Portland Bankruptcy Law Group

In our last blog we gave you some ways that filing Chapter 7 can help save your home. As great as some of those are, Chapter 13 is where the big home-saving action is. Here are ten major advantages that you get when you file a Chapter 13 case.

A Chapter 13 case lets you:

1.  . . . take as long as 5 years to pay your mortgage arrears–the amount you are behind on your mortgages—all the while protecting you from foreclosure as long as you stay with the payment program that YOU propose.

2.   . . .  sell your house without the pressure of a foreclosure sale, either a few months after filing the Chapter 13 case, or sometimes even three, four years later when maybe the home value will have gone up again.

3. . . . take extra time to pay property taxes, while protecting the home from tax foreclosure, and preventing your mortgage company from exercising its option to foreclose first.

4.  . . . gain the needed monthly cash flow so that you can afford your mortgage payments by slashing your other debt obligations.

5.  . . . sometimes get you out of having to pay your 2^nd or 3^rd mortgage ever again.

6. . . . prevent federal and state income tax liens, child and spousal support liens, and judgment liens from attaching to your home in the first place, which stops these creditors from gaining a huge advantage over you.

7. . . . pay off income tax liens and support liens if they have already attached to your home, while under the protection of the bankruptcy laws, undercutting most of the leverage of those liens against you.

8.  . . . not only stop existing judgment liens from foreclosing on your home, but also undo the lien so that it no longer attaches to the home at all.

9.  . . . prevent creditors secured by your home from pursuing your co-signers.

10.  . . . favor most of your home-related creditors that you need and often want to pay—mortgage companies, tax and support lien holders, and construction and utility lien owners—over most of your other creditors.

We particularly love to help our clients use these and other legal tools to save their homes.

In our last blog we gave you some reasons why short sales are often not all they’re cracked up to be. In this blog we look at the reasons you might want to do a short sale and why other alternatives may serve that purpose better. Sometimes it IS worth trying to sell your home on a short sale, but it is certainly smart to look at all the options.

You want to do a short sale because:

1. You can’t afford the house anymore and so need to get out of it.

The problem is that you may well still owe money on either the 2^nd mortgage or on junior liens (like judgments, child and spousal support, and income taxes) that don’t get paid or only get partially paid. A short sale will have you jumping from the frying pan into the fire.

2.  You may be trying to do a short sale especially to lower the amount you owe on a 2^nd mortgage.

Even though a 2^nd mortgage creditor will usually get nothing if the 1^st mortgage is foreclosed, but they are often still very reluctant to lower their balance to let the short sale happen. Often they will demand that you agree to pay them a part of their losses over time, which you may feel forced to accept to rescue the short sale.

3.  Your title may be saddled with other liens besides your mortgage, usually involuntary ones like a tax, judgment, or construction lien, which you’re trying to escape.

Even if these kinds of lien holder agree to partial payment from the short sale, in most cases you will continue to owe these debts. With the loss of security in the house, they will likely try to collect even more aggressively.

INSTEAD:

A Chapter 13 bankruptcy may be able to either 1) let you keep your home by reducing what you pay to your other creditors, or 2) buy you more time to sell the house so you’re not trying to do so under pressure. A Chapter 13 may even get you out of a 2^nd or 3^rd mortgage altogether. And it very likely would provide a sensible way to pay any debts that have to be paid, like back property or income taxes, or child or spousal support. Most importantly, instead of worrying about when the next axe is going to fall, all collection action stops while you pay what you can afford to pay.

Trying to sell your home on a “short sale” is all the rage these days. In our day-to-day work helping homeowners, there is nothing else more misunderstood. But they are almost always difficult to pull off and the benefits are often not what you expected.

In a short sale, a house is sold by “shorting”—underpaying—one or more of the lien holders. All over the country homeowners are trying to ram through short sales out of desperation because their homes are not worth the balances owed against them. In this blog we tell you why they often don’t succeed. In the next one we’ll lay out some good alternative solutions.

Short sales remind us of two wise rules of thumb: 1) acting out of desperation usually leads to no good, and 2) if it sounds too good to be true, it probably is.

They usually don’t work because:

• Unhelpful and slow mortgage creditors: Your first mortgage holder is usually working through a servicing company that you are forced to work with. They don’t have enough staff, are not organized to process short sales. Often these servicing companies lose money on short sales so, behind the scenes, they can subtly sabotage your efforts.
• Any lien holder can kill the deal: Everybody wants their “fair share” of a pie that is too small to make everybody happy. And usually by the time homeowners come to us, it’s not just the 1^st & 2^nd (and sometimes 3^rd) mortgage, there can be ex-spouse trust deeds, judgment liens by creditors, utility and municipal liens, child support liens, and property and income tax liens. All of these players are unhappy with you, and any single one of them can mess up the whole deal.
• The middlemen have the most to gain: Realtors, and sometimes attorneys and others in the real estate business, often benefit more from short sales than you do. Desperate realtors have to churn sales to survive. They tend to be biased towards an option that might make some money for them.  There are good reasons that unbiased observers—like bankruptcy judges and trustees—take a dim view of short sales, seeing them as mostly a way for the middlemen to make money on your property.

Read more about this in our next blog, particularly about alternatives that often meet your goals better than a short sale.