Some homeowners are giving up on the thought of keeping their home. There are a number of reasons for this. And if you are among the many homeowners contemplating walking away from their home, and the mortgage debt, you should consider a few things.
Insurance
Keep the property insured. Until the deed to the property is in the name of someone else – even the bank – you (the person with the name on the deed) are the responsible party for the property. You are also responsible for what happens on the property.
Consider this: On July 1, you move into a new apartment, and you know a foreclosure auction is scheduled for July 20. The insurance on the property has long since lapsed, and the only insurance coverage is forced-place insurance. However, this protects the lender – it does not protect you.
You file a chapter 7 bankruptcy petition on July 15. On July 19, a man who saw an ad in the paper advertising the auction comes to the house to see if it is something he may be interesting in bidding on. He slips and falls on the back stairs and is seriously injured. Who is responsible? There are many variables, but the question alone is enough to cause some former homeowners (and their attorneys) to lose a nights sleep (or perhaps two). Keep the property insured until title to the property changes. Better to be safe than sorry…and considering this example where the accident happened after the bankruptcy was filed, you could be very sorry.
Deficiency
If the house sells for less than what it’s worth, you are responsible for the difference (and this also applies in the case of a “short sale”, unless the lender agrees otherwise). Last year, IRS regulations were changed to prevent the taxation as income of deficiencies that were forgiven. But it does not apply to all mortgages or in all circumstances, and it does not mean a lender will not try and collect the proceeds.
Lenders have the right to sue for the deficiency and to obtain a judgment. They also have the right to seek an attachment of bank accounts and other assets you may have.
Consider this: You gave up paying the mortgage five months ago. You have saved some money to put towards an apartment, and the new owner of your property is helping you out by giving you 60 days to move out. Just as you go to sign your new lease, you find you cannot access your money. The lender has obtained a prejudgment attachment on your bank account. They do not have your money, but you do not have access to it. Checks are bouncing, and fees are being incurred. The lender may also seek a garnishment of your wages, as well. So how do you avoid this?
I cannot say “go ahead and file bankruptcy” because I cannot presume that everyone reading this can get a discharge (or is entitled to be a debtor under Section 109 of the Bankruptcy Code). I also cannot presume that everyone should be in bankruptcy…not everyone in debt who walks into Bankruptcy Court gets the relief they hope to get. But what I can urge you to do is to sit down with a bankruptcy attorney, get the facts out, and learn about your options. And if you’re walking away, or if you have walked away, the time to do that is now. If you’re reading this, and I’ve been talking about someone in a situation like the one you find yourself in, you’re feeling pretty overwhelmed. I know this is a hard time, but I urge you to consider this.
Related posts:
- ‘20 Months Too Late’: Let’s Start Rethinking Mortgage Modifications in Chapter 13
- Before Foreclosure Rescue Scammers Start Knocking…
- Are Short Sales Just Silly?
- Another Good Reason to Stay Close to Home
- “I Need to Get Through the Winter”
Tags: Bankruptcy, Chapter 13, Chapter 7, Insurance, Mortgages and Foreclosures