Short Sale after 7

[Greysky]

Hi,

We did our chapter 7 earlier this year and did a stay and pay on our house and heloc. The house is still upside down a bit and we are moving out of state. I have an agent who can handle everything but I was wondering if anyone else had any experience with this. Will the short sale effect our credit further? Would a foreclosure show up on our credit if we walked? From what I gather, since our BK was a no asset case and we didn't reaffirm, we are pretty much free and clear. Our agent told us not to spend anymore money fixing up the home. Also wondering if I should stop paying the mortgage. Trying to figure out the best way to go about this.

[justbroke]

A discharged mortgage and HELOC should not affect your credit any further. The debt will remain listed as IIB (included in bankruptcy) with a $0 balance at the credit bureaus. A short sale is nice if you just want it out of your name quicker!

I would not spend a dime fixing it up if I'm leaving.

[bcohen]

It goes without saying that once you are sure that you don't want the house anymore, it's time to quit paying the mortgage, quit putting money into repairs, and try asking the mortgage lender if it's possible to do a deed-in-lieu of foreclosure. If the HELOC is through a different company, then that won't be possible, so the mortgage lender would have to foreclose in order to extinguish the HELOC's lien and pass clear title to a new owner.

[Greysky]

Thanks for the advice so far. Another question I have regarding this is will we get a 1099 from the lender for the deficiency or does our chapter 7 prevent this from happening? Trying to figure out the tax impact of all of this.

[justbroke]

You may receive a 1099-A (Acquisition or Abandonment of Secured Property) or a 1099-C (Forgiveness of Debt). Either way, you would use your tax preparer or CPA to file IRS Form 982 (Reduction of Tax Attributes Due to Discharge of Indebtedness).

You may still receive either of these forms. I did receive a 1099-A when one of my rental properties was foreclosed upon and I had listed it in the bankruptcy.

The bottom line is that you are/were insolvent and since the debt was discharged in a bankruptcy, it is not a taxable event (file form 982!).

[Jongo]

Understand that your ability to buy a house after BK is affected by the BK, and your ability to buy a house after a short sale is affected by the date of the short sale. BK = 2 years post-Ch 7 discharge. Short sale = 3 years minimum after change of title.

For most folks, they walk away from the house post-Ch 7 discharge, which means that it takes at least 3 years after the short sale closes before most banks will even look at you. That short sale close may be months or even years after your BK discharge.

[catleg]

It goes without saying that once you are sure that you don't want the house anymore, it's time to quit paying the mortgage, quit putting money into repairs, and try asking the mortgage lender if it's possible to do a deed-in-lieu of foreclosure. If the HELOC is through a different company, then that won't be possible, so the mortgage lender would have to foreclose in order to extinguish the HELOC's lien and pass clear title to a new owner.

Agree 100%.

[Greysky]

Hi, hope everyone had a great holiday.
More questions. Our HELOC is with another lender so does that mean this is going to show up as a foreclosure on our credit no matter what?

[justbroke]

There is no way to tell how your particular lender will report the HELOC after foreclosure. A debtor, having discharged the debt in bankruptcy, typically has no "foreclosure" notation on that particular tradeline on the credit report. As stated previously, the item is typically simply "Included in Bankruptcy" (IIB) with a $0 balance. Prior payment history may still be reported, so if it were 120 days late, that may still be reported along with the IIB notation.

Again, this is the typical way that these "discharged" mortgages are reported.

[catleg]

I'm curious if the foreclosure judgment will show up on my/my wife's personal credit report.
I can't see how (by what logic, other than, it's a judgment, dispute if you don't owe) but don't now how it works.
NJ is "quasi in-rem" so we are listed as defendants along with the property.
Perhaps we need to file a motion to dismiss with respect to the named defendants as the debt is discharged?

[catleg]

There is no way to tell how your particular lender will report the HELOC after foreclosure. A debtor, having discharged the debt in bankruptcy, typically has no "foreclosure" notation on that particular tradeline on the credit report. As stated previously, the item is typically simply "Included in Bankruptcy" (IIB) with a $0 balance. Prior payment history may still be reported, so if it were 120 days late, that may still be reported along with the IIB notation.

Again, this is the typical way that these "discharged" mortgages are reported.

Yeah my report is littered with loads of lates and charge offs on my IIBs.
I wonder if it affects my credit score?
I even have one bank that has refused to list a TL as IIB because they sold it prior to the filing date.

[Greysky]

More short sale drama. We made our last payment in December just before we moved out of state. Our agent says we should keep making the mortgage payments but I don't like the idea of paying a non-reaffirmed mortgage on a house we no longer live in. We have an offer that will cover the first but not the heloc. The agent is afraid that additional fees and interest will push the amount owed on the first into a short sale as well if we stop paying. The agent also said that if a deal cant be reached and the house goes into foreclosure that our credit will be dinged even further. This is the first time in years that we have some financial breathing room and I really don't want to go throwing good money after bad. Anyone have any thoughts?

[LadyInTheRed]

A post-discharge foreclosure should not show up on your credit report. This has been confirmed by the experiences of several bkforum members. If a foreclosure woud show up, so would the shortsale which is just as bad as a foreclosure on your credit. If either shows up, you should file a dispute with the credit agency. The only advantage to short selling when the mortgage has been discharged is to get title out of your name more quickly.

The real estate agent either doesn't know what she's talking about or is more interested in getting a sale than in your interests. Maybe both or true.

[Jongo]

More short sale drama. We made our last payment in December just before we moved out of state. Our agent says we should keep making the mortgage payments but I don't like the idea of paying a non-reaffirmed mortgage on a house we no longer live in. We have an offer that will cover the first but not the heloc. The agent is afraid that additional fees and interest will push the amount owed on the first into a short sale as well if we stop paying. The agent also said that if a deal cant be reached and the house goes into foreclosure that our credit will be dinged even further. This is the first time in years that we have some financial breathing room and I really don't want to go throwing good money after bad. Anyone have any thoughts?

The only thing that would work in your favor in this situation would be to be able to close a traditional sale. It really doesn't matter how much it is for, although a sale that nets anything less than the amount to cover all of the fees, taxes, and 100% of the 1st mortgage would be considered a short sale by the bank and recorded as such.

There is no real difference between a foreclosure and a short sale as far as the mortgage industry is concerned. A foreclosure, auction, deed in lieu, or a short sale would prohibit you from obtaining a new mortgage loan for 2 years (traditional loan with 20% down), 3 years (FHA loan), or 4 years (traditional loan with 10% down). That time period starts the day that the short sale or foreclosure is recorded.

The HELOC has no bearing whatsoever here, except that they might try to record as a short sale if they didn't get paid in full. That can be disputed since it is discharged in bankruptcy, and you would be fine.

If you are interested in obtaining a mortgage in the next 2-3 years, you should pay and close the sale - but you are running the risk that the sale will close (a lot of that is out of your hands) and that it would cover the first. Otherwise, stop paying and let the chips fall where they may. You are not liable for these debts anymore.

FYI - real estate agents, God bless them, are usually completely uninformed about BK and how it affects their sale. All they want to do is close a sale, as quickly and as easily as possible. It it does not make sense for you to do so, then don't do it.

[Jongo]

A post-discharge foreclosure should not show up on your credit report. This has been confirmed by the experiences of several bkforum members. If a foreclosure woud show up, so would the shortsale which is just as bad as a foreclosure on your credit. If either shows up, you should file a dispute with the credit agency. The only advantage to short selling when the mortgage has been discharged is to get title out of your name more quickly.

The real estate agent either doesn't know what she's talking about or is more interested in getting a sale than in your interests. Maybe both or true.

While the short sale or foreclosure will not show up on credit, a title company would likely discover it during a title search if you were to apply for a new loan. The mortgage would show up but the short sale or foreclosure would not...but the title company would see the mortgage that was discharged and do the title search and see it. That would disqualify you for a mortgage until after the appropriate amount of time passes (2-4 years as above).

Getting out from under title quickly is advantageous, as it starts the clock on getting a new mortgage that much sooner. It also helps reduce your liability on the property (insurance), your tax liability, and your HOA liability if it exists. Tell the agent that you want the place sold ASAP, regardless of the disposition. Realize that the bank would have to approve a short sale, and agents have to work harder to get that done, often getting paid less.

As far as agents wanting to get paid whether or not they know what they are talking about... Gotta agree strongly there.