How To Deal With Lender Who Began Foreclosure, But Seller Is Now In Bk13
I hate to ask this because it's part of a bigger question being hashed out in a couple of other forums, but I'm getting conflicting answers, and this part is holding me up at the moment:
If a seller filed ch13 immediately after receiving notice of foreclosure from the lender, and has started making payments to the trustee which include back-mortgage, then what exactly would be the approach (if any can be made) to attempt a short with the lender?
I am being told on the one side that the lender will not entertain any offers while the bk is in effect. I don't see any reason (help me out if I'm missing some) why the trustee wouldn't release if asked, but then...
Remember, the lender had already begun foreclosure, so if the mortgage is released from the bk, wouldn't the seller automatically be in foreclosure? Couldn't they demand all the back payments and loan total due immediately?
I have no experience here, and I'm sure I'm quite naive, but I've just got to believe there is some way to come to terms with the lender so that if and when the seller gets the trustee to release the house, she's guaranteed that our deal will fly, and the mortgage company won't foreclose on her.
Somebody in the history of CREI must have done something along the lines of coming with an agreement with the lender contingent upon trustee's cooperation, then getting the trustee to release with seller's blessing. If not, I can't believe there is no way around this, so I'd appreciate any other strategies.
By the way... I have no idea if this matters, but the loan is FHA.
If that makes sense, great... if not, let me know which part doesn't, and I'll try again.
Thanks.
Who told you this? If it was anyone other than the bank ,you are just spinning your wheels
"I am being told on the one side that the lender will not entertain any offers while the bk is in effect..."
You have been shopping this scenario around, fishing for an answer that you want, and although I appreciate your tenacity... and irrespective of what you may hold to be true....the reality of the situation is the mortgagee is precluded from entertaining a short sale unless/until the bankruptcy trustee dismisses the Chapter 13.
It's a catch 22. They won't entertain a short unless the mortgagor is out of bankruptcy... and can't make any predictions as to the likelihood that they would approve a short while the property/mortgagor is in bankruptcy.
If all other criteria to an FHA short has been addressed, you (or an experienced short facilitator) can make an informed decision as to whether the short would fly... if it were not for the BNK.
The only way to make that determination is to have an experienced short sale facilitator roll up his or her sleeves, gather and review the applicable data, and form an opinion... or, in other words.... prequalify the short sale candidate.
There are gray areas in every ss scenario... and, despite what many pitchmen or women will state, this is not a cookie cutter acquisition technique. Each has to be evaluated on it's own merit.
[addsig]
You go boy!!! The young laddie has heard the truth!
C- :-o
First of all, I wouldn't even be asking if I didn't keep getting advice like the following:
"The mortgage co is most likely to negotitate with her while she is in BK. That is, after all the purpose of the BK, to give the debtor time to negotiate with her creditors. "
Second, every piece of gameplanning I've outlined was from advice I've received on this board, so you'll forgive my confusion If the coaching I've received is completely contradictory.
Third, at least now I have a direct answer to whether there is some way around the catch-22. And, just to be 100% clear, it is my understanding that if the seller does get the trustee to release, and the mortgage company decides not to play, or demands so much that the financing won't work, then the seller is done for and will lose her house without recourse. (unless she finds another buyer) ... is this right?
"That is, after all the purpose of the BK, to give the debtor time to negotiate with her creditors. "
Actually, yes and no. Once the petition and plan for a chapter 13 bankruptcy is filed, the bankruptcy trustee and the creditor must then agree on the plan. If any creditor objects to the plan, a hearing may be scheduled. During this time, the Debtor doesn't have too much to say ... and aside from the bankruptcy trustee... nobody to talk to.
The bankuptcy applies the brakes to all collection, and collection related activities. Guess what? Negotiating a short sale is considered part of the collection process.
Many mortgagees refuse to speak with their own customer, the mortgagor, during this time, instead, referring them to their bankruptcy department who will want to speak to the Debtor's bankruptcy attorney.
Insofar as conflicting as conflicting advice... sure, that going to happen. This is a public board, experience and interpretations will vary. I might be 100% wrong.
I guess the advice that you are getting is worth what you are paying for it.... sorry I couldn't have been more helpful to you.
[addsig]
That's all understood, and don't get me wrong... I appreciate the input. I'm just trying to make sense out of conflicting advice. Being a newbie, I don't have much to base an opinion on other than the advice, so I can't very well qualify one opinion over another.
Well, maybe I need to take a step back then. Assuming that the seller does get the trustee to release. I guess what I need to do is to get as clear as I can about what the mortgage company would accept.
So, if you could indulge me, I'll start with a few of what I think the basics are. If I have these wrong, just let me know...
First off, the mortgage company itself may be important, so it's Irwin Mortgage. I mention this because I assume certain companies are known to be easier/ tougher, have known policies, etc.
Second, the loan is FHA. I don't know all of the requirements there, but I know there are some. I think I read that you can't short below 85% of "current value." I'm not sure if I have this correct, and I'm not sure how needed repairs are viewed relative to "current value."
These two should be a good starting place. Thanks again for all the input. I'm learning a lot. Of course I'm rather attached to this as I am talking about my home, and not just a potential investment, but even if this doesn't pan out, I'll be better off for the education of stepping through the approaches and the snags.
Thanks again.
Oh, and by the way... SSP, your description of the mortgage company not being able to negotiate because it would be continued collection... now I get it. They'd be violating the bk code to pursue payment. I understand now why it's so sticky with them.[ Edited by thestudentisready on Date 05/23/2004 ]
They can still pay the mortgage off. The bank won't refuse being paid in full. Has the person in Bankruptcy requested even attempted a payoff request? I work at a bank in the foreclosure department and we get calls for them all the time. Wes end off a payoff that includes the arrearage and legal services. Just because there is a Stay doesn't mean she can't aske for a payoff statement. It means the bank can't call her about her delinquency. (When are you going to bring your payment in etc)
Ok... well, that's back to what I was thinking. I know a creditor can't continue collections, but I also know that creditors will accept payments on IIB accounts, so they're not barred... I was under the impression they just can't initiate it... (call you and ask for payment, etc) And at this point, I'd guess that the mortgage company would rather be paid off even a lesser amount to going through the motions in bk13 since my guess is that the majority of mortgages in 13 end up in foreclosure anyway.
In answer to the question, I'm not sure... she may have gotten a payoff letter from the bank prior to filing, I'm not sure. In either case, she has never made any attempt to settle. I only started thinking about the possibility of a short sale a couple of days ago when a member here suggested it.
If the mortgage were through your bank, and all of the other details were the same, is there something I would be able to do to get you to agree to a short sale? (With the seller's complete cooperation, of course...)
Oh, and I forgot about this paragraph:
SSP said: "Many mortgagees refuse to speak with their own customer, the mortgagor, during this time, instead, referring them to their bankruptcy department who will want to speak to the Debtor's bankruptcy attorney."
Ok, so the debtor's bankruptcy attorney is a friend of mine. Is there something he can do to come to terms?
Also, when you say their bk dept, does this mean a legal team, or just another dept? The reason I ask is that I've heard when creditors are trying to deal with a bank, if the bank sends the account to their attourney, I've heard a number of people say they've gotten nowhere with the attourney who is interested in being able to charge their fees. I've also heard, however, that one hand often doesn't know what the other is doing, and it is preferable if possible to work it out with the bank vs their attourney since the motivations are simpler.
Now, I'm not sure if that concept applies here, but I thought I'd ask since addressing the simple motivation of the mortgagor is what a SS seems to be all about.
At my bank if there was a bankruptcy involved we would not accept less...We would most likely accept no loss. NOthing less than the full amount. However if the property was in really really really REALLY bad shape, there could be some wiggle room. I would say no short sale though. MOst likey because it would fall under some inappropriate negotiating and collecting activity as referenced in somebody elses email.
I would say that since i've been in the area, i haven't seen a shortsale happen while in bankruptcy
OK... Understood.
Have you seen a scenereo where someone pulled it out and then attempted a SS? Or... from your experience in that dept, is there any other aspect I am overlooking?
I've just about completed a situation such that the owner of the property (an FHA loan) was mired in bankruptcies, but wanted to sell short to a speculative investor via a sale and leaseback.
The first step was to prequalify the candidate for all other aspects of short feasibility. Values. Hardships. Timeframes, etc.
The obstacle was the bankruptcy. In bankruptcy, the Homeowner was shielded from creditors provided that the monthly payments (both in plan and out of plan) were current. However, the fact that the Homeowner was in bankruptcy precluded the mortgagee from any activity other than accepting the monthly payments from the mortgagor, and the bankruptcy trustee.
To effectuate a preforeclosure shortsale, the bankruptcy would have to be discharged, or dismissed.
On one hand, the dismissal gave way for a possible short, while on the other hand the dismissal exposed the property for continued/aggressive collection activities.... which do not cease
unless/until 1) the property is sold at Sheriff's Sale or Trustee's Sale, 2) the loan is repaid in it's entirety, or 3) a preforeclosure short sale has been approved.
If the bankruptcy is dismissed and the short sale is not approved... the Homeowner will probably lose the property to a forced, public sale.
[addsig]
OK, thank you.
I have a much clearer understanding of where the boundries lie now.
Just to be clear on a related point... I have read several accounts lately on other REI sites about people who have begun bankruptcy but not followed through. I don't pretend to understand the details or motivations involved, but I know people do this to some degree.
I am assuming in my GF's current case that the bk13 is not "undoable" in the sense that she cannot withdraw the filing, and retain the ability to protect herself again in a month if the mortgage company won't cooperate.
The exact status is: They began foreclosure, she filed. She met with the trustee, and a payment schedule was established. She has not yet made the first payment.
I am assuming she can't take a step backward at this point to attempt negotiations while retaining the ability to protect herself if needed, but I'm not intimately familiar with the bk process, and I know that people for some reason purposefully initiate bk without following through, so I thought I'd ask just to be sure.... and make sure I gave you the exact status.