Defense to Mortgagor's Motion for Relief from Stay

[Rover]

If a house is in foreclosure, filing Ch 7 will put the automatic stay on the foreclosure lawsuit.

However, the mortgagor normally then files for relief from the stay.

I read in a book on bankruptcy that if there is sufficient equity to protect a creditor’s interests, that would be a successful defense to the relief from stay motion.

Does anyone know if that is true?

If it were true, of course, there would be no point to filing Ch 13 to prevent foreclosure if one had sufficient equity in a house. Also, this begs the question of what would be "sufficient equity".

[SinkingFast]

If you're filing Ch 7 and you're in arrears, the house would be liquidated by the Court anyway. The only thing you'd protect with Ch 7 would be your equity up to your Exemption allowable.

Ch 13 is a whole different beast. Debtors can put their arrears into the plan and continue owning their home. So, a Ch 13 could prevent a Foreclosure from moving forward.

[Rover]

If you're filing Ch 7 and you're in arrears, the house would be liquidated by the Court anyway. The only thing you'd protect with Ch 7 would be your equity up to your Exemption allowable.

That's not the case in Florida. In Florida, my house is totally exempt under Ch 7 or for judgments.

My only risk with Ch 7 with regard to my house is foreclosure. However, if there's a way to prevent granting the relief from stay to a mortgager under Ch 7, one could prolong the foreclosure process beyond the Ch 7 discharge and then file Ch 13 to more permanently deal with the foreclosure.

In Florida, it's not uncommon for foreclosures to take 2 to 3 years if one takes the right steps to keep the law suit moving at a snails pace.

[SinkingFast]

That puts a whole different spin on things. Not having to worry about loosing your house in Ch 7. I wasn't aware that was the case in Florida. Is this a Florida Law or because you've owned your home long enough you are not subject to the new $125K cap?

"Sufficient Equity" is a vague term that could be subject to interpretation. The way one Judge may view it vs the way another Judge could be a huge $$ difference for any particular filer. On a $250K property, I personally would think $50K would be significant equity. But the Court may require something closer to half the market value to be considered sufficient. "Sufficient Equity" is really more of a judgement call than an actual line in the sand.

I'll tell you one thing that happened in our case that could eat away at your equity rather quickly. The fees and penalties from months of no payments, and the legal costs of the Foreclosure were tacked on top of the principal balance. Our house was slated to be auctioned and then saved at the last minute by an offer that came in days before the sale. Our Lender added all the interest from the missed payments, plus the late fees and penalties, AND the Legal costs to pursue the Foreclosure into our final pay-off. In our case, that was nearly $8K of interest, about $1500 in Legal costs, and some other piddly little amounts, for a grand total of nearly $11K more than our pay-off would have been. And the pay-off amount included our escrow of $865, so the actual total would have been closer to $12K more than the principal balance.

If your Lender does the same thing, it doesn't take long to eat away at any amount of equity you do have.

I honestly can't think of a defense for you that might possibly stop the Lender from successfully getting a Relief from Stay Motion granted. Has your attny suggested any alternatives?

Maybe some one with actual Mortgage Industry experience will chime in here with suggestions for you.

[Rover]

Florida is the reason that changes were made in the law to limit home exemptions. OJ Simpson moved to Florida because he could put millions into a home and protect it all when he went bankrupt.

There's a famous case where a fellow about 15 years ago bought a 14 million dollar home in Florida to protect his assets when he filed BK. My son and his son are friends. It's quite a house. Indoor bowling alleys, indoor basketball court, etc. There are also rules under which joint assets of a husband and wife are fully exempt if only one of them files BK. This fellow enjoyed that benefit too. His wife pulled in about $350,000 a year, they owned expensive furniture and cars, but none of that could be touched. (BTW, that joint ownership rule is still in place.)

I've had my house long enough to come under the grandfathered rules, which fully exempt my house.

My house value is currently over $500,000. I "only" owe $240,000. So relatively speaking, there's a ton of equity there. It would take a long time for missed payments, interest and attorney's fees to eat away at that.

I am going to ask an attorney about this next week. Thanks for you input.

It's great to be domiciled in Florida at BK time.

[keepmine]

OJ Simpson moved to Florida because he could put millions into a home and protect it all when he went bankrupt.

OJ has never filed for bk. That wrongful death{s} verdict can't be disharged in bk.
He's in Fl. because he has $4MM worth of annuities that are protected from creditors in Fl.

[SinkingFast]

Rover,............

I'd think your mortgage Lender could make out like a bandit if you wind up in Foreclosure. I can just see 'em now. Licking their chops with anticipation.

On the other hand, if you're grandfathered in on your Homestead Exemption,........ the Trustee is gonna have to pay you every penny you can exempt BEFORE the Lender get's paid.

If you had recently bought, and property values hadn't appreciated much, you wouldn't have much equity, if any, to exempt. But in your case, the Trustee's gonna have to pay you a chunk of change if they allow your house to move into Foreclosure.

Just running rough math, it wouldn't make any sense for your Lender to Foreclose after you file BK. The house will quick sale at auction on the Court House steps and not bring full market value. The Court will have to pay you $260K, or so, in Homestead Exemption. With roughly 10% costs to sell, it's Loose/Loose for the Lender for them to proceed with Foreclosure.

[Rover]

On the other hand, if you're grandfathered in on your Homestead Exemption,........ the Trustee is gonna have to pay you every penny you can exempt BEFORE the Lender get's paid.

I wasn't aware of that. Is there something in the BK Code about that? Where would I find the law or a case on that?

It was my understanding that if I sold the house, the equity paid would then become part of the BK estate.

[SinkingFast]

I'll have to hunt for it in the Law, but an attny told us about it during a Consult.

Before we filed our taxes, we owed $8100 to the IRS and owned a truck with about $7K-$10K of equity in it. Depending on what value you used. All the attnys were telling us to keep the truck and take on an IRS payment plan.

We have 3 other vehicles. Old beaters. 2 for our kids to drive and Hubby's truck. And we have $6K total in vehicle exemptions. Not much to cover 4 vehicles, right??!!

The one attny said the Court isn't interested in old, high mileage vehilcles. They want something they can sell! That will bring big bucks. He was gonna sprinkle a little of the vehicle exemption around on the other 3 and put the bulk of it on the newer truck. If the Trustee took it to sell, they'd have to pay us our exemption, out of the proceeds of the sale, before anyone else got paid. Trustee and auto loan lender included.

Then we learned that a payment plan with the IRS comes with an IRS Tax Lien attached. Nobody will give you credit when you have an IRS tax lien hanging over you. So we decided to sell the truck and pay our taxes instead.

But here's the interesting part,......... The Court has to pay you the amount you exempted regardless of what the asset brings at sale. If you use a fair market appraisal/evaluation of your property when you file, and the asset brings less at sale, that's just the Trustee's and Creditor's tough luck.

That one attny explained it to us how they would sell our truck. The Trustee has to be fairly certain an asset is gonna bring the price before they take it to sell. The attny planned to put $5K of vehicle exemption on the truck. Bottom value was $19K. The attny said he figured it would not bring $19K at auction. AND the Trustee has to pay the costs of the sale too. Even if the Trustee took the truck, regardless of what it brought at sale, we'd get $5K paid to us because that's what we'd exempted. If the Trustee took our truck to sell, he/she probably wouldn't get enough to pay the Creditor the loan, and the Trustee wouldn't make any money off the sale, so the Trustee simply wouldn't bother.