Bankruptcy Attorney Providing Mortgage Information?

This is a fantastic site for anyone who is facing any type of mortgage related financial issues.  My question is this…

My wife and I want to file Chapter 13 to help eliminate a lot of unsecured debt that has piled up over the past few years, mainly because of a job layoff I suffered in 2007, and the ongoing housing crisis that has destroyed our house value here in FL.

We have two homes, one in Florida, and one in VA.  If we file Chapter 13, we hope to eliminate our credit card debt, a large amount of hospital bills and two car repossessions.  Until I lost my job, our bills were paid on time every month, but since then, we have found it impossible to catch up. 

Our primary residence is two months behind, and we owe about $75,000.00 more than it is worth on an 80/20 loan.  Our 2nd home in VA is one month behind, but has roughly $40,000.00 in equity.  We are thinking of giving back both homes, and read that you can possibly qualify for an FHA secured mortgage after making 12 payments in a Chapter 13 plan. 

If we relinquish both properties and rent for a year, is this possible, or will we have to wait just as we would if we let both the homes foreclose? 

I read in one of your blogs that the mortgage company can file a motion b/c the 1st mortgage on our primary residence and the mortgage on the second home are both secured, even though the 2nd mortgage on our 1st home can be stripped off.

We have talked to two bankruptcy attorneys, both of whom said to let go of both houses, and apply for an FHA loan after making 12 payments with the bankruptcy trustee.  I would rather keep our primary residence than rent if we will have to wait 3 or 4 years. 

What is your thought on this?  Thanks for the help.

Jason

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Hello Jason,

If you let the properties go by way of foreclosure or deed-in-lieu of foreclosure then you will not qualify for financing in twelve months.  It’s true that a borrower who has made twelve on-time payments in a Chapter 13 may qualify for FHA financing; however, that is only one of the criteria for FHA financing and since FHA requires a three year wait after a foreclosure or DIL and FNMA requires a five year wait, you would not qualify for another mortgage in twelve months.

A first mortgage lender will not accept a deed in lieu (i.e. giving back the home) when there is a second mortgage with a significant balance attached to the property.

I didn’t follow your third-to-last paragraph regarding “the 2nd mortgage on our 1st home can be stripped off.”  It is true that a junior lien on a primary residence may be stripped off and treated as unsecured debt in a Chapter 13.  It is also true that a lender can file a motion for relief from stay and continue with a foreclosure even though the borrower has filed bankruptcy.  I didn’t see how the two fit together.

Thanks for the questions and looks like (at least two) bankruptcy attorneys should stick to filing bankruptcy and not providing information on originating new mortgages; however, a bankruptcy attorney would tell me something similar – that’s why at least I include my disclaimer at the end of each post.

Paul

This author is not an attorney and this information should not be considered legal advice.  Please consult an attorney for legal advice.