Foreclosure, Bankruptcy, Short Sales, Which one is right

Real Estate Broker/Owner with NoVa Brokers LLC 0225 094634 VA/ 643686 MD

With so many people losing their homes these days, I wanted to share some information about using to the bankruptcy system to help someone stay in their home instead of doing a short sale or a Foreclosure. 

Every situation is different. 

Since I work as a bankruptcy consultant/paralegal at a law firm, and I also am a Realtor I am finding that my knowledge in Foreclosure and Bankruptcy has come in play with my real estate business when I normally can keep the two separate.  But with all the foreclosures these days and mortgage issues,  I am finding myself making decisions for homeowners that require my legal knowledge and my real estate knowledge .

For Example:  Homeowner comes to me for possible short sale.  Three payments are missed.   The family prefers to stay in their home, children already in school, etc. Mortgage changed, job loss, etc. has now made the homeowner unable to afford the home he has.  There is negative equity ($90,000) so refinance was out of the question.  Homeowner gains employment again and is now able to make the payment but now home is in foreclosure and the cure amount is four months worth of payments, interest, and attorney fees.  I then make the decision to prepare a Chapter 13 Bankruptcy Petition, (through the law firm I work at)  file it with the court, then called the Attorney handling the Mortgage Co.’s interest and told him that foreclosure cannot go forward because I filed Bankruptcy for our client and ‘automatic stay” goes in place which means that all actions from creditors must stop.  Creditors cannot contact our client, now called the “debtor” while he is in Bankruptcy without permission from the Debtor’s Attorney.  In the meantime, I prepare the plan which gets approved by the Bankruptcy trustee to include missed mortgage payments called the “cure” amount.  Now the debtor/homeowner continues to stay in their home and catches up on their mortgage through the Bankruptcy Court, continues to make their regular payments and their kids don’t have any interruption in their life at this time. 

There is a little more that goes on through this process, but I wanted to give everyone an idea of an option that may work instead of a short-sale or a foreclosure which was probably going to be the end result in this situation if this homeowner decided not to seek legal advice.

Before this family came to me, they spoke to their real estate agent who wanted to list their home on the market for a short sale, since that is the way he could have helped them, but he made the suggestion for them to seek advice from an Attorney just see if other options were available to them.  He may have lost the listing but gained more from this family then money.  I am sure when they are ready to move, they will use that same agent, because he worked with them in helping with their situation.

In the end, the Family was happy and relieved that their hardship was over for now and they could live their lives without worrying about their home going to the auction block.

If there is interest in this blog from everyone, I will post more on this subject and give more examples of scenarios and suggestions on handling them.  I have prepared hundreds of bankruptcy petitions of all Chapters and if anyone has questions about them, I will try my best to give you answers that may help in situations you may have with your clients.

Please note, I am not giving legal advice. I am not an Attorney.  I am just sharing  my experiences with the law firm I have been a part of for over 10 years.  This blog is written with Attorney David R. Young, Jr. who is permitted to give legal advice.  Please contact our office to get advice from attorney.




Posted by




NoVa Brokers LLC

1483 Chain Bridge Road Suite 103

McLean, Virginia 22101

571-814-3002 OFFICE

703-999-6104 CELL

571-281-2866 FAX

Licensed in Virginia & Maryland




Comments (26)

Bart Olszewski
Keller Williams Landmark II - Jackson Heights, NY

Very interesting and well written post, impressive knowledge of the subject. 


Jan 30, 2008 06:15 AM
Stella Barbour
NoVa Brokers LLC - Vienna, VA
Principal Broker, Serving Virginia and Maryland
Hi Bart - Thanks for the comment.
Jan 30, 2008 08:59 AM

I am listing my home on sale -short sale- for almost 120k. It is not selling and I am 2 months behind and trying to avoid foreclosure. The best solution to me is not to continue paying the high adjusted payment which will increase again in few months, and avoid bankrubtcy or foreclosure.



 What do you suggest?


Thanks for your help.



Jan 31, 2008 07:12 AM
Stella Barbour
NoVa Brokers LLC - Vienna, VA
Principal Broker, Serving Virginia and Maryland
Mike - I need more details.  Can you call me at 703-999-6104 so I can get more information from you in order to see what is best for you.
Jan 31, 2008 07:42 AM

Hi Stella.

 I am in a situation where I may be giving up my home very soon. I make good money, but not enough currently to pay the high payments. I, also, would have to be filing Chapter 13 as I make more than the Chapter 7 limits. What I am worried about is if I file Chapter 13 and the courts put me on a payment plan for five years that makes it very hard for me to enjoy living when all of my income is taken away each month to pay into a payment plan.

 With your experience, how harsh are the payment plans usually? Do they usually take a certain percentage of your income for five years? What percentage is that usually around? My fear is that I will be put on a payment plan based on federal limits for low income earners. This makes foreclosure look more appealing to me rather than go hungry and sit at home with no vacations.

 I am scheduled to talk with a local attorney in a week, but I'd like to have ideas before I go into her office.

 Thanks Stella.

 Noah (


Feb 21, 2008 10:59 AM
Stella Barbour
NoVa Brokers LLC - Vienna, VA
Principal Broker, Serving Virginia and Maryland
Noah - I left you a comment on your blog.  
Feb 21, 2008 11:27 AM

Hi, I have 2 homes in Northern VA. On one home, I have two mortgages - Primary Loan ($364,000) and Home Equity Loan ($70,000) - both combined - $434,000, whereas the home value is about $365,000. And I have another home on which 2 loans - Primary ($342,000) and home Equity ($62,000) - combined ($401,000), whereas the home value is $365,000. So, I would like to foreclosure on both these homes though so far I had not missed any payments. I have the following questions.

1. What happens to these two Home Equity Line of Credit (on both) - Do I still owe them anything if I do foreclosure, as I got the HELOC from collatoral property.

2. Instead of foreclosure, if I do a Short-sale by missing couple of payments, what happens to those two Helocs


Thanks in advance

Jul 05, 2008 06:53 AM
Stella Barbour
NoVa Brokers LLC - Vienna, VA
Principal Broker, Serving Virginia and Maryland

Avis - I need a little more information from you to better help you in your decision making on this issue.  You most likely will be resonsible for your balances after foreclosure sale or after the bank takes the property and sells.  too much to write down.  Call me or email me with a number I can reach you at.

Jul 09, 2008 04:17 PM
Carlos H

Hello everyone,

I'm in California, my home is in foreclosure, I have been advised if I filed for Chapter 13 BK the process can be temporarily stopped and if I want to save my home from foreclosure, which I do,  the attorney can deal with the lender to negotiate a modification based on 90% of the current market value (which has gone down tremendously) and even eliminate the second mortgage allowing me to be able to afford the mortgage payments.

How thruthful is this?

I would appreciate any and all helpful information you can provide.

Dec 21, 2008 05:32 PM
Stella Barbour
NoVa Brokers LLC - Vienna, VA
Principal Broker, Serving Virginia and Maryland

This is possible and worth attempting.  Here in Virginia I have been able to get clients a loan modification through the 13 plan with the arrearage being paid through the plan.  Good luck and I hope your attorney works hard to make this happen for you.

Dec 29, 2008 01:04 PM
Pacita Dimacali
Alain Pinel - Oakland, CA
Alameda/Contra Costa Counties CA

I was going to suggest a loan modification option also before attempting bankruptcy.

If the homeowners file for Chapter 13 bankruptcy, how does that affect their credit score, and how long will they have to get out from the bankruptcy?

Dec 29, 2008 03:28 PM
Toi Buchanan

I don't know it you can assist me.

I have had no major life changes.  I have a job that pays decent money (not extravagant). My mortgage payments take up all of one paycheck and a quarter of another.  Thats not including utilities. I am currently 5 months behind in my payments which warranted a notice from my mortgage company. Before this I have already filed Chapter 7 which didn't include the house (yet they prevented my payments to discontinue automatically coming out of my accounts ??...which I hadn't been late on in 3yrs before this)  I contacted a realtor to commense a short sale (in the 2nd month) in hopes that this would happen instead of a foreclosure.  No such luck even with 2 reductions in price. 

My point to all of this is, the selling process is wearing me out.  This house is wearing me out. Foreclosure is looming and sad to say welcome if it will finally end this home owning nightmare I've been in.  How hard will it be to find a place to stay?  What difference would a foreclosure make if being behind 5 months and bankrupt will already be on my credit report?


TB in St Paul, MN

Mar 01, 2009 12:47 PM
Scott Barr
Pacific Sotheby's international Realty - Newport Beach, CA

does it ever make sense to do a short sale?

Apr 13, 2009 01:35 PM
Stella Barbour
NoVa Brokers LLC - Vienna, VA
Principal Broker, Serving Virginia and Maryland

TB -  Were you able to save your home?

Apr 20, 2009 02:17 PM

Kindly advise which way should my mom proceed. Shortsale or Foreclosure or Bancruptcy?
She has a primary house in CALIFORNIA. Minimum Payment Option Arm.
2 Homes in ARIZONA under going shortsale. 
One house got the approval
Investment home  Refinanced Countrywide Option Arm she has been Late  Since July 2008. 
Trustee sale Date 1st week of June if shortsale does not materialize it will forclose.
Shortsale approval with ALL CASH BUYER  except the Letter said.
Countrywide and its Investors May pursue deficieny judgment for the difference for the payment
received unless agreed otherwise or prohibited by law when the shortsale closed.
which way should she proceed.? Kindly advise.

Apr 27, 2009 08:12 PM
Kevin Hicks
Future Home Realty - Jacksonville, FL
Unique Realtor & Attorney Team

Great post. I do short sales exclusively and have a great system. If the client is in bankruptcy or files during the process we have to get the trustee to release the property. It takes a little more time but it's worth it. Keep up the good educational posts!.

May 30, 2009 05:37 AM
Frances Sanderson
Bean Group / Franklin - Franklin, NH

Hi Stella,

You did such a good job with this post a year a half ago. I think it is just as pertinent now, if not moreso. Would you mind opening it up for a re-blog?

Frances Sanderson, Franklin, NH  REALTOR®, Certified EcoBroker®

Jun 19, 2009 04:15 AM
Stella Barbour
NoVa Brokers LLC - Vienna, VA
Principal Broker, Serving Virginia and Maryland



Jul 02, 2009 12:25 AM

Don't know if you could help but I need help...

I owe $360K on my home in CA and the house next door is 300sq ft smaller than mine and it just sold for $180K (It was a foreclosure). I can barely afford the mtg if I'm very frugal but I think I might be better off just walking away. Any advice?


Jul 10, 2009 09:40 AM
Carlos H

Hello Missie,

you should contact your lender or servicer and request a loan modification to lower your mortgage payment. Just be prepared to show proff of a hardship and most current financials and since you mentioned you barely afford the current payment they might agree and offer you a modification. I know CA is been hit hard and depreciation continues in the state. Show the lender a convincing plan and your desire to continue to make your payments as long as they are more affordable and you might just get it.

Need help just let me know.

Jul 26, 2009 08:01 PM