Bankruptcy / housing questions

[wishbone]

We currently have first and second mortgages for a combined balance of $240k with payments of $1900/month. After a job loss in 2009, we filed for chapter 7 bankruptcy and have a discharge date of January 2010. In the bankruptcy the personal liability for the mortgage was discharged, I recently learned this means we could walk away and not have to pay anything to the banks or "make up the difference".

We have looked at refinancing and learned that the home value is about $220k but nearby, comparable homes are starting at $150k. It is hard to convince myself that walking away is not the best option at this point but realize I may be missing something.

The main driver is that the current mortgage payments are simply too high (Our income is about 75% of what it was when we bought the house) and there is not a feeling that home will be worth more than the current value anytime in the next 5-10 years. If we bought a home at at $175k, we would probably be able to cut the mortgage payment in half and that seems very appealing.

It's not a decision we will make lightly but it seems to easy, I must be missing something... Thanks in advance for any help. Main question is "what would you do?"

[Logan]

How do you anticipate qualifying for a new mortgage on the basis of your recent bankruptcy and walking away from this current house?

[wishbone]

How do you anticipate qualifying for a new mortgage on the basis of your recent bankruptcy and walking away from this current house?

While working on the refinance, I asked the mortgage broker the same question, he said that they could make it happen. I think the damage to our credit has already been done but I'm not sure if there is a difference between a mortgage discharge and a foreclosure where the credit scores are concerned.

We are still debating on how/whether to pursue this, trying to learn more to make a decision in the next 2-3 weeks.

[CraigSca]

I moved at the end of last year and remember talking to a lender who said I needed at least 20% down and a good credit score or else no lender will even talk to you. From personal experience, I've found that it's a lot harder to get a loan now than it used to be.

[Logan]

While working on the refinance, I asked the mortgage broker the same question, he said that they could make it happen. I think the damage to our credit has already been done but I'm not sure if there is a difference between a mortgage discharge and a foreclosure where the credit scores are concerned.

We are still debating on how/whether to pursue this, trying to learn more to make a decision in the next 2-3 weeks.

The broker said he could make the refinance happen, or make the walk away/buy a new house happen?

How long would you be planning on staying in your current house if you did go through with the refi?

[britrock88]

You've mentioned that you feel that the credit damage has already been done. Because of that, I think you may be better served walking away (as there's no added cost in that sense) and working toward a new loan on another house with more manageable mortgage payments.

[I. J. Reilly]

I moved at the end of last year and remember talking to a lender who said I needed at least 20% down and a good credit score or else no lender will even talk to you. From personal experience, I've found that it's a lot harder to get a loan now than it used to be.

Yep, I'm hopefully closing on a house in about a month and just locked in a rate yesterday. When I was shopping for the mortgage I couldn’t believe how aggressive every lender was, to the point that one of them was calling me like three times a day. I asked the guy what the deal was and he said it was so hard to find people who could qualify for the new lending guidelines that they were desperate to not lose people who did.

So britrock, I'd get a second or third opinion before you walk away from the current mortgage. And my experience is “we can make it happen” is finance speak for “you’re going to pay out your ass.”

[britrock88]

FYI, it's not my mortgage we're worried about. Happy renter here. :-)

That said, I'm happy to be overruled by someone with better first-hand experience such as I.J. (PS- I need to finish the book about you one of these days.)

[wishbone]

The broker said he could make the refinance happen, or make the walk away/buy a new house happen?

How long would you be planning on staying in your current house if you did go through with the refi?

He said he could make the refi or new purchase go through, the lender said that financing homes in our area is considered good risk due to the overall stability (Nike/Intel investments) and the idea that home values are now going up. So we may not be a good risk due to the bankruptcy but are in a good area for risk. Maybe...

So britrock, I'd get a second or third opinion before you walk away from the current mortgage. And my experience is “we can make it happen” is finance speak for “you’re going to pay out your ass.” The good news is that we already paying out the ass, so any improvement will be more comfortable, right?

[I. J. Reilly]

FYI, it's not my mortgage we're worried about. Happy renter here. :-)

That said, I'm happy to be overruled by someone with better first-hand experience such as I.J. (PS- I need to finish the book about you one of these days.)

D'oh, sorry, not sure why I thought you had the OP.

[cubboyroy1826]

Okay as a professional in the mortgage business the lender that said they can make it happen is full of it. When you have a bankruptcy you are going to wait a minimum of 2 years from discharge date before you can look at a new mortgage. Add in the fact that there is a mortgage involved and while you can truly walk away the clock for the waiting period on the new mortgage will not start until the deed has been transferred through the foreclosure, a process which could take 1-2 years depending on the state. With that said if you are currently making mortgage payments now and decided to stop it could take a year before the house goes to sheriff sale if not longer and you would have to move out.

The BK does make it so you are not responsible for the difference between what the home is sold for at sheriffs sale and what is owed. So once the foreclosure is done and the deed has been transfered you are looking at 2 years from this date to qualify for a VA loan, 3 years for FHA and even longer for a conventional loan. Now there are exceptions but I assure you unless there was a major life event the best case is 3 years unless you qualify for a VA loan. Finally unless this lender has their own non-conforming loan program that they keep in their portfolio then they are full of you know what.

[wishbone]

Okay as a professional in the mortgage business the lender that said they can make it happen is full of it. When you have a bankruptcy you are going to wait a minimum of 2 years from discharge date before you can look at a new mortgage. Add in the fact that there is a mortgage involved and while you can truly walk away the clock for the waiting period on the new mortgage will not start until the deed has been transferred through the foreclosure, a process which could take 1-2 years depending on the state. With that said if you are currently making mortgage payments now and decided to stop it could take a year before the house goes to sheriff sale if not longer and you would have to move out.

The BK does make it so you are not responsible for the difference between what the home is sold for at sheriffs sale and what is owed. So once the foreclosure is done and the deed has been transfered you are looking at 2 years from this date to qualify for a VA loan, 3 years for FHA and even longer for a conventional loan. Now there are exceptions but I assure you unless there was a major life event the best case is 3 years unless you qualify for a VA loan. Finally unless this lender has their own non-conforming loan program that they keep in their portfolio then they are full of you know what.

That makes more sense. The way the lender was talking made everything too easy and what you describe sounds much more like the real world. long timeframes, processes and legal stuff. Sounds like I won't be working with that lender anymore. Thanks!

[stevew]

I'd think that if you can stick this out for about another 12-18 months that you will be in a much better position. Good luck.

[cubboyroy1826]

No problem. If you have any additional questions feel free to PM me.

[CU Tiger]

No problem. If you have any additional questions feel free to PM me.

What Ive seen happen in a family members case ( and this is slimy as hell) is get the buyer approved for the new home BEFORE this one goes foreclosure. Even with a ghost buyer for his current house and then ghost buyer cant get financing after he is in the new house. Then in new house the old house foreclosure is finalized.

Difference is he didnt have the bankruptcy, though.