Foreclosure without bankruptcy?

Question

I have a friend, going through a divorce, and wants to sell the house because it is underwater, with a mortgage and second mortgage that are approximately $50,000 less than current market value, plus about $20,000 needed to fix current plumbing and water problems. Can you go through foreclosure without filing bankruptcy - the friend would like to avoid bankruptcy as other debts, primarily credit cards are current and would like to continue using credit cards.

Scott W. · Answer

Monica Breckenridge  this is not true; you can do a foreclosure or a short sale & get a loan within 3 years with FHA, provided your scrores & income are good enough.

Bill Gulley · Answer

Yes, they are unrelated. Bankruptcy is usually take to stall foreclosure or restructure the debt. You friend could give the property back if the lender would accept it and that would avoid any deficiency judgment. They could ask the bank to allow a short sale marking down the loan to sell it. Or walk away, but in a short sale and especially walking away, the bank could seek a deficiency, having them pay any loss on the note.

Wendell De Guzman · Answer

Tom Brennan, regarding your question:

"Can you go through foreclosure without filing bankruptcy - the friend would like to avoid bankruptcy as other debts, primarily credit cards are current and would like to continue using credit cards."
Answer:
1) Yes you can but as others have already answered - there is a consequence: DEFICIENCY JUDGMENT.
2) Also, BK (chap 7) does NOT stop a foreclosure - it only DELAYS it. Once it's discharged, you're back at it again. 
3) You can negotiate a shortsale but depending on the time frame, you may need to involve a FORECLOSURE DEFENSE attorney to buy you time to hold off on the foreclosure judgment. Once the court ruled against the homeowner, you do not have much time to do a shortsale.

Which county is this foreclosure? I am in Chicago and I can help research it.

Adam Garcia · Answer

As mentioned earlier, foreclosure and bankruptcy are not one and the same.  However, your friend should speak with several bankruptcy attorneys and compare their answers.  In chapter 7 your friend could surrender the house and discharge her liability for the deficiency, but that's only if she qualifies for chapter 7 and if bankruptcy is appropriate in her situation.  Without more facts it is impossible to say whether bankruptcy would be optimal.  Nevertheless, she should at least speak with an attorney so she can make the most economically advantageous decision.

Monica Breckenridge · Answer

I would not recommend your friend just letting the house foreclose and then do a BK.  Many BK attorneys just tell them to let the house foreclose.  But they don't tell thier client what the end result looks like.  If you loose your house to foreclosure you can't buy a house for 7 years.  If you do a short sale you can buy a house in 2 years.  Many people assume that if they file BK they can buy again in 3 years since that is the waiting period for a BK. That is not true, it goes to the 7 year mark because the foreclosure is on the credit plus the BK.

They can do a short sale and in almost all cases get the bank to waive the deficiency.  Also depending on the type of loan the deficiency is automatically waived.  It's always better to do something than to just walk away.

Joel Owens · Answer

Tom when you give the property back to a bank that is a "deed in liue" of foreclosure.You basically just sign title over to them.

In that case though usually there is only a first mortgage.The lender will run a title search and discover any junior liens attached to the property along with the second mortgage already mentioned.

The second and other lien holders will want more than the first lender is willing to take for a loss in the deal.So usually the first lender with additional liens attached will just foreclose to wipe the juniors out.

Foreclosure laws vary by state and some are judicial (court) and non-judicial (no court).If it took the first lender a very long time to foreclose and the market was declining the first might play ball and offer more to the junior lenders in a short sale to pay them off.

Every property file is evaluated by loss mitigation on a case by case basis.

Definitely if the property needs work and you are thinking of a short sale do not put a single penny into that property.Your friend will never get it back.

Has your friend been given the divorce decree order yet?? The judge might give the house to the spouse or order your friend to keep making payments etc.Your friend needs to talk to his divorce attorney to make sure this is handled properly.

Also if he has joint credit cards he needs to find  a way to close them out.The BIGGEST mistake I see in divorce is thinking that a judge's decree is final and that if the judge tells the other former spouse they are to pay the debt then the other party is off the hook.This is FALSE.

Your agreement with a creditor predates the divorce so if your spouse doesn't pay as ordered by the decree you are still on the hook for joint accounts and if you don't pay credit can be severely damaged.Also if you leave the joint account open and the former spouse runs up the card you are equally responsible.

That's why you have to cut the chord all the way.I have seen a few divorced couples stay on amicable terms over the years but often they are mad when divorcing or good during the divorce but falls apart a few years later.

It can also cause problems to be attached to  a past relationship in some way when you are starting new with someone else.

Tom I could get very detailed on here but if you have anymore questions just ask.

Bill Gulley · Answer

Foreclosure is an ultimate sin, having one in connection with a divorce will look better, if such can look better. The balance due is sought as a judgment against the borrower, the bank will accept any payments on the debt owing. If the lender keeps the judgment in place under state law, it will linger until fully paid.

They might consider having the minimal work done to have a functional dwelling and they agree to rent the property until the market gets better. Good luck

Tom Brennan · Answer

Thanks for your answer. So if my friend just walks away, its likely that the bank would likely seek a deficiency, probably $50-75,000? Do banks then structure the payments over time.

Getting the house ready to sell probably means investing $20,000 for plumbing and water problems, and to me it seems unreasonable to invest that much and still have to sell the house for a loss? Do you agree?

Foreclosure without bankruptcy?

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