Last week, I went to a meeting along with other volunteers for Clark Howard's consumer action center. We had some speakers from HUD, Wells Fargo, a local real estate educator (AREU) and the lady who started operationrest.org, Anne Batte. They came to teach us about the real estate market on dealing with loan modifications, short sales, foreclosure, how to stall foreclosure, etc... It was very enlightening and I wanted to share some of the information and websites that they gave. It was basically a Q&A session.
Question 1
Do people lose their home in a bankruptcy?
No, it is not automatic. Not only is bankruptcy used to restructure debt (Ch 13) or liquidate debt (Ch 7), it is often used at the last minute to stop foreclosure. Bankruptcy makes it unlawful for creditors to contact the person while they are under bankruptcy protection. If the Borrower is not paying the mortgage, the Servicer will file a motion for relief of stay in order to proceed with foreclosure. When a Consent form is sent by the attorney into the Servicer, a Borrower can speak about the loan, in regards to a loan modification or short sale. As long as the Servicer, Trustee, and the court (the bankruptcy judge appointed to the case) approve it, a loan modification or sale of property can occur, thereby stopping the foreclosure. This applies to a Chapter 13 and Chapter 7. (For sale of property, a purchase and sale contract, along with all other required documentation, must be confirmed received by the Servicer for a foreclosure to be stopped). What is a Trustee? For a Chapter 7, this is a person who is appointed to examine the financial schedules and documents filed by the debtor (Borrower) to determine if there are any assets available for the creditors. For a Chapter 13, this is a person who administers the plan that has been proposed by the debtor (Borrower), and approved by the bankruptcy court, to repay a portion of the debt over the next 5 years.
For a Chapter 13 and Chapter 7, the person filing bankruptcy has to list all assets and liabilities - everything is included. The person has the option to "reaffirm" certain debts, meaning that they state they intend to repay those debts (such as a mortgage). Discharged debts are debts that a person no longer has to pay. Reaffirmed debts are debts that a person does have to pay.
Chapter 13 bankruptcy allows people to restructure or sell if they are behind on mortgage payments. Chapter 13 includes mortgage arrearage. Chapter 7 bankruptcy does not include mortgage arrearage.
Note: Filing of 1st bankruptcy will stop a foreclosure automatically. When someone has repeated bankruptcy filings, foreclosure may not be stopped
Question 2
Explain how a 2nd home is handled in a bankruptcy?
In a Chapter 13, a 2nd home may be considered a "luxury" item that you have to give up if you cannot cover your debt.
In a Chapter 7, person can keep their second home as long as they keep paying their mortgage and as long as there is not too much equity in the property. In Chapter 7 the court does not care if you keep a second home. Trustee is just looking for non-exempt assets to sell. (Assets that can be liquidated).
In Georgia, for instance, a person receives an exemption of net equity (after cost of sale) of $10,000 per person (double this amount for a couple) + $600. This is for a primary residence. A bankruptcy handles a 2nd home the same way, except under Georgia law, if the person has not used up the $10,000 (on primary residence) then the person can use $5,000 of that $10,000 exemption on a 2nd home or anything else + $600. (reference for both questions came from www.operationrest.org )
Question 3
Is Wells Fargo planning to implement the new Obama guidelines for short sales? If so, what will be the start-to-finish approval time for a Wells Fargo short sale? If they qualify for HAMP, they will implement the HAFA program (http://www.realtor.org/government_affairs/short_sales_hafa) starting April 5th. One approval has been made, they expect a 30 day period for Wells Fargo to accept/deny the sales offer on the home. Part of approving the short sale requires a few steps. One, the bank will want to check out any liens that may be on the home, if the seller has Mortgage Insurance then the MI company will need to obtain a value on the home as well as the investor for approval on the price and the seller will need to talk to CCCS ( http://www.cccsinc.org/?gclid=CKylmfDS76ACFSpuswod3l40GQ ) to deal with any liens on the property as far as paying them off and having them removed. These are all considered before approving a short sale. See 15 Steps to Short Sale: Selling Property Under the Mortgage Balance. Also see Servicer Required Documentation.
Question 4
If it costs a bank approximately $70,000 to handle a foreclosure, why not negotiate more with owner before the situation results in foreclosure?
This is false.You have to ask yourself, "who owns the loan?". 75% of the loans are government owned, so tax payers take the "loss" from the foreclosure sales. (so basically, who cares? )
Question 5
Please describe the steps in the loan modification process.
I am summing this up by pointing you to this web page. http://www.operationrest.org/ConventionalandVA
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