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Post Divorce "Unique" Situation Questions, Chase in 2nd Position

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    Post Divorce "Unique" Situation Questions, Chase in 2nd Position

    Hello all...

    This is my first post to the forum, although I've been reading it for several months now. Thank you everyone for the WEALTH of help and information here!

    I'll try to explain the complication of my bankruptcy situation as simply as I can, but you might have to read this next part twice...

    I divorced in March of 2008 (Idaho, Community Property State).

    Ex-husband and I are on very good terms. To allow him to keep the family home, he retained a higher portion of our "marital debt" to help settle our estate equitably. Per our divorce agreement, he kept the 1st Mortgage on the home (B of A), and a 2nd HELOC (Chase). He has always been on the paperwork for the first mortgage. At the time we applied for the HELOC, I had a better credit score. He signed a quit deed so the house was owned by me. I applied, and got the HELOC. Per our divorce agreement, he was to get the HELOC refinanced in his name...and I was to quit deed the house back to him. I did quit deed the house back to him. He tried to get the refinance. However...this was when the housing market began to plummet, and there was no longer enough equity in the home for anyone to re-write the loan. For the last 2 1/2 years, he has been keeping both payments current, but the HELOC is legally only written in my name. We assumed at first the market would recover, and he would eventually get it rewritten. We now know that is not going to happen in the near future.

    I am re-married now, (still in a community property state). My new husband and I had some debt from the refurbishing of a house he owned, and living in my apartment for awhile to get that done. We planned to do Consumer Debt Counseling, and consolidate that debt and start to pay it down once we had one household. Nobody would put us on any sort of re-payment plan though...because of the huge HELOC in my name. It put our debt to income ratio too low to qualify for re-payment. (even though the account has always been current, and i can show someone else is making the payments, I am the one legally liable for the loan if the other person became unable to make the payments) This began the process of my new husband and I deciding to file a Chapter 7 Bankruptcy. We have learned that this is the only way to protect ourselves, and get out of the legal liability of the HELOC on the house from my previous marriage. (if something happened, and my ex could no longer pay...that property would be foreclosed, and they'd still be able to legally come after me for the amount of the HELOC) Our Chapter 7 is fairly simple, now that we've had the opportunity to digest how it works...(and get over all the really screwed up ways the bankruptcy laws allow you to be raped by your divorce agreements, but the federal courts don't have to honor anything about them that would protect you in a community property state).

    We will file, and retain our own home on a ride-through. (Filing in February with our tax refund when it arrives)

    I am listing the HELOC with Chase Bank as a non-secured debt (since I do not own the house on which the loan is attached) I have given Chase Bank permission to discuss the account with my ex-husband, who would like to try to negotiate some sort of deal with them to settle the HELOC after my Bankruptcy. The house is not underwater on the first alone, but is substantially underwater when the HELOC is added in.

    1st Mortgage: 138,000
    HELOC: 124,000
    Fair Market Value of Home: 170,000

    We skipped one payment with Chase, and I waited for phone calls to let them know I'd be including it in a bankruptcy. Now my ex-husband is negotiating with them to bring the account "current". I can actually file a Chapter 7 legally with the account not current though, since for me it is technically a non-secure debt.

    Finally! My questions... (sorry for the length...)

    Chase says if the account is past due, and the bankruptcy closes, they will immediately foreclose. My ex-husband wouldn't mind "gambling" a bit, and saving some of those payments towards a settlement offer with them. He does not want to lose the house though.

    Can Chase foreclose immediately without permission from Bank of America, who holds the first? (since the first is not underwater on its own)

    And...in your experiences out there with bankruptcy, and Chase in particular in a 2nd position where there is "some" money to be gained by them...but, not much considering costs, etc of foreclosure... (on a good day, they'd have up to 35,000 on their 120,000 loan BEFORE their expenses of foreclosing)...will they simply rush in and foreclose? The Chase account manager states it is their policy, and if the HELOC is behind, they will foreclose immediately when the bankruptcy dismisses.

    Since the account does not exist on his social security number anywhere, the default and bankruptcy won't be on his credit report. So, with the money he's been saving, and if it feels "safe" to let the HELOC get behind for 6 months or so, he could be in a good position to settle with them for about what they would get on a "perfect" day by foreclosing.

    Opinions? Advice?

    He is looking for a lawyer to advise him... But this board has been so fantastic, I wanted to float it out here too.

    We know Chase can't contact me after the bk closes. We know that my ex-husband can ride through on the current terms and nothing would get foreclosed as long as he keeps things current. He is researching trying to get BofA to "buy out" the 2nd from Chase and refinance to him after the bankruptcy since the first mortgage is paid down enough...and there is some "room" for BofA to bump up their loan amount to him. Chase will know at that point that they have no one to legally pursue for the full amount of the HELOC. They will simply have a 2nd position that doesn't hold much value, and doesn't look like it will any time in the near future. Has anyone seen this done?

    OK...THANKS!!!

    #2
    In order to foreclose, Chase would have to pay off the first. So there'd have to be enough equity, I think, for it to be worthwhile after all their costs, to pay off the first. (In other words, they'd have to be able to sell the house for enough to pay themselves back the first, and the costs, and enough of what they have in it to make it worthwhile). I personally think that the chances of them ACTUALLY doing that when your ex is willing to pay them? Very low. Of course they are going to TELL you that's what they'll do, because the ideal thing for them is for you not to file BK at all. That doesn't make it real, lol.

    Comment


      #3
      ...and get over all the really screwed up ways the bankruptcy laws allow you to be raped by your divorce agreements...
      You've got this right. It would be nice if maybe before a divorce, law stated couples must take a special financial planning course to scan them for bankruptcy planning in the event they will need it. Kind of like the credit counseling required before a BK.
      Filed Chapter 7 on 2/22/11, 341 meeting held 3/30/11, relief of stay on foreclosure 4/12/11, relief of stay on auto 5/17/11, Discharge on 6/6/11!

      Comment


        #4
        Originally posted by Clabbergirl View Post
        You've got this right. It would be nice if maybe before a divorce, law stated couples must take a special financial planning course to scan them for bankruptcy planning in the event they will need it. Kind of like the credit counseling required before a BK.
        Yes! A class would be a good idea! I had no idea my divorce was basically a "civil" agreement between my ex-husband and I. It is wrong that the federal court can look at your divorce papers to see if you are "owed" anything. But, they don't have to honor the stipulations of the divorce settlement in any way. It doesn't matter who took what debt in reality to settle the estate. If either of your names were on the debt while you were married, they own you! (community property states)

        This causes so many "shouldn't have been" bankruptcies to have to be filed when everyone figures this out in hindsight. And, ultimately, it hurts us all. Ugh...

        Comment


          #5
          Hi ques,

          Wanted to add that in the BK Chase can't talk to you, but you can talk to them. You can keep the lines of communication open.

          It wouldn't make sense for the 1st to refinance the 2nd in. The 1st is not underwater so they stand to make $$ there, adding the 2nd leaves them open to a big loss. But you can always ask....stranger things have happened...

          Can Chase foreclose immediately without permission from Bank of America, who holds the first? (since the first is not underwater on its own) ....yes and especially so if the 1st isn't underwater, the equity is what they will be after. By your numbers there is ~40K equity, to my mind that is close to the break even point for the 1st, after foreclosure price, cost of sale, etc 1st gets satisfied, nothing left for the 2nd.

          But Chase will do their own analysis and what they want to is up to them. A suggestion would be to get above the level where BoA employess give scripted answers. Get someone who actually has the authority to order or not order foreclosures. This may be hard to do but there you will get a 'real' answer.

          Good luck w/ all this, let us know how it turns out!

          Tom in Colo
          Ch7 filed 5/12/2010.....341 meeting 6/30/2010....report of no distribution 8/15/2010.....discharged 10/01/2010.....closed 11/09/2010

          Comment


            #6
            Originally posted by tcreegan View Post
            Hi ques,

            Wanted to add that in the BK Chase can't talk to you, but you can talk to them. You can keep the lines of communication open.

            It wouldn't make sense for the 1st to refinance the 2nd in. The 1st is not underwater so they stand to make $$ there, adding the 2nd leaves them open to a big loss. But you can always ask....stranger things have happened...

            Can Chase foreclose immediately without permission from Bank of America, who holds the first? (since the first is not underwater on its own) ....yes and especially so if the 1st isn't underwater, the equity is what they will be after. By your numbers there is ~40K equity, to my mind that is close to the break even point for the 1st, after foreclosure price, cost of sale, etc 1st gets satisfied, nothing left for the 2nd.

            But Chase will do their own analysis and what they want to is up to them. A suggestion would be to get above the level where BoA employess give scripted answers. Get someone who actually has the authority to order or not order foreclosures. This may be hard to do but there you will get a 'real' answer.

            Good luck w/ all this, let us know how it turns out!

            Tom in Colo
            Maybe a better strategy is to just follow through with the BK, and then have ex-husband quit paying the second to Chase...? Once Chase realizes they really don't have any money to be gotten, they might be willing to negotiate a settlement... After the BK closes, I can still contact Chase with settlement offers, correct? It's just taking the risk of playing it out and seeing if Chase really will foreclose or not?

            Is it best to keep the 2nd current before filing and during the BK?

            I know it's all a "risk"...

            Comment


              #7
              Hi again ques,

              ex-husband quit paying the second to Chase...? Once Chase realizes they really don't have any money to be gotten, they might be willing to negotiate a settlement... Great strategy, seen plenty of posts where this has worked well. Risk: Chase thinks they can get $$ from the equity past the 1st and opts to foreclose.

              After the BK closes, I can still contact Chase with settlement offers, correct? You bet! Ultimately it depends on what they are willing to do.

              It's just taking the risk of playing it out and seeing if Chase really will foreclose or not? Yup, I would contact them and ask what they plan to do.

              Is it best to keep the 2nd current before filing and during the BK? Yes if it keeps them from foreclosing until you can work out something w/ them. No if they are going to foreclose anyhow

              Get ahold of Chase, get someone who has authority to actually order/not order a foreclosure. Lay the cards on the table and see what they say...

              Hopefully they will play ball...

              Tom in Colo
              Ch7 filed 5/12/2010.....341 meeting 6/30/2010....report of no distribution 8/15/2010.....discharged 10/01/2010.....closed 11/09/2010

              Comment


                #8
                OK...thank you! I will post back when we see how everything plays out...

                Comment

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