foreclosure advice needed – sorry for the cross post
Question: I have a couple of questions, and thought that this is a good place to look for answers. Sorry if this is long… In 1998 my wife and I bought our first house. Our credit was “less then stellar” and we didn’t have 10% down. So we did a deal with a mortgage broker where we got 100% financing. One mortgage was for 80% of the loan, the other was for 20%. the purchase price of our house was $130,000. We bought the house in March of 1998, and then in October of 1998 we went to The Money Store to get a home improvement loan. That loan was only for $13,000. The reason we did this, is because the house was in dire need of a roof (we knew that when we bought the house) as well as some cosmetic work (paint carpet, floors, landscaping, etc.). Now, this seemed like a good deal. We figured that within a couple of years we would just re-finance them into one. Skip to August of 1999. Our first attempt at Re-financing the house. The lender tells us, that, “because the home improvement loan is less then a year old, we can’t re-finance it yet.” So we wait…. In January of 2000, we went to a “credit counseling” service to get our credit cards paid off. Shortly thereafter, we go to get our mortgages refinanced into one. But this time we are told that we can’t, because we are in “credit counseling” which the bank see’s as bankruptcy. We hell, if we can’t re-finance, then we might as well file bankruptcy. The credit card companies who were so willing to take our interest payments, were not so willing to work out a deal to get their money back. So we filed Chapter 7. Now, we kept the house(3 mortgages), and both cars. But now we didn’t have any credit debt. Bankruptcy was final in late august 2000. Skip to August 2001. We were told, that we could refinance the house a year after the bankruptcy. So almost a year to the day, we go through the motions. Total of the three mortgages is $140,000 and some change. We have the house appraised…appraisal comes in at $156,000. Bank says, that because the chapter 7 is only a year old, they can only refinance 85% of the value of the house. So, now we still have 3 mortgages, and one of them bumped up their interest rate right after we filed bankruptcy. Almost as if to say… “we got you by the yam-bag now buddy!” So now with taxes and insurance, our house payment is almost $1800 a month. This is almost half of my take home in a month, and I need to get it lowered. So now my wife and I are seriously thinking of either selling this house, or just letting it foreclose. I don’t really know much about foreclosure, but I would rather not let it get to that. Selling it could take up to a year, and I don’t want to wait that long. I make 60K+ a year, and have been in the same trade for close to 16 years, with 7 of those years at the same job. Where can I go for help. Can I refinance now? What happens if I foreclose and what are the legal ramifications? Any help and advice is greatly appreciated.
Answer: Well in 20/20 hindsight I can see that you made a few mistakes. First: If you knew that the house needed a new roof then you could have negotiated with the seller to have it fixed when you bought the house. Best way to do that would be to negotiate a repair allowence as part of the selling price. This would give you money after closing to fix the roof that would come out of the first and second mortgages.
Second: Getting that Home improvement loan so soon was a mistake.
3rd: Getting credit counseling. You should try out your negotiating skills on your own and talk directly with your creditors.
4th: Fileing for bankruptcy made the situation even worst.
Foreclosure will make things even worst. Your best move at this point is to try to live with it. It won’t be easy. After a while your credit score will get better and you will be in a better position to refinance.
Beware of forclosure. If the bank doesn’t get all the money it’s owed, they can file a motion to collect the remainder. It’s called a deficentcy judgment. For the legal advice, you really need to talk to a lawyer. The one who handled your bankruptcy ought to give you a consulatation for a reasonable fee. You need to discuss deficiency judgments and the possibility that you won’t be able to protect other assets or your income through bankruptcy if the lender seeks one. If the lenders foreclose and take a loss and they can get a deficiency judgment (your lawyer can tell you if they can), you still get stuck with the bill for the difference between sale price and the amount you owed plus expenses. The mortgage companies will try to get the best price they can, but the fact that the listing will have ‘as is’ in it (all foreclosed property listings are sold ‘as is’) will lower the price it brings. You would be much better off to be in control of the process. Additionally, you will be able to protect your credit as it rebuilds.
If there is any way to do it, the best bet is to keep your payments up and keep the property up for another year or two. Frankly, and as someone who has had credit issues I’m not being judgmental here, anyone who tells you that there is an overnight cure to bad judgment in the past with regard to credit is trying to sell you something. Whether it’s a mortgage broker with a great deal on a refinance, a lawyer touting bankruptcy or a ‘nonprofit’ credit counselor who tells you (wrongly) that he’s protecting your credit rating. (BTW, CCCS is actually worse for your credit than bankruptcy when applying for a mortgage – probably at least partly due to the fact that you can only do a bankruptcy again after a certain time passes.)
If you can’t keep up the payments, you need to find a real estate agent who specializes in ‘loss mitigation consulting’. You’re lender may be able to recommend someone. You may end up owing after the sale is complete, but you have the opportunity to negotiate up front and maintain some control over the process. A ’short sale’ or other negotiated settlement will also be less damaging than a foreclosure to your rebuilding credit (though it will still be a negative credit item.)
Related Posts
Filed under: Bad Credit
Leave a Comment
XHTML: You can use these tags: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>
TrackBack URL | RSS feed for comments on this post.