before and after attorny

[debee]

That quoted Realty Trac article is also wrong about California's SB 931. SB 931 applies to purchase-money mortgage deficiencies after short sales, not foreclosures. California already had a law that stops personal liability on purchase-money mortgage deficiencies after foreclosures.

Agree! I don't know who writes their articles but it's obviously someone who doesn't know what they're talking about.

(Note to self: never rely on realtytrac for accurate information.)

[debee]

I think Realty Trac has item number 1 wrong.
Here's a link to the actual bill and it deals with the tax issues associated with a foreclosure. Nowhere could I see that it prohibits a lender from seeking a deficiency judgment should state law allow it.

http://www.govtrack.us/congress/bill...bill=h110-3648

Agree!

They do have it wrong. Insolvency only protects the borrower from having to count "forgiven debt" as income. Deficiency judgments aren't forgiven. In fact, they're the exact opposite!

If a lender forecloses judicially and gets a deficiency judgment it means they can pursue the borrower for that debt according to the collection laws of the state - so they can garnish, levy bank accounts, places liens on other property, etc. - but thankfully, the debt associated with deficiency can be discharged in bankruptcy.

[tobee43]

oh...and mwr..i looked at that...and you're right that is very clear with the respect of the short sale in california.

SB 931 Short Sale Deficiency Protection Bill Effective January 1, 2011

SB 931 Short Sale Deficiency Protection Bill

Effective January 1, 2011

"SB 931 prohibits a deficiency judgment under a note secured by a first deed of trust or first mortgage for a dwelling of not more than 4 units in any case in which the (owner) sells the dwelling for less than the remaining amount of the indebtedness due at the time of sale with the written consent of the holder of the first deed of trust or first mortgage. The bill would provide that written consent of the holder of the first deed of trust or first mortgage to that sale shall obligate that holder to accept the sale proceeds as full payment and to fully discharge the remaining amount of the indebtedness on the first deed of trust or first mortgage. "

Many banks have been unrelenting in their short sale approval letter verbiage on refinances, saying they will follow state laws to pursue a deficiency judgment. California lawyers sometimes argue that even if the loan was purchase money and exempt from a deficiency, such language in the short sale approval letter allowed the bank to pursue sellers after closing a short sale because the approval letter changed the status of the loan. California short sale sellers with a first mortgage will no longer have to worry about a deficiency judgment after a short sale.

This law pertains to first Trust Deed loans secured by 1-4 residential properties and does not have to be owner occupied. This law will also apply not only just for purchase money mortgages, but, for "hard money loans" which are first mortgage loans not used to originally purchase the home, such as a refinance.

SB 931 would further provide that if the trustor or mortgagor commits either fraud with respect to the sale of, or waste with respect to, the real property that secures the first mortgage or deed of trust, the above prohibition shall not limit the ability of the holder of the first deed of trust or mortgage to seek damages and use existing rights and remedies as specified.

This law will not change existing law relating to second mortgages in a short sale, so it still remains very important for sellers to obtain written relief from future deficiency judgments from second mortgage lenders in a short sale. Many attorneys still believe, however, that if a second mortgage was also a purchase money mortgage used to initially purchase the home, that the second loan would also still be non-recourse after a short sale, but there has not been definitive case law confirming this.

Our thoughts and comments on this subject: SB 931 was passed in the CA State Senate on 8-23-2010 and signed by the Governor on 9-30-2010. It went into effect on 1-1-2011. Much was made of the bill when it was passed, but it seems that it has become somewhat of a forgotten item since some time has passed until it took effect. Make no mistake about it, THIS NEW LAW IS A GAME CHANGER. Did you realize that this new law extends anti deficiency protection, that is the lender cannot pursue the short sale seller for collection of the shortage amount, to ALL FIRST TRUST DEED LOANS, EVEN REFINANCE LOANS. Did you realize that this law extends anti deficiency protection to ALL SHORT SALE SELLERS, EVEN ON THEIR INVESTMENT PROPERTIES. This is huge. This opens the door for many homeowners who are thinking about short sales as an option. Sellers who previously thought they could not avoid their lender pursuing them for their shortage can now short sale without recourse from the first Trust Deed lender. Please note that this protection does NOT apply to second Trust Deed lenders. The attached is a short legislative summary of the Bill. It is full of important points. I would encourage you to read it and get the information out to any and all of your clients who it may affect. I also have a shorts sale package that is full of other tax information, tips, and insights on short sales that I am certain you would find extremely helpful."

[tobee43]

That quoted Realty Trac article is also wrong about California's SB 931. SB 931 applies to purchase-money mortgage deficiencies after short sales, not foreclosures. California already had a law that stops personal liability on purchase-money mortgage deficiencies after foreclosures.

right, that's the way i understand it as well. but i don't read it as incorrect...since california can either go judicial or non judicial.



actually, i don't know how updated this list really is, however, these are the states, after the bill was signed that were or maybe still are all the mortgage walkaway trustee sale states, meaning they are non-judicial foreclosure states.

in those states, generally, when they foreclose on you, they cannot pursue you for their financial losses.

"many, such as California, do in theory allow a lender to choose judicial foreclosure but in those cases the lenders only do so if a borrower has significant other assets. this is the "one action" rule that lets the lender either pursue non-judicial foreclosure, at lower cost and less time, or judicial foreclosure that costs more money and takes more time but lets them go after you for their financial losses."

here's the list:

Alaska
Arizona
Arkansas
California
Colorado
District of Columbia (Washington DC)
Georgia
Hawaii
Idaho
Mississippi
Missouri
Montana (as long as non-judicial foreclosure is used)
Nevada - note that the lender CAN get a deficiency judgment
New Hampshire
Oregon
Tennessee
Texas (but even in a non-judicial foreclosure, the lender can pursue a deficiency judgment)
Virginia
Washington
West Virginia

these are states that also allow non-judicial foreclosure, and/or where non-judicial foreclosure is more common and deficiency judgments can be obtained more easily:
Michigan
Minnesota
North Carolina
Rhode Island
South Dakota
Utah
Wyoming

and i just want to add the following:

"For tax purposes there is cancellation of debt income unless:
1. you are insolvent (your liabilities are greater than your assets), or
2. this is your principal residence, or
3. it's a non-recourse loan

Most people in this situation owe so much that their liabilities are greater than their assets, so they are "technically insolvent" and therefore have no federal tax liability for cancellation of debt income."

[mwr]

That quoted Realty Trac article is also wrong about California's SB 931. SB 931 applies to purchase-money mortgage deficiencies after short sales, not foreclosures. California already had a law that stops personal liability on purchase-money mortgage deficiencies after foreclosures.

[tobee43]

I think Realty Trac has item number 1 wrong.
Here's a link to the actual bill and it deals with the tax issues associated with a foreclosure. Nowhere could I see that it prohibits a lender from seeking a deficiency judgment should state law allow it.

http://www.govtrack.us/congress/bill...bill=h110-3648

they may, and i do think it varies from state to state. you have to prove insolvency...so, one would likely think filing bk would qualify you under those circumstances...but who really knows until it happens. after all, who is it they are going to go after, if one has nothing.

we owned property in a deficiency state, and although, it's been over 3 years and they still haven't foreclosed, we are not in the least worried if they present us with a 1099C or attempt to bill us for the deficiency, since we can prove insolvency. (in our case we also had or have PMI...so the bank can go after the FHA for any deficiency). so there are a few more factors involved than what is actually written in the body of the bill itself.

also this is a publication by the IRS....to help explain how one go about reporting the deficiency, if one is faced with a balance: http://www.irs.gov/pub/irs-utl/pub_4702_091708.pdf

[keepmine]

I think Realty Trac has item number 1 wrong.
Here's a link to the actual bill and it deals with the tax issues associated with a foreclosure. Nowhere could I see that it prohibits a lender from seeking a deficiency judgment should state law allow it.

http://www.govtrack.us/congress/billtext.xpd?bill=h110-3648

[tobee43]

"According to Realty Trac, a leading housing industry research firm, nearly 2 million foreclosures will occur in 2011 and likely will continue well into 2012. With so many facing foreclosures, distressed homeowners will likely be faced with the decision to just walk away from the property, especially given the fact that a substantial number of foreclosures are caused by loss of income due to unemployment. Under such circumstances homeowners cannot even qualify for a Home Affordable Modification Program (HAMP) to avoid foreclosure.

In almost every foreclosure scenario the home is in a position known as being “under water”. This means the home’s value is less than what is owed on the property. Foreclosing on such a property leaves a difference between what the mortgage loan balance is and what the foreclosing property actually sold for. This difference is known as a deficiency. When there is a deficiency a lender has the option to go after the homeowner for the amount of the deficiency by filing a claim in court. If successful, the judgment rendered by a court in favor of the lender is called a “deficiency judgment”.

Once obtained, the lender can seek to enforce the judgment by attaching any asset of the homeowner that is not exempt by law. Therefore bank accounts, personal property, accounts receivable and the like can be taken by the lender. In addition, the lender can file a copy of the judgment with the county recorders office within the county where the homeowner resides and the deficiency judgment will act as a cloud or bad record against the homeowner so long as it remains on the county records. This could hinder the ability to purchase another property or transfer any other property that the homeowner might otherwise own. It could also affect the homeowner’s ability to receive property free and clear as a gift or inheritance.

When involved in a foreclosure, homeowners are not without defenses to a deficiency judgment and armed with proper knowledge need not fear a deficiency judgment and can in fact defeat such a judgment. Here are six defenses that can be deployed against a deficiency judgment.

1. The Mortgage Forgiveness Debt Relief Act:

Under this law, enacted in 2007 and now extended to 2012, homeowners who lose their principle homes (the house they actually live in) to foreclosure and thereafter face a deficiency cannot be held liable for any deficiency judgment. The amount is automatically written off. The homeowner cannot be held responsible for such debt. Any lender seeking to enforce a deficiency judgment in such circumstances would be acting illegally and the homeowner would not only have a complete defense, but a right to counter sue the lender for abuse of process or other appropriate claims.

2. Properties Foreclosed On That Are Not A Principle Residence:

Many foreclosures taking place are on homes that are not the principle residence of the homeowner. The Mortgage Forgiveness Debt Relief Act would not protect against a deficiency judgment in this case. A homeowner should negotiate with the lender under such circumstances and seek a written agreement that the lender will not seek a deficiency judgment in return for the homeowner just walking away and giving up any legal right the homeowner may otherwise have to file a claim against the lender. In the current state of affairs lenders are facing numerous claims of fraud, failure to follow foreclosure regulations and other bad faith claims. Such claims have value and can be used to negotiate with the lender to not seek a deficiency judgment.

3. IRS Tax Collection Defense:

Rather than seek a deficiency judgment a lender may simply write the deficiency off its books and then issue a 1099c to the homeowner showing the amount of the deficiency. Under IRS rules this reporting is the same as income to the homeowner and taxes must be paid on the amount. This is devastating to a homeowner who has already lost the property through foreclosure because payments couldn’t be made and now must face a tax debt. A defense against such a claim by the IRS is a claim that the homeowner is “insolvent” meaning there is no money from any source that can be used to pay such a tax. The law provides protection under this insolvency exclusion. Homeowners facing attempts from the IRS for collection purposes should seek advice from a competent CPA or Tax Attorney.

4. Home Affordable Foreclosure Alternative Program (HAFA):

The federal government has a program whereby it encourages homeowners to apply for and seek a short sale of property in foreclosure rather than go through the foreclosure process. The amount of any deficiency is what constitutes the short sale (selling short of what is actually owed). Once a homeowner makes an application under HAFA the new rules taking place on February 1, 2011 require the lender, once application is made by the homeowner, to stop the foreclosure process and respond with an approval of the short sale within 30 days from the application or to make a counteroffer on the short sale of the home within that same period of time. Homeowners using HAFA can be protected against any deficiency judgment and should review the requirement of the program as one defensive option when facing foreclosure.

5. State Regulations and Rules Governing Deficiency Judgments:

Some states, in efforts to protect its homeowners facing foreclosure, have passed new laws that cover not only principle places of residence but investment properties also. Homeowners living in those states are relieved from liability for any deficiency judgment on first trust deeds on properties foreclosed on. California is one such state that has recently enacted such a law under SB 931. Homeowners should check their state foreclosure laws to verify whether similar protection exists in their state.

6. Bankruptcy! The Death Blow To A Deficiency Judgment:

If all else fails, a homeowner facing a deficiency judgment can file a petition in bankruptcy under Chapter 7 of the Bankruptcy Rules. In a Chapter 7 bankruptcy all unsecured debt is wiped out, with very few exceptions. A deficiency judgment becomes personal and against the homeowner and is no more than an unsecured debt. Therefore, it can be extinguished in bankruptcy. Often time lenders assign or sell deficiency judgments to debt collectors. A bankruptcy would wipe these claims out too.

Homeowners facing deficiency judgments or the possibility should keep these six defenses in mind. Using any of these defenses however should be discussed with an experienced attorney before attempting to implement them."

[debee]

Am I missing something with this Idea?

The only thing I can think of right now is "deficiency" judgment.

Although Minnesota is normally non-recourse, there are situations (such as a second mortgage or HELOC) that allow for deficiency judgments. If your primary lender pursues a judicial foreclosure (rare, but allowed) then you end up back on the hook. So, if it were me I would look into the mortgage issue before deciding how to proceed.

If you're going to end up having to declare bk down the road (because of a deficiency), you might save yourself some stress and trouble by just getting it over with. "Wish I did it sooner" seems to be a popular refrain among those who have filed bk.

Look into the exemptions for your state and see how much cash you can exempt. I know you have the option of using the federal exemptions which allow for a large cash exemption (around 11K). Save and use the money for your future. Let the credit card debt crash and burn.

If your situation is such that you don't expect the lender to pursue deficiency, then there are ways to stall foreclosure.

[harris]

A friend gave me another idea, while i was speaking too them.
Dont pay the mortgage. I might be able to get away with out paying it for a year ( He has a friend who has not paid for 2 years) .
Then apply the mortgage money to the credit card. The only thing is. We need to be able to stay in the house for 1 more year.
After that we are going to be moving. If this works the way people tell me it could I should be able to A) pay off the debt within 2-3 years.
But thats the question Am I missing something with this Idea?

[mwr]

Listen to debee; he gives very good advice. His last paragraph is especially important:
>If the insurance payout is in both your names and presuming you're safe to spend it, I believe depositing whatever is left in your wife's sole account after paying off the joint account would cause you problems. I think it would be better to spend it down on allowable expenses. <

If you give away (or sell for less than market value) any of your assets before a bankruptcy, it could be considered bankruptcy fraud which is a felony. There are also lesser possibilities but that one should frighten you enough to get you to stop thinking about it.

[debee]

We had hail damage on the house, we got a check for $11,000 dollars. The check is in both of our names. Can we use the check to pay off the Joint Credit card, and have the left over money in Wifes bank account. We get $10,000 a year from the State. Can I pay for them, draining any exces money I have. Or pay for them instead of paying my CC bill. What wolud be the status of this money in a BK filing?

I believe these are things that you can discuss with an experienced bk attorney without eliminating your options. If you were to see a bk attorney, then charge up a lot of new debt, then file bk, your creditor would be able to use the fact that you had already consulted a bk attorney to establish that you had no intention of repaying the debt thereby making it nondischargeable. But you're not talking about acquiring new debt. These seem like asset protection questions.

Sometimes it's possible to keep insurance proceeds without spending it on the necessary repair, but sometimes (not always) it's insurance fraud. I don't know where that line is when it comes to your policy & circumstance.

We had some casualty gain on a rental property once upon a time. According to the IRS we didn't even need to use the same "money" to make the repairs/rebuild. It was right in their publication that it's perfectly legit to cash the check, spend it, defer gain for around two years and then rebuild using money from another source. In one pocket, out the other. Of course you should be able to exclude any taxable gain (if you are free to spend the money without doing the repair) because it's your principal residence. Our casualty was with a rental. In our case, we were free to spend the proceeds however we wanted. The insurance payout covered our loss. So long as we were prepared to pay tax on the gain (against our adjusted basis in the property), we could keep it and spend it. And we did. Not fraud in our case. (edit to add: Not sure what legal recourse your lien-holder would have)

If you don't spend the money on the repair, there may be issues with it as "income". You would likely need to list it on your petition (where you list all income over the last two years regardless of source) and then there's also the Means Test. So if it turns out you don't have to spend it on the repair, you'll want to consider how it will impact your filing in other areas.

I don't see a problem paying off joint debt unless you do it within 90 days of filing. Within 90 days, it's preferential and the trustee can go to the creditor and recover the money. This has no impact on your discharge but it would put your wife back on the hook.

If the insurance payout is in both your names and presuming you're safe to spend it, I believe depositing whatever is left in your wife's sole account after paying off the joint account would cause you problems. I think it would be better to spend it down on allowable expenses.

[harris]

If I decide to go ther BK route. I would like to get a complete fresh start.
So I would not keep the house, and we would in all probability leave the State. All medical expenses are already covered by the government health plans.
i just want to make sure I do everything on the Up and Up, but at the same time to reduce the harships for the rest of the family.
But lets talk for example Car repair. I Can take say $2,000 and repair the car. (it needs a new air conditionar, and a new front bumper and new tires)
That would be okay.

But Let say we Put it on the joint Credit card , and then the next day send in a check for $2000. That would not be okay?


Also the damage to the house was the siding. The roof is also Damaged but not because of the hail. It would cost according to one estimate $20,000 to repair correctly. And that is not covered by insurance.

Right now based on the feedback. We are doing nothing with the check. Not cashing it , not paying off the CC, not fixing the house . As i think This might be a question for a BK attorney.

[keepmine]

I think you're being a bit shortsighted here.
You are trying to to discharge $60K worth of debt-don't play games over $7500.
I'd get that house repaired. Use the check for that purpose. You don't want further damage down the road. Plus, if you ever sell the house the seller is gonna insist on the roof being repaired.
There are a lot of ways to drain excess cash. Starting by stop using the cc's and using cash for daily living expenses. Make sure you and you family get any needed dental work done. New glasses/contacts. Make sure you have reliable transportation. Look at your house. Any repairs/maintenace you need to do that insurance doesn't cover {painting, gutters, cracks in the driveway/sidewalk}.
Just start looking around and thinking about all the things you need. You'll burn through money pretty fast.

[harris]

1) No I'm not planning on putting costs on a Credit card. It would be away for me to spend down any cash I had. That could not be exempted.

2) According to the Insurance adjuster you dont need to do anything, now If you want to get the full settlement amount, then Yes We would need to do the repairs.

We might put the wife on if it comes to that, Aka if were not allowed to do the planning I mentioned above,
It might be best for her to be on ,. to the double exemption.