What Is A Short-Sale?

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[youtube]http://www.youtube.com/watch?v=0R3ToH3saqA&feature=youtu.be[/youtube]

If you are behind on your house payments and have decided you no longer wish to keep the house, you may be looking at your options including a short-sale, deed in lieu of foreclosure and bankruptcy.  For this blog, we will specifically look at the short-sale.  A short-sale occurs when real property (house, land, etc.) is sold to a third-party for an amount less than what is owed on the property.  The short-sale is a way of transferring the property out of the homeowner’s name, but it does not necessarily eliminate the homeowner’s responsibility to pay the balance on the loan, known as the deficiency balance, after the sale.   As a result, the homeowner may be making payments on a house he no longer owns.  The short-sale will have a negative impact on the homeowners’ credit, since it will show the house was sold for an amount less than what was owed on the property, however, it will not be considered as negatively as the foreclosure.

 

It is best to illustrate what can occur in a short-sale with examples.  The examples have been simplified and do not reflect any real estate broker fees or other real estate closing costs and fees.  These examples also assume the house is the homeowners’ primary residence.

Example One

Young Family Sitting in Front of House on Steps

There is a $150,000 mortgage loan owed on the house, but in today’s market the house will only sell for $130,000.  You may approach the mortgage company to determine if they would accept $130,000 short-sale for the property.  In some cases, this may be acceptable to the mortgage company, since they would not be required to go through expensive foreclosure process.  If there is only one mortgage loan, the short-sale can be a viable option.  However, keep in mind that although the mortgage company agrees to the reduced amount so the house may be sold, it does not eliminate their right to pursue the homeowner for the deficiency balance on the loan, in this example $20,000.

$130,000 Offer on the Property

$150,000 Mortgage Lien

($ 20,000)Deficiency Balance

Example Two

There is a first mortgage for $125,000, Home Equity Line of Credit (HELOC) for $30,000 and a Homeowners’ Association Lien of $1,000 or a total of $156,000 owed on the property.  Consistent with Example One, the offer on the house is for $130,000.  In order to proceed with the short-sale, the homeowners must get all three lienholders – first mortgage, HELOC and Homeowners’ Association – to agree to accept the $130,000 offer.  Since the first mortgage will most likely insist on being paid in full, it is unlikely they will object to the $130,000 offer.  On the other hand, the HELOC and Homeowners’ Association must both agree to share the remaining $5,000 and agree to release the liens on the property before the short-sale can occur.  Also, just because the HELOC might agree to accept the short-sale, it does not preclude them from pursuing collection activities against the homeowners for the balance owed on the lien.

$130,000 Offer on the Property

$125,000 First Mortgage Lien

$  30,000 HELOC Lien

$    1,000 Homeowners’ Association Lien

($26,000)Deficiency Balance

As mentioned, it was assumed the house being sold in the two examples was the homeowners’ primary residence.  As a result, there is no tax implication against the homeowners, since The Mortgage Forgiveness Debt Relief Act of 2007 allows the homeowners to exclude the deficiency balance, also known as “forgiven debt”, on their primary residence.  On the other hand, if the property being sold is an investment property or any other property that was not the homeowners’ primary residence, the homeowners can be taxed on the deficiency balance or forgiven debt, since it is treated as income for tax purposes.

The short-sale is a viable option for many homeowners, however, it is important to be fully informed of the impact it may have on the homeowners’ financial position in advance of completing the sale.  Request the mortgage company or mortgage companies sign a waiver stating they will not pursue a deficiency balance on the property.  In many cases, the mortgage company will not agree to sign a waiver relinquishing their right to pursue collection activities, but it does not hurt to make a request.  In addition, be prepared to make payments on the deficiency balance after the short-sale or consider filing bankruptcy to eliminate the deficiency balance and other debts.

What Is A Complaint? | Parts of A Civil Lawsuit

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When the sheriff shows up at your door and hands you a stack of papers with a bright yellow sheet on top, what are they actually giving you? Most likely they are giving you what is called a complaint. A complaint is the first step in initiating a lawsuit. This means that someone has filed papers with the court to begin the legal process to write some sort of wrong. Most of the complaints clients who come into our office see are ones saying they owe someone money.

Bills in Mailbox

So what does a complaint typically say? It will state which county the complaint has been filed in and whether it is in the District or Superior court for that county. The title of the complaint will also say who is filing the complaint, the plaintiff, and who they are filing it against, the defendant. The case number will also be stated in this section.  Below that it will also state why they are filing the complaint. For example, say John Smith owes ABC Bank $10,000 that is past due on a credit card. The body of the compliant will list this, along with the specifics of when the card was applied for and the actual card number.

There will also be several statements that are numbered and they will list the terms of the complaint. These typically state who the plaintiff is, where the defendant lives, that the defendant opened an account and agreed to the term and conditions of the account and that they then have failed to pay on that account. The last paragraph will state what the plaintiff wants as a remedy or result of filing the complaint. What the plaintiff will typically say they want is a judgment for the full amount the plaintiff owes plus a certain amount of interest and attorney’s fees.

It is important that you respond to the complaint by filing an answer. If you do not respond to the complaint then you will automatically be found liable for the lawsuit. The courts will view it as you failed to respond and, therefore, you admit that you owe the money and are liable to the plaintiff. The court will then issue a default judgment saying you are fully liable for the amount owed. Be sure to read our other blog post on how to respond to a complaint with an answer. Also know that if you do have a lawsuit against you bankruptcy may be an option worth exploring more.

Why Won't They Draft Payments From My Bank Account After Filing Bankruptcy?

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Writing a Check to Make PaymentsIf before filing for bankruptcy you had automatic drafts from your bank accounts to pay other bills then this may stop when you file the bankruptcy. It’s obviously important to know that these automatic drafts may stop because we want to make sure you do not get behind on things like house payments, car payments and other important bills you have.

Creditors may stop the automatic draft(s) because they want to make sure they don’t violate the automatic stay enacted by filing the bankruptcy. They don’t want to accidentally charge you money that has been wiped out in the bankruptcy. However, even if you don’t include a debt in your bankruptcy they may still stop the automatic draft(s) for precautionary measures.

If you file bankruptcy then you can contact the creditor and get them to begin to send you paper statements if necessary. We talk more about how to get statements again after filing bankruptcy in another blog post.

However, you may not be able to get automatic drafts set up right away after filing the bankruptcy. Be aware of this and be sure to plan accordingly.

Why You Might Need To Do A Quitclaim Deed Or Deed in Lieu of Foreclosure Even After Filing Bankruptcy

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Whether or not someone who files bankruptcy also needs to do a quitclaim deed or deed in lieu of foreclosure is a question that many bankruptcy attorneys and clients are asking themselves these days. A few years ago, most banks and mortgage companies (we will call them banks for this blog) foreclosed on a property – house or land – within three to four months of the bankruptcy filing. At the foreclosure sale, the bank would pay the property taxes on the house as well as any homeowner association liens on the property. For many people, that is now considered the “good ole’ days”.

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Why Have I Stopped Getting Statements or Bills After Filing Bankruptcy?

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Doing Bankruptcy Research on a ComputerWhen you have filed your bankruptcy petition and receive a case number, an automatic stay is enacted to protect you under the bankruptcy code from creditor contact, lawsuits, repossessions, foreclosures, etc.  In turn, this limits the contact a creditor may have with you.

If a creditor violates the automatic stay then they can be sanctioned by the federal court system. In order to avoid this, many creditors choose to stop sending anything that can be viewed as a collection attempt.

After your bankruptcy is filed and the creditors are notified, they are no longer allowed to send you bills trying to collect on a debt. Typically, the automatic stay is a good thing because it means the harassing phone calls and collection attempts will stop. However, many creditors will stop all forms of communication, even if you have agreed to keep paying on the debt, due to fear of violating the automatic stay. Therefore, it is important that you remember to continue to make your payments (on debts not being wiped out in the bankruptcy and regular utilities) even if you do not receive a statement each month.

If you want to continue to receive statements then there are a couple of things that you can do to try to help restart this process.

First, you can contact the creditor and explain that you filed bankruptcy and, despite that, you would like to still receive monthly statements from that creditor. Some creditors will agree to then send you monthly statements.

Second, if the first option doesn’t work then you can get the assistance of your bankruptcy lawyer. Once your bankruptcy is filed, request a letter from your bankruptcy lawyer that will give a creditor permission to send you statements or allow for other payment arrangements.  You will need to do this usually for a mortgage company where a car finance company will be sending a reaffirmation agreement, so making payments and receiving statements should not be difficult.  Other secured creditors, such as furniture companies, jewelry stores, or electronic stores, may require a letter from your lawyer as well.

The bottom line is, you may stop receiving statements or bills after filing the bankruptcy because the creditors don’t want to violate the automatic stay. Despite this, it is critical that you still make your payments on things like house, cars and monthly utility payments.

Are Workers’ Compensation Benefits Protected in Bankruptcy?

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In many cases when a client walks in our office to seek bankruptcy advice it is because they are at the end of their rope and under severe financial distress.  Often times, many clients have already lost or are at risk of losing nearly everything they have.

When someone has been injured at work they are no longer able to receive their full compensation if they are unable to work due to their injury. Instead, they get workers’ compensation benefits which are typically 66.6% of their regular income. Workers? compensation benefits may be the only asset or source of income a person has. In these situations, one of the first questions a client will ask is whether or not their workers compensation benefits will be protected, and will they be able to continue to receive the benefits if they file bankruptcy.  Well, in most cases the answer is ?yes?.

Workers compensation benefits may include payments you receive from your employer after being injured in an accident at work. These benefits/payments are usually based upon a percentage of your wages and are considered income and will not be affected by filing bankruptcy.

Under North Carolina law, workers? compensation benefits are exempt. When you file a bankruptcy, the bankruptcy Trustee does not have the legal right to seize any benefits that you are receiving at the time.  Although the Trustee cannot take your benefits, your benefits are considered income and will be used for the Means Test to determine whether or not you can qualify for a Chapter 7 bankruptcy and/or the amount that you will need to pay back to the court in the event that you file a Chapter 13 bankruptcy.

If you are expecting a large workers compensation settlement, it is very important that you discuss the pending settlement with your attorney ahead of time. Once a settlement is reached, it is necessary in some districts of North Carolina that you obtain the Court’?s approval to settle the claim and the exemptions in your bankruptcy are amended.

Mortgage Companies Are Taking A Long Time to Foreclose, Isn’t That A Good Thing for Me?

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As discussed in a previous blog post, it is taking mortgage companies an extraordinary period of time to foreclose on properties these days.  Unfortunately, the delay in the foreclose process seems to be a “double-edged sword” depending on the homeowners’ goals.

Mortgage Company Foreclosing on House

In some cases, it is a benefit to the homeowners, since they may be able to live in their home for a year or more before the foreclosure is completed.  This delay allows the family to stay in “their” home and allows their children to finish the school year in a familiar setting with friends and teachers they adore.  In other cases, it is purely a financial decision.  The delay provides time for the family to save money, since they are not paying the mortgage loan on the house or rent on another property.  When the day comes to move out of the home, the family has the funds needed for moving costs and for the security deposit and rent on the new apartment or house.

On the other hand, the family down the street has made the decision to move on with their lives and have already moved out of the house.  The house represents a negative time in their lives and they want a fresh start in new surroundings.  In other cases, a member of the family has accepted a new job in another state, so they have no option but to move.  These homeowners want the mortgage company to foreclose as soon as possible so this chapter of their lives can be closed.  The family has moved on, unfortunately the house is still legally their responsibility.  These families receive stack after stack of letters from the mortgage company offering workout plans and other alternatives to foreclosure.  On top of that, the homeowners association (HOA) is sending threatening letters regarding tall grass growing in the law, mosquitoes in the swimming pool, and delinquent assessments, dues and fees.  The HOA is threatening to file a lawsuit against the homeowners if they do not pay the debt.  Pay a debt to the HOA for a house they do not live in?  Yes, the HOA assessments, dues and fees are still the homeowners’ financial responsibility until the property is no longer in their names, so the HOA debt must be paid.  As the old saying goes, these families can’t get the “monkey, aka house, off their backs”!

As a result, the delay in foreclosing on a house can be a good or bad thing depending on the homeowners’ goals.  As the homeowners, you can ask the mortgage company to expedite the foreclosure sale but often that is unsuccessful.  You can also look at signing a deed in lieu of foreclose or possibly quit claiming the property to the mortgage company.  These options will be covered in a later blog.

Why Is It Taking Mortgage Companies So Long to Foreclose on Houses?

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This is a question that many people are asking these days, why is it taking the mortgage companies so long to foreclose?  As bankruptcy lawyers we deal a lot with people who are trying to save their homes as they enter the foreclosure process. So knowing how long it takes until a home enters into the foreclosure process is important for many of our clients. There are several reasons for the delay in foreclosures.

Question About Bankruptcy

Needless to say, the slow-down in the economy has resulted in the loss of numerous jobs throughout the country.  For those lucky enough to keep their job, deep pay cuts have often occurred.  Add predatory lending practices from a few years ago and it all spells disaster for countless Americans and the lending institutions or mortgage companies.

Unfortunately, many Americans found they could no longer afford the American dream of a home.  With no way to make their mortgage payments, many people began defaulting on their mortgage loans and lending institutions began the process of foreclosing on many homes.  As the economy has continued to suffer, the sheer number of foreclosures has increased to a point that mortgage companies are simply overwhelmed by the volume.

As you may have read or heard in the media, mortgage companies have been heavily scrutinized regarding their foreclosure practices over the past few years.  The practice referred to as “robo signings”, where mortgage company officials signed off on foreclosure proceedings without fully investigating the accuracy of the documents they signed, has been investigated by federal regulators as well as state attorney general’s from all 50 states.  In several cases, bank officials admitted to signing foreclosure documents without reviewing them or verifying their accuracy.  Although this practice is not condoned, most of us understand how this may have happened.  The officials signing the documents may have believed their signature was merely a formality, and that the documents had already been verified for accuracy before reaching their desk.  So with a pen in hand, and a huge stack of foreclosures on their desk, the robo-signing began.

The investigation into robo-signing foreclosures disclosed many disturbing scenarios.  There were cases where homeowners were actually not behind on their mortgage payments but were facing foreclosure due to errors in paperwork.  In other cases, the homeowners were in the process of or had recently completed loan modifications with the mortgage companies while on a parallel path to foreclosure.  Needless to say these practices outranged many people.  The outcry resulted in the government’s investigation into the foreclosure process and then a self-imposed moratorium by many mortgage companies.

If you are like most homeowners, your mortgage company has changed at least once since you obtained your loan.  In many cases, the loan has changed hands two, three and even four times.  As a result, paperwork has often been misplaced or simply lost during the process.  These issues may delay the foreclosure process, since the legal documents needed to complete the foreclosure cannot be located.

As a result of these issues and others, most mortgage companies and lending institutions are completely overwhelmed with the sheer volume of foreclosure files.  As a result, it is taking some mortgage companies a year or more to foreclose on a home.  Obviously the timeframe varies, so there is no guarantee it will take the mortgage company that long to foreclose on your home!