seize it, sell it, and basically give me my exemptions back. That avoids the foreclosure annotation to my credit, as well as the need for me to pay rent. Things have changed since I penned this original post (don't they always), and now I'm desperately hoping the trustee will abandon their interest in the property, allow the auto-stay to lift and then for the Mtg Co. to continue the foreclosure suit. Why? Mainly, I've found a buyer for $295K, while I owe $252K in P&I + Penalties/fees. That's ~$35K+ that I'm going to pocket AFTER the discharge. Issue here are if the discharge takes too long to finish, I'll be screwed. I want the discharge to proceed quickly, and I want the foreclosure to drag out longer. That window in between allows me to sell the house, and pocket the difference in equity I've worked so hard to build. If I did it while in Bk7, the trustee would happily snatch up the profit and eeeek me out the $15K by law. That isn't as tempting. The buyers are good friends, and know my situation too.


(2) I know the DILOF and FORBAGR were options, but I didn't realize that the Mtg. Co. had so much power in approvals. Well, I kinda knew, but you've made it clear its difficult. Why do either in fact if I know I can sell.


(3) The problem now becomes, how darned long will the Bk7 take (the 341 meeting is tomorrow) to discharge and close the entire Bk? And how long will the foreclosure run. I was served the notice to appear in the foreclosure suit in 11/04, Filed Ch13 (staying it obviously) in 12/04. They're going to pick up immediately starting tomorrow, probably. Thus, should I figure 2-5 months until auction?


In fact, what are the exact (sorry, but I'm an exact person) steps in the foreclosure process? Suit - Judgement - Auction, etc? But there are little steps and dates and timelimits in those periods, etc. I wish there was a flowchart. That would kind of tell me how long it might take.

Following that, what are the exact steps in the Bk7 post 341 meeting? 341 - Last day for Objection - Discharge\Close, etc. Same questions.

Anyone in Illinois know what they are and how long it usually takes?

Many thanks in advance for anything related and commentary in general. Nice to be able to talk to folks about this. My atty stinks, the old codger.

[lrprn]

NextLevel, I put answers to some of your questions after each below in red...

In fact, what are the exact (sorry, but I'm an exact person) steps in the foreclosure process? Suit - Judgement - Auction, etc? But there are little steps and dates and timelimits in those periods, etc. I wish there was a flowchart. That would kind of tell me how long it might take.

Here's a timeline from Illinois Legal Aidf or an unopposed foreclosure - http://www.illinoislegalaid.org/inde...t&contentID=66

Following that, what are the exact steps in the Bk7 post 341 meeting? 341 - Last day for Objection - Discharge\Close, etc. Same questions.

Here's a timeline for Chapter 7 - click each time on the 'ruler' to see what's happening during each - http://www.totalbankruptcy.com/chapt...y_timeline.htm

Anyone in Illinois know what they are and how long it usually takes?

Check out these websites about foreclosure in Illinois:

http://www.stopforeclosure.com/Illinois_Foreclosure_Law.htm

http://www.realtytrac.com/foreclosure_laws.asp?strState=Illinois

Good luck, NextLevel - keep us posted on how things go for you.

[SinkingFast]

Foreclosure timelines vary from State to State and Lender to Lender.

Could be your Lender already has enough REO property on their balance sheet and won't even bother with your house for a while. Maybe the Lender comes after you right away. You just don't know. Often the Lender's decision about how to handle your loan is made based on their quarterly bottom line.

But in IL, you can only Exempt $7500/double if hubby and wife file joint. You might be just as well off to let the Trustee seize and sell.

You certainly cannot pocket the whole $35K proceeds either way. BK ties your hands from receiving windfalls for 180 days after filing. The Trustee can push that for up to a year after you close, as Wenderful said.

[NextLevel]

Foreclosure timelines vary from State to State and Lender to Lender.

Could be your Lender already has enough REO property on their balance sheet and won't even bother with your house for a while. Maybe the Lender comes after you right away. You just don't know. Often the Lender's decision about how to handle your loan is made based on their quarterly bottom line.

But in IL, you can only Exempt $7500/double if hubby and wife file joint. You might be just as well off to let the Trustee seize and sell.

Sigh. Yeah, they may not have interest in it however. I'll know tomorrow morning.

You certainly cannot pocket the whole $35K proceeds either way. BK ties your hands from receiving windfalls for 180 days after filing. The Trustee can push that for up to a year after you close, as Wenderful said.

See? Yeah. Right. But, I'm a technical guy. And technically, I FILED for a Chapter 13 on 12/24/04. Does that filing date also hold fast for the 7? If not, then 180 days + 6/13/06 = 12/13/06. Thus, as long as my discharge is complete and closed BEFORE then, and I sell AFTER then, and the auction/sale doesn't commence until later (12/25 ish), then I should be good.

I know I'm cutting it close, and again, I'm going to have a separate attorney represent me in this entire post-bankruptcy issue.

What now concerns me are:

(1) If I fail to sell, and the foreclosure proceeds, it's pretty much fire-and-forget. Except:

[a] The mortgage company can come after me for a deficiency? Wasn't the debt (being the house) included in the bankruptcy? Doesn't this hold true for court costs and legal fees associated with the foreclosure? This is where I get really, really confused about what 'included in the bankruptcy' really means. All future actions, after a discharge, and as long as I don't reaffirm, are enjoined from affecting me, correct? This would lead logically into assuming that I won't hear a damned thing from the mortgage company other than the notice of sale and of course the judgement of foreclosure and sale from the court, should I let it go.

[b] If they *do* foreclosure, I don't get squat in terms of equity, etc. That sucks.

[c] If I can find a seller, and let's say I do meet the conditions that the lender requires for contract of sale, etc., and I do sell the house, do I need to ask the Trustee's permission? How do they get wind? It's not like I'm trying to hide it, I just wonder how it really gets back to them. When I do sell, do I get to keep my $15K homestead exemption? Or is that only an amount that I'm able to claim IF the house were to be sold by Trustee?

It seems I generate more questions the more I think. Arg.

But, seriously? THANKS TO ALL for your (free) advice and help on this forum.

[NextLevel]

racial/religious profiling

Actually, excellent.



(1) No asset Ch7 (Thanks!)
(2) No interest in Houre (Thanks!)
(3) 60 Day Clock starts = NOW!

Get this: my atty pulls me to the side after the hearing and 'lets me know' that he's got buyers for my house. Speculators, he calls them, but they might be able to pull $300K for my house (let's figure $290K after he negotiates). This is still $40K that I'm going to be able to pull from my house sale.

I tell him: "Hey, I read that the trustee can -- up to 180 days and sometimes longer -- try to prevent income to the debtor and defer that income to the bankruptcy for disbursement to creditors. I don't think I can sell my house and get back money."

Atty: "No, no no. Trustee has dismissed all interest in you, and has issued a (in fact) discharge pending lack of objections. They won't touch anything."

Should I get a second opinion? I mean, this could be bad territory to cross without guides that have been there before.

Thanks all for keeping up with the saga. Amazing how other (cough cough C B cough) boards are useless these days.

[SinkingFast]

Yep! You should get a 2nd opinion.

What Trustees do in different Courts in different parts of the country varies. Could be your attny knows that this particular Trustee always moves forward and never looks back.

Some Trustees watch past filers for a while looking for windfalls to come their way. Then the Trustee comes after the Debtor/Filer for anything in excess of what they can exempt.

Plus, you might have to submit copies of your income taxes to be filed next spring for the Trustee's review. If you do, the Trustee is gonna see that sale then.

[NextLevel]

Very true. I'm going to try and get a 2nd and even 3rd opinion. In the end, if I do sell the house, and I do have a 'windfall' (lol, being what definition, I cannot find any) -- then what is the worst the trustee can do?

Re-open and subsequently dismiss (revoking the discharge) the Bankruptcy? What does that really entail -- would all past creditors who were discharged get notices and then try to open their claims against me in a future time outside of the bankruptcy protection and discharge?

That seems a bit harsh on debtors. What if a debtor wins the lottery (and thus a real windfall) 2 years, 3 years, 4 years -- 10 years after being discharged? Isn't there some statute of limitations, in effect, that the USC dictates for allowable actions by the trustee?

I'm going to consult my attorneys on this -- this is what I pay them for, right?

Thanks all -- will let you know if objections come up in the next 58 days -- and if so, what they are and what they mean. Else, I look forward to a discharge and a closing of the case by Oct 1, 2006. By then, I'll have been in my new home (renting, albeit) and saving money like a mad man. Hello Life 2.0.

[SinkingFast]

The Trustee can take all but $7500/$15K if filing joint, of the proceeds from your sale. Because that's all you can exempt. So if you net $35K, like you hope, you could wind up repaying all excess proceeds to the Trustee for disbursement to your Creditors.

All you gotta do is take a look at Minny's case to see what CAN and DOES happen in BK Court.