Unusual ??? Home purchase PRIOR to filing

[FloridaGuy]

Hi All,

I have read many threads here but have an unusal question. We have met with two attorneys to discuss options of our situation. Basically my business may be filing bk, as well as us personally. But this question came up afterwords. It seems bk may be the only option.

Our current home is upside down with monthly payments of $4K a month. Once the business closes, my income (Which is how we have been paying the house payment) will drop considerably. (I have not actually made a salary in almost 4 years... I have been repaying a loan to made to the business)

While we still have fair/good credit, do you think we could purchase a home as our primary residence... and allow the original home to be included in the bk and turned over to the mortgage company when it doesn't sell? Our current home is on the market, and payments were current until last month.

Obviously we need somewhere to live, and would prefer to stay in a house. (Our current house actually) but based on income even if the mortgage company would work with us will not be able to reduce the current payments to an affordable price.

Any opinions or suggestions here?

[HHM]

About all you have is a "fools" hope at this point of implementing that plan.

1. Odds are, no one will lend to you while you still have the other mortgages, so you are probably dead in the water anyway. (but, it can't hurt to call around and see if you can get pre-qualified).
2. You are potentially heading down the fraud path because you will be representing to the bank for the new home that you have income to pay the note, when in fact, you already know you will be filing BK and your business (the source of income) will not exist at its current level. The outcome could be: the bank forecloses on the new home and you are suddenly stuck with personal liability for the entire amount of the loan that cannot be discharged in BK. Thus, you have 2 foreclosures, and thousands of dollars of non-dischargable debt.

Like most people in your situation, you will likely need to become renters and surrender your current home.

[FloridaGuy]

Thanks for the response. I was concerned about the fraud aspect... A $1K monthly payment vs. a $4K payment is a huge difference, however. The home builders in our area are running scared, overstocked with inventory homes, offering unbelivable deals, financing, etc. to clear them out.

Some builders are also offering rent-to-own programs where you can choose to purchase within 12-24 months... but with no obligation to purchase.

These are items to discuss with our attorney, but was wondering if folks had opinions here. Thanks again for the input.

[HHM]

That is true, but the flip side is, banks are running scared. All the builder incentives in the world are not going to convince the underwriter to give you loan when you have an existing mortgage for $4000 per month.

The main problem is, if you misrepresent you income in your loan application. Its one thing to do so on a credit card app as banks rarely follow-up on that issue, but with a home mortgage your in a more tenuous position. Also, no one is going to give you a no-doc (or stated income loan), so you will have to provide income verifications. Granted, you can probably do that since the business is still operating and presumably you are still pulling in money, but if you turn around and file BK soon after closing, you are probably opening a can of worms.

[venicehope]

I'd look to the future, free of debt with the goals to rebuild a new business or find steady employment. Let go of the house in the BK if you can't afford it. If it goes to the bank, you could possibly be in it for as long as a year before the foreclosure takes place (it's been 11 months and not even a notice yet for us on the old house) Stop making payments, and save that money for a future lease with option. From your filing date on, make any payments you intend to re-affirm (i.e. a car loan)on time, you'll be establishing good credit (improving it) from day one. By the time it takes to discharge, then close, in addition to foreclose you could be in a pretty good position again. We filed here in Florida in Oct 07, a joint personal chapter 7 and were discharged in Jan 08. We have 1 more payment of our buy back agreement then hope to close. I recently reviewed my DH and my credit scores. Oddly enough they weren't that bad, at 680 already. We too have surrendered our upside down homestead and an investment property. Although I regretfully jumped the gun, left the property in fear of the impending foreclosure and leased a home. I realize now the amount of money I could still be saving if I hadn't moved out. I suppose the foreclosure rate is so high here that it's taking the banks longer to address them. As for wanting to purchase. Yeah, I felt that way too, our first year lease was just up and we moved again for another year. I thought the same, it's such a good time to buy, but I got over it pretty quickly. Remember no taxes, hurricane/wind/home insurance, home upkeep, pool, lawn expenses. Ideally a lease option sounds like the best option. As with any rentals check the county records for Landlords property address to confirm he's currently paying his bills, taxes, and isn't in default. Just sharing what's worked for us so far. Good luck, and be sure to go the extra mile to get a truely experience ace Bankruptcy attorney, and speak with your business accountant. It's crucial to have all our ducks in a row.