This is a true story. The greatest fiction writer could not make this up. We will call the homeowner “Sally” for illustration purposes.
- Sally files Chapter 7 bankruptcy.
- Sally includes her $300,000 loan in the bankruptcy and moves out of her Louisville Highlands home.
- Sally never makes another payment.
- Loan officer tells Sally she can get a new loan 3 years after bankruptcy.
- Sally waits 3 years and applies for a loan.
- Loan officer tells her she doesn’t qualify because she still owns her house with a $300,000 balance. She still owns it after all these years.
What the Bankruptcy Attorney Didn't Tell Her
- Sally is confused and calls me.
- I look up her house on public records and, Yup!, it’s still in her name.
- Sally says it can’t be, because she filed bankruptcy.
- I tell Sally that bankruptcy doesn’t convey ownership of the house. She has to (a) sell it, or (b) convey a deed-in-lieu of foreclosure, or (c) the bank has to foreclose on it.
- Sally says her bankruptcy attorney didn’t tell her that, therefore it can’t be.
What Bank Of America Didn't Do!
- Sally comes to my office.
- Surprise! Her lender is Bank of America.
- We call Bank of America.
- Bank of America customer service lady looks up Sally’s loan.
- Customer Service lady says: “I see your last payment was made 3.5 years ago, you now owe $84,000 in back payments. Are you planning to pay this today?”
- Sally manages some niceties and we politely hang up.
The Sad Result
- Sally asks me how this can happen, and “Why didn’t anyone explain this to me 3 years ago?”
- I welcome her to the insanity and the inanity of the preforeclosure world.
- Sally calls her loan officer who says she may now have to wait another 3 years after foreclosure or deed-in-lieu to qualify for a loan.
- We visited the property. It had been broken into and vandalized. Sits vacant and deterioating. The BOA field services tracking sheet is periodically updated.
- Sally then tells me what I’ve heard many times before: “Dave, I wish I had met you 3 years ago. I would have done things differently."
Even if filing bankruptcy, sellers with underwater mortgages should also consult a short sale Realtor. It may save you from foreclosure and bankruptcy.