I am often surprised how many chapter 7 bankruptcy debtors who want to file bankruptcy just before a foreclosure sale to stop the sale, ask the following question: Can I short sale my house after I file bankruptcy?
Although it can be done, it rarely makes sense. The reason is because a home mortgage short sale after filing chapter 7 bankruptcy rarely makes sense.
When I ask clients why they want to short sale their house after filing bankruptcy, the response I usually get back makes clear that the debtor does not fully understand the ramifications of their bankruptcy filing and the relief it afforded. Unless a chapter 7 debtor reaffirms their secured debt in the bankruptcy, then the debt is discharged.
For example, lets say the debtor owns a house worth $130,000 and has a mortgage at $150,000. The house has negative equity, so if the debtor was not filing bankruptcy and wanted to get out from the house, the debtor would have to either sell it for a $20,000 loss and pay the difference at closing or get the bank to approve a mortgage short sale to forgive the deficiency.
However, now take the same numbers, but put the debtor in a chapter 7 bankruptcy. In this scenario, the debtor does not have to worry about trying to get a short sale approved to cover the deficiency, because the debtor can simply choose not to reaffirm the mortgage within the bankruptcy. By not reaffirming the mortgage, there is no balance owed to the bank, and the debt is discharged in the bankruptcy. Since the debt is discharged in the bankruptcy, then there is no incentive for the debtor to work a short sale, as the debtor can walk away without financial repercussions as to the note at any point.
It is important to distinguish that the lender only loses its rights as a creditor on the mortgage note when the debtor does not reaffirm. The lenders lien remains, so the lender can still foreclose on the property, and the debtor does not own it free and clear. However, since a debtor makes no money in a short sale anyway, why would the debtor bother trying to conduct a sale that makes no money when the debtor can pack up and move just as easily for the same no profit scenario?
The primary scenario where it might behoove the debtor to conduct a short sale either during or after a chapter 7 bankruptcy is when the debtor has been working with a realtor for a good bit of time on a short sale prior to filing bankruptcy, but was unable to complete the sale prior to filing. The debtor might feel some incentive to get the realtor a commission by conducting a sale, as opposed to just letting it ultimately go to foreclosure. It is important to note in this scenario that it is the realtor, and not the debtor, who gains. Furthermore, the debtor will still not want to reaffirm the note in this case, as the note does not need to be reaffirmed for the debtor to sell the house, because the debtor would still be on title. Finally, the debtor would have to check with an accountant to verify there would be no tax consequences in this sale, particularly if the debtor is trying to sell an investment property.
With offices conveniently located in Atlanta, Cumming, Dunwoody, Jonesboro, and Woodstock.
I thought of a couple reasons, but they go beyond the scope of debt liability.
Reason 1: More time in your home.
Short sales don’t stop foreclosure, but they can manipulate it. A short sale can postpone the auction sale for months while awaiting completion. Most who file a chapter 7 BK could probably use a few extra months of free rent, beyond the point that the house would have otherwise been foreclosed and they removed from the property. In Utah, homes can be foreclosed in just under 4 months after the notice of default is filed by the foreclosing attorney. Working a short sale usually takes 6-9 months these days. An owner could easily expect to gain an extra 2-4 months or longer of rent-free living from a short sale. “A penny saved is a penny earned.”
Reason 2: Avoiding the foreclosure.
“I’m just gonna let it go back to the bank.” … that means foreclosure on top of the bankruptcy. Yes their credit sucks anyway, but many would rather not have a foreclosure show up on their credit in addition to the BK. They can’t borrow money any time soon, but they will want to borrow again in a few years.
Reason 2.5 (applies to only a few of us): The reason banks consider short sale offers is because they would expect to receive even less if they take the property to auction. They get more of their money back, so it benefits them more than foreclosing.
Short sales tend to be long and drawn out. They’re generally not a bucket of fun. Although there is usually no legal way to get any money out of the deal (other than occassional bank-offered seller incentives), there still might be something in it for you. Money saved, foreclosure avoidance, and (for some) the idea that the bank got a few extra bucks (… I’m not personally a bank-lover). With nothing to lose, don’t just brush the option off the table.
Perry, thanks for commenting. You have an astute understanding of the topic. My comments in order:
– Reason #1: The lien holder has the right to foreclose upon default, so if they really wanted the house they could just take it regardless of the debtor approaching them regarding a short sale. So while the debtor could hope that suggesting a short sale will accomplish what you say, there’s no guarantee it will.
– Reason #2: A non-reaffirmed note in bankruptcy is discharged. Any foreclosure would be occurring once the debtor no longer has any liability. Therefore, any credit report that reports the note as being foreclosed would be reporting it inaccurately.
Peter (or any other attorney) the reason #2 above is really at the crux of the situation for those people who discharged one or more notes in a bankruptcy, and did not reaffirm those debts. Here I am 8 years down the road from a chapter 7. My credit has recovered but the house is still upside down. I need to move on but I do not want to wreak my credit further (or all over again) by letting it go to foreclosure. There seems to be a great deal of confusion (or opinions) on whether the foreclosure will show up on my credit report.
The bottom line for me is that I would be fine letting it go into foreclosure but not unless I am 100% sure a public record will not be recorded at the time of the foreclosures’ completion.
Why is it so hard to get an accurate answer on this. Above on #2 you clearly state it would not happen…but I can show you countless posts from lawyers that say it will.
The foreclosure should not be impacting your credit, because the loan should be reported as being discharged in bankruptcy. There are still other issues involving foreclosure/not reaffirming to consider (HOA dues, liability while still being the property owner, etc…). The foreclosure should still appear on the public docket of your courthouse to reflect change in ownership, but this should not alter the lender’s credit reporting of the loan.
I’m in the exact same situation as you, Eric. I filed bankruptcy in 2011, did not reaffirm the debt and have been in the property for the last 8 years.
I’m ready to move and was thinking to do a short sale for the sole purpose of avoiding the public record of foreclosure in my name, 8 years later.
I’m not concerned about the credit aspect of it so much–I should be ok either way, the debt was discharged–as I am about the public record.
Bankruptcy did enough damage to my name, why take another hit if I can avoid it?
What did you end up doing?
And does this make sense Peter?
Even though you have discharged the debt, there is nothing wrong with doing a short sale- assuming you are willing to put in the effort and hassle that goes along with it. This is especially true if you no longer reside in the property. It does get the title out of your name, and you can also no longer be liable for HOA dues, property fines, liability from injury claims, etc..
Hi Peter,
You are correct in stating that I did not fully understand the ramifications of my Chapter 7 bankruptcy filing and the relief it afforded.
I had filed Chapter 7 and my 1st loan of 158K was not reaffirmed yet the 2nd loan of 38k was. I then entered into a modification post-bankruptcy because I was facing foreclosure and my desire was to try and keep the house. I fell behind on payments and was in default.
My 1st question is if I entered in to a post-Bankruptcy Loan Modification on the 1st loan that was discharged would the lender have to report those payments on my credit report due to the modification that I and the lender agreed to or because the loan was previously discharged they didn’t have any responsibility to report the modification payments? Also I have read that entering into a post-Bankruptcy Loan Modification on a discharged loan can be deemed an illegal violation of the Bankruptcy discharge 11 U.S.C. § 524(a)(2). Can you please explain this in further detail on how this would apply or not? So two years later the house was underwater 51k and due to my job loss. I decided to do a short sale. Unknowing I did not know I did not need to do a short sale on the 1st loan due to is already being discharged. However I would have had to do it for the 2nd loan which was reaffirmed correct?
So would if be incorrect credit reporting if the lender states that the 1st loan that was discharged, is reported as a short sale Paid in settlement/ Account legally paid in full for less than full amount?
Sorry so many questions just confused on how all this works when a bankruptcy is involved.
Thanks,
Melissa
Denver, Colorado
Melissa, once you discharge your mortgage, future payments cannot be reported under 11 U.S.C. 524. However, your bigger problem is you reaffirmed the second mortgage, which essentially bound you to the first mortgage even though you did not reaffirm that one. See my blog post on why reaffirming one mortgage ties you to the other one.
http://brickslaw.com/why-reaffirming-a-1st-mortgage-also-binds-you-to-the-2nd-mortgage/
Hello, I purchased a home 10 years ago and I filed a BK Chapter 7 in 2011 which I included my mortgages(1st and 2nd) home in the BK. I included the mortgages in the BK although I continued to make the payments on them. The attorney says if anything happens down the road, foreclosure, short sale, etc, you will be covered. BK was discharged in 2011. I have been trying to sell the home but the value is $15K less than what I owe. If I completed a short sale on the home today, how would this affect my credit or purchasing a new home. Would I still have to wait 3 years to purchase a new home or am I covered under the BK and it will not affect me in that manner today.. what if I let the properties go in foreclosure would I have to wait 3 years or 7 years etc. to purchase a new home. Would it report on my credit as a foreclosure? The 1st mortgage has not reported on my credit since the BK was filed but the 2nd mortgage has still been reporting. Please Advise,
The first thing you need to clear up is whether you reaffirmed either mortgage in the bankruptcy. Your message implied you reaffirmed neither, but the credit reporting implies you reaffirmed one. If you reaffirmed either, you’ve got a problem since you are still on the hook for the loan. If you reaffirmed neither, you have a problem in that the second mortgage is incorrectly reporting.
You would have to discuss with a mortgage broker whether a short sale of a home in which you discharged both loans in the bankruptcy would subject you to a three year waiting period. I presume this would depend on a variety of factors. In the event you reaffirmed either mortgage, you are looking at a short sale on your credit and would presumably have a good three year wait until you can get a new mortgage.
I was trying to BUY a short sale home. House was going to auction, person filed for chapter 7, to stop auction. I would still like to purchase home , how would I go about this ? Call the bank? The broker is no help. I live in NY
The Chapter 7 filing most likely stayed the foreclosure sale (assuming this was not a serial filer). The filing of the case made the house property of the bankruptcy estate. If you are interested in buying it, you should reach out to the panel trustee. This is the person in charge of liquidating the home.
I am protected by chapter 7 discharge but had equity in my home so was trying to sell it. Times running out and now the realtors want me to short sale, the only reason a short sale is bc of their fees. The whole point would be to buy me more time in house while i save. My question is, by doing a short sale am i making my self liable for short amount and taxes when i was protected by bk before? Im really worried about all this. My credit score was just going back up, will this affect it?
Under 11 USC 524, you cannot reaffirm a discharged debt after the bankruptcy has concluded. Therefore, if you did in fact discharge your mortgages in the bankruptcy, you cannot now be held liable for a shortfall on the lien amounts. For that same reason, your credit score should not be impacted by this.
My house goes to sheriff sale on 4/5/18 should I file bankruptcy and then do a short sale on my property I am under water and I have 3 judgments against my home but I am concerned with stopping the sale date since it is 1 month away I have an investor who wants to buy the property in a short sale
Whether you should file bankruptcy or not depends on a whole variety of factors, so it would require a complete consultation to answer that one. You also didn’t specify which chapter. Assuming this is a chapter 7, there is nothing wrong with doing a short sale after filing. However, it may not even be necessary since the bankruptcy discharges the debt regardless.
Peter , most tend to overlook is the Deed, what about the physical deed?
The truth of the matter is that bankruptcy, banks, and credit do not communicate well to keep each other up to date regarding the debt or the deed. The credit will report the bankruptcy. Once discharged, client is under the impression their credit is being reestablished then here comes the shock …the foreclosure which will then report on their credit due to bank having to reclaim the deed.
Savvy individuals will spend more money now having to dispute this matter. Others will assume this is how it must be when in this situation.
But I tell people, ” Assuming you would wants to buy another house in the future, right? ” Well a short sale on the primary home will reduce that waiting period vs allowing the Foreclosure. The waiting period to buy again after a Chapter 7 or 11 bankruptcy is usually 2 years after the discharge, and the wait after a Chapter 13 bankruptcy is 2 years from the date of discharge.
But in most cases the normal waiting period to buy again after a foreclosure can be up to 7 years. Any Lender stating they can approve earlier then 7yrs , you need to ask yourself, how high of an interest rate you willing to pay in order to get that loan.
Back to doing a short sale, a borrower can purchase a primary home again in as little as 2 years in a combination of bankruptcy and short sale on their credit vs. a wait of 3-7 years with bankruptcy and foreclosure looming on their credit.
Doing a short sale while completing a bankruptcy would be a good idea to ensure the client is completely out of their obligation to that location plus giving them a quicker outcome in acquiring a home once again.
Lastly would be resolving the cancelled debt in taxes but I will leave that to a CPA …I am just a real estate broker in Florida.
1. If a home that was discharged in a bankruptcy in California and was later sold in short sale and a 1099-S was filed for the amount of the sale is it considered taxable income?
2. As far as the waiting period for qualifying for another mortgage, does the waiting period begin with the BK (normally 7 years wait period right??) or does it began with the more recent Short Sale?( normally 4-7 years???)
IRS Form 982 deals with exceptions to paying taxable income due to insolvency. While the form covers non-bankruptcy events as well, there is a specific section to check off if you received a 1099 for a discharged debt. If it is as you described, it should not be taxable income.
The waiting period might vary by lender, the type of loan you are seeking, your current income situation, etc.. This is a question better suited for someone in the mortgage industry.
Hi Peter,
My chapter 7 was just discharged, no reafirmation of mortgages, and am starting on short sale process to gain time in property.
I’m just concerned about what kind of liability I may pick up in the process if I give my realtor an all out authorization like:
I, ______________________________, authorize _____ Realty,
LLC to conduct any business on my behalf regarding my loan and short sale.
Can he take any action that makes me liable for anything in the process?
Thanks.
You cannot revive a debt that has been discharged under 11 USC 524, so nothing about the short sale procedure will create any new liability for you as to the mortgage debt. That debt has been discharged for good.
can you receive foreclosure or cavirs, i filed chapter 7 in april of 2014,discharged , no reaffirm, boa loan, i continue to live in property, made payments up until july of 2017. home is involved in short sale as of today, pending contract, credit over 700,cavirs came up and stopped purchase jan of 2018,
Can you please clarify your question.
Home discharged 8 years ago credit was hit with bankruptcy will it also be hit with foreclosure? Now my ex wants to do a short sale will that be even a worse hit on my credit? Can I get hit twice for any of them.
Assuming you in fact did discharge the mortgage and did not reaffirm it in your bankruptcy, it should not be showing up as a debt on your credit. If so, a short sale should not impact your credit either way. You should review your case docket and make sure you did not reaffirm the mortgage. You should also pull your credit report and make sure the mortgage is listed as discharged in bankruptcy. If you did in fact discharge the mortgage, you cannot revive a debt that has been discharged under 11 USC 524. Thus nothing about the short sale procedure will create any new liability for you as to the mortgage debt.
Quick question – chapter 7 discharge in a may of 2015 – short sale completed March 2017 – it was a non govt loan (ie not FHA) . Lender preapproved me for a new loan – cleared CAIVRS as well. No mention in Cedor report of short sale – am I to believe this loan will close. I did disclose owned property in last 60 months and sale price as well.
There are a variety of factors in play here and this question is better suited for a broker. For example, it appears as if you did not reaffirm the mortgage in ch. 7, but I don’t see a definitive answer to that in your question.
I went Chapter 7, last year, it has been discharged. I did not reaffirm my first or second mortgages. I currently rent the house out (at a loss); I had hoped to eventually either move back or sell the home. However, one of my last tenants left the house with a lot of damage and extremely dirty. On top of that, the home needs some repairs that I was aware of, but no money for either. I now have a tenant that has had some issues paying rent a couple of times. I cannot keep up with the house as I had wished. Funny, my credit report score actually went up after the bankruptcy, and it is not that bad. My question is, what would happen to my credit report if I “walked away” from it, or would it be better to work with the mortgage companies? They both show as 0 balances and Chapter 7 listed next to that balance on my credit report. I still don’t quite understand how this worked, seeing I kept the house and am current on the payments (right now anyways). Thank you
If you did not reaffirm your mortgages in Chapter 7, then those debts were discharged. The loans also cannot be revived anymore, due to 11 USC 524. Therefore, whether you walk away or sell the home should not impact your credit either way as to those loans.
There are some other issues with discharge and mortgages to consider, like liability as the property owner and HOA dues, but your liability on the mortgages has been extinguished forever if you discharged them without reaffirming.
My husband and I filed a Chapter 7 bankruptcy, it was discharged in 8/14. We did not reaffirm the mortgage but continue to live in the home. We were divorced 3/18, and I was required to refinance in order to remove his name from any financial obligations. There is a lien on the house. I tried to refinance but the house is so far underwater I was unable to get a loan. I made a request to do a Short Sale. The house should sale quickly, as it is in a very nice neighborhood. Is this the best option? If they approve, they will give me up to $10,000 to relocate.
The answer incorporates elements of state law and you probably should contact your family law attorney. You really need to review and clarify why a 2018 divorce decree required a refinance to remove his name from financial obligations if there were no longer any financial obligations on the home (i.e., the loan(s) had already been discharged).
Therefore, I cannot really answer the state law family law component of this question. Strictly as to the lien and bankruptcy, you are asking actually a non bankruptcy question as to whether you would rather have $10,000 or try to remain in the home. That’s really a lifestyle and general finance question.
My Husband and I filed bankruptcy chapter 7 approximately 2 years ago. Our first mortgage is $172,000 and we reaffirmed it. Our 2nd mortgage is $69,000 was discharged in the bankruptcy and not reaffirmed. We kept up payments until 4 months ago on both mortgages. Recently due to health issues we have not been able to keep up payments on the 2nd mortgage. The house is underwater when you add in the 2nd mortgage. If we do a short sale with the 2nd mortgage and pay the 1st in full will this show up as a new negative on our credit report? The 2nd mortgage company in their short sale form says they want to report this to the credit bureaus as a short sale? We have not agreed to this yet. Your advice would be appreciated.
This is an example of why you almost should never reaffirm either mortgage. You tied yourself to the second mortgage by reaffirming the first (see blog below). Without reaffirming the first, you would have been able to walk away in this instance. Should you pay off the first in full in the short sale, they should not report a deficiency to the credit bureaus. The second should not, because there is no legal debt owed to them. However, because the 2nd still has a valid lien, they have to agree to participate in this short sale. If they don’t think they are getting enough and ask the first to take a little less, this deficiency to the first will be reported.
http://brickslaw.com/why-reaffirming-a-1st-mortgage-also-binds-you-to-the-2nd-mortgage/
I filed chapter 7 bankruptcy in 2012 on a rental property the bank never forclosed and just let is sit and taxes kept piling up I recently applied for a new home loan and was told I needed to handle this to proceed with my approval I contacted the mortgage company and offered them a small amount to purchase the home and they accepted I wired them the money and was told they will be releasing the lien on the property and I will only owe the taxes that built up over the years so I proceeded to move ahead with the purchase of my new home and was told by the bank what I did will be considered a short sale and will have to wait 7 years to buy a new home is this correct I have excellent credit and this was discharged in bankruptcy 5 years and 7 months ago.Im in ohio if that matters please let me know
You did not say whether you reaffirmed the mortgage in the bankruptcy. If you did, then yes, this is a debt that should be appearing on your credit. If you did not, then no, it should not be on your credit. There are separate issues with getting rid of the title and how long you might have to wait for a new loan, but as to a credit reporting event, it should not be reported if you did in fact discharge the mortgage.
Additionally, while I am not familiar with Ohio law, I would check to see whether you are personally liable for property taxes. In most states, that obligation is not personal and just runs with the land.
No I discharged it in bankruptcy almost six years ago
Hi Peter,
Thanks for providing great information and advice. Here’s our situation: we are in the last stages of completing a short sale. It looks like it might actually be completed, but we have a foreclosure sale scheduled for next week. We have not seen evidence from the lender’s attorney that this foreclosure sale has been stopped or rescheduled (they already rescheduled it once a few months ago). Maybe they will stop it, but it’s down to the wire so we are trying to cover our bases. Option one seems to be to simply wait and hope the lender stops the foreclosure (sure seems like it’s in their interest) or option two, to see if we can hire an attorney to stop the foreclosure sale in such short notice or option three, in the worst case scenario if the short sale doesn’t happen in time and the foreclosure sale happens, can we do a BK7 sometime after the foreclosure sale? We wouldn’t have time to do a BK before the auction in the next few days, right? Plus, we would rather not do another BK (we did a BK7 about 10 years ago), but instead have sufficient time for a short sale to complete. In summary, can you do a BK7 and discharge a deficiency judgment even after a foreclosure auction?
Thanks, Joe.
Yes, a Ch. 7 bankruptcy can discharge a deficiency judgment after a short sale; however, deficiency judgments are not all that common. This will depend on your state law as well. The greater problem with filing bankruptcy after a foreclosure is that it still appears as a foreclosure on your credit, and the house is no longer property of the bankruptcy estate, subject to an automatic stay. You therefore will ultimately lose the house sooner by not filing the bankruptcy before the foreclosure sale date.
I filed chapter 7 and had 2 home loans discharged. Recently, I went in to forclosure. How will that affect my credit and when can I get a loan to buy another house ?
I read because of the discharge it’s not technically forcloaure.
Assuming you did not reaffirm either mortgage and did in fact discharge the loans, they should be reported as discharged in bankruptcy even though the property did go into foreclosure. The foreclosure should not be noted.
Hi Peter,
I had a BK discharge in 2015 and I didn’t reaffirm my mortgage. I know that I didn’t need to, but I’m in the process of a short sale, just to gain additional time in the home. Wells Faro stated that I will probably be hit with some sorta tax implications due to the balance left after the sale. I’ve read different things and I’m still unclear if that deficiency would automatically be included in the discharge of debts or if I’d end up owning. Also, as far as credit goes, I’ve done so much work rebuilding my credit after my bk discharge, I’m nervous of what type of impact this will have, if any. My report says Included in bankruptcy, 0 balance. Will the short sale be reported to the credit bureaus after it’s completed?
Assuming you did not reaffirm the mortgage and discharged the obligation, there will be no tax obligation. While it is possible you will receive a 1099, the amount listed will not be taxable. In the event you receive a 1099, you can complete IRS Form 982 and note that your debt was discharged in bankruptcy.
The short sale should not change the credit, because the loan obligation was previously discharged regardless and the short sale does not change that.
Hi Peter,
I have one other question that I’m having a hard time finding an answer to.
Ok so I’ll give you the order of things first:
In 2014 I got a loan modification through Wells Fargo. At the time I didn’t realize that a Hud partial claim was a part of that modification and would be due at the end of the loan, sale or when I no longer lived in the home.
In 2015 I filed chapter 7 bankruptcy and I didn’t reaffirm the mortgage, still unaware of the Hud partial claim.
2018: Home is presently under review for a short sale. As I previously stated, I only went this (short sale) route for additional time in the home. I found out during this process that there was this ‘Hud partial claim’ that was a part of the modification agreement.
My question now is, what happens to that lien if the home is sold in either the short sale, or if denied, the sheriff sale? Will the owed amount be paid or negotiated by Wells Fargo, or will I be responsible for that money owed after the fact? That amount is 53K. There is no way that I can pay that… it would destroy me. It literally has me up at night thinking about it.
I really need your expertise on this one.
Thanks for your time
Assuming you did not reaffirm your mortgage debt in your ch. 7 and received a discharge then the loan(s) were discharged in bankruptcy, and you are no longer liable. Once the debt is discharged, it cannot be reinstated per 11 USC 524. So if I’m understanding your facts correctly, it appears as if this is a debt which you discharged in ch. 7.
Hi Peter,
My wife and I were discharged on our mortgage completely in 2015. We signed up for a loan modification about about 3 months after while in the process of foreclosure. At the time we wanted to stay in the home and it was affordable. My wife recently lost her job and we no longer have the ability to afford the home. At this point what rights do the bank have to retrieve the home and do they still have to go through the foreclosure process to retrieve the home before we have to move out?
Your email implies you filed a chapter 7 and received a discharge without reaffirming the mortgage. This reply is based on that assumption. In the event that is not the case, the answer would be subject to change.
Assuming it was the case, the “debt” was discharged under the bankruptcy, and the modification did not revive the debt. The debt is forever discharged under 11 USC 524. Further assuming this is a first mortgage (and not a second lien that was potentially “stripped” in the chapter 7), your bankruptcy filing and discharge did not alter the mortgage holder’s “lien” rights. They had a lien before the bankruptcy was filed, and the Chapter 7 discharge did not alter their lien status. Therefore, they can foreclose according to your state law’s normal process and timeline, and the fact you previously filed bankruptcy is irrelevant to how quickly they might try to foreclose.
Filed Chapter 7 and was discharged in October, 2017 (state of Texas). Sold my house in short sale March, 2019. Debt to lender is wiped out, I do not owe that.
Now trying to qualify for a new mortgage (with a MUCH smaller loan!!) and finding that I have to wait 3 years after the short sale. If my debt was forgiven because of the chapter 7 why does the short sale even matter to a lender? It’s quite obvious that I was in a home that I could no longer afford and am now looking to down size into an affordable home.
So in applying to a new loan – do I HAVE to disclose that the sale of my home was a short sale? Why do they need to see a copy of the closing statement? And if I don’t disclose the info would they find out in underwriting? How??
And if qualifying for a new mortgage is out of the question, then I have to rent. Do I HAVE to disclose a short sale on my rental applications?
Feeling stuck between a rock and a hard place here!!!
This is more of a lending regulation question so it’s better suited for a broker. The issue may be more about when the “title” got out of your name and not when you got rid of the “debt,” which was in the Chapter 7, assuming you did not reaffirm the loan in the bankruptcy case.
In 2018.Bankruptcy filed, home 1st & 2nd mortgage NOT reaffirmed. Bankruptcy was discharged. Home then went for Sheriff sale about 6 months later- we had moved out & left the area. The sale was above the mortgage amount due- excess of about $28,000.
Now in 2019, notified by Sheriff we have a refund in that amount, they sent us a check. Is this our money? Mortgage had been sold & was not the same 1st mortgage company, but both are in the letter & on the check?
Not reaffirming the debt just means you do not owe the debt. It doesn’t change the fact there is a lien on the property, nor does it change the fact that you are the title owner. Therefore, if you as the owner had a property worth more than the combined values of the liens, then you are entitled to any excess. I’m not clear from your question though whether there really was an excess, because I’m not sure why you are listed as a payee along with the mortgage company.
Our 2nd mortgage co, did not become part of short sale- they were a debtor in bankruptcy & did not pursue when discharged. So short sale was lien with 1st mortgage only- all property taxes were current.
Sheriff has Plaintiff as the Bank & Defendant as Us: after breakdown of all charges, sale, deed transfer, etc— the overage of the Sale—
That amount was sent to us as a check!
So is this ours?
The mortgage was written off in bankruptcy — does accepting this check change that?
There were no other creditors related to the house, only mortgages.
Hello,
I filed Chapter 7 Bancruptcy in September of 2019 and it was discharged December 2019. although my home was put in the banruptcy, I am still living there only paying the utility bills. Ilocal man approached me wanting too buy the house butI told him I did not own it any longer. Long story short, I contacted the mortgage company about the interested buyer and was told my name is still on the title and I needed to send them the following:
Sales contract signed by buyer and seller.
Buyer’s proof of funds.
Settlement Statement.
I found forms online and the buyer has agreed to sign the paperwork so we can start the process, but I’m not a relator. Is a short sale after a discharged bankruptcy by me possible?
A ch. 7 bankruptcy discharge gets rid of the debt, which is the liability on the mortgage. The bank still retains a deed on your home, so it still has its secured interest. The debtor remains the title owner (assuming the trustee did not sell the property on behalf of the estate). Therefore, you appear to still be the title owner based on the fact you presented. Yes, you can still complete a short sale if you wish; however, the debt was discharged in the bankruptcy. As such, a short sale does not help eliminate the debt, as it no longer exists. You may still elect to complete a short sale for a variety of other reasons, but eliminating the debt is not accomplished in a short sale since the debt already has been discharged.