Posted on: 19th Nov, 2007 11:36 am
Hi All,
I own 2 properties in TX & unfortunately, there was fraud involved (builder colluding with the mortgage broker & appraiser). The builder has recently filed for corporate & personal bankruptcy and there is a community of unfinished homes with negative equity. Many have gone or soon will go to foreclosure, including mine.
At this point, I have 2 options: 1) file bankruptcy or 2) let the homes foreclose and hope the banks do not pursue a deficiency judgement. I attempted a deed in lieu and a shortsale with the banks (Aurora Loan, National City and Ocwen), but have not been successful.
I spoke with other homeowners and an attorney who said the banks seldom pursue a deficiency judgement. These folks feel especially confident, as the fraud has been in the local TX news on a number of occasions.
Does anyone know how common it is for banks to pursue deficiency judgements? Anyone received a deficiency suit by one of the above banks?
Thanks - Jon
I own 2 properties in TX & unfortunately, there was fraud involved (builder colluding with the mortgage broker & appraiser). The builder has recently filed for corporate & personal bankruptcy and there is a community of unfinished homes with negative equity. Many have gone or soon will go to foreclosure, including mine.
At this point, I have 2 options: 1) file bankruptcy or 2) let the homes foreclose and hope the banks do not pursue a deficiency judgement. I attempted a deed in lieu and a shortsale with the banks (Aurora Loan, National City and Ocwen), but have not been successful.
I spoke with other homeowners and an attorney who said the banks seldom pursue a deficiency judgement. These folks feel especially confident, as the fraud has been in the local TX news on a number of occasions.
Does anyone know how common it is for banks to pursue deficiency judgements? Anyone received a deficiency suit by one of the above banks?
Thanks - Jon
Hello Jlewen,
I'm a bit confused with your post.
Do you own two of the unfinished homes? And did you take construction loans for that? Could you explain what fraud you are talking about?
It appears that you don't have any problem with your mortgage payments but you are in trouble due to this fraud. Then why do you want to file a bankruptcy?
The banks might file deficiency judgment if the properties foreclose. It depends upon the bank and the reason behind the foreclosure is also considered. The foreclosure process is expensive but if deficiency judgment is going to cost them more, they might write it off.
I'm a bit confused with your post.
Do you own two of the unfinished homes? And did you take construction loans for that? Could you explain what fraud you are talking about?
It appears that you don't have any problem with your mortgage payments but you are in trouble due to this fraud. Then why do you want to file a bankruptcy?
The banks might file deficiency judgment if the properties foreclose. It depends upon the bank and the reason behind the foreclosure is also considered. The foreclosure process is expensive but if deficiency judgment is going to cost them more, they might write it off.
Hi Jlewen,
Welcome in this forum.
I think bankruptcy should be the last option that you should choose.
In the state of Taxes, the bank or the lender may gain the deficiency judgments but it is limited to the difference of the fair market value of the property and the balance of the loan. If you have any other property, the lender may place a lien on that property. IF you have no asset or property and you cannot pay the balance, the lender may forgive the balance but the lender will send a 1099 C form and you have to pay tax on that forgiven debt.
Thanks,
Larry
Welcome in this forum.
I think bankruptcy should be the last option that you should choose.
In the state of Taxes, the bank or the lender may gain the deficiency judgments but it is limited to the difference of the fair market value of the property and the balance of the loan. If you have any other property, the lender may place a lien on that property. IF you have no asset or property and you cannot pay the balance, the lender may forgive the balance but the lender will send a 1099 C form and you have to pay tax on that forgiven debt.
Thanks,
Larry
thanks for the reply larry & jenkin7.
to further elaborate, yes i own 2 unfinished homes. the 1st requires about $50k worth of additional work to be finished. the problem is, it was sold to me as a finished home and the appraiser inflated the value significantly. there are also serious septic /drainage issues with the entire community so no one is buying these homes. if i were to sell this house i would likely take a $200,000 + loss (as would the bank if foreclosed). i can no longer afford to make payments on a home i cannot sell or rent and am a few months behind. the bank will be foreclosing soon.
the other property is a dirt lot that i did take a construction loan out on. when i say that this is fraud, this lot sold at an inflated price (coincidentally, same appraiser as first home and for most of the entire subdivision - he is currently being sued by others) and the mortgage broker received under the table kickbacks. the builder never started building a home on the lot before filing bankruptcy. again, this lot is worth significantly less than i paid & if i were to finish the buildout i would still lose money given the state of the community.
in sum, i look to be $250,000 to $300,000 underwater & fear a huge deficiency judgement from the banks when the properties go to foreclosure. that is why i am curious as to whether anyone knows how common it is for banks to pursue deficiency judgements?
i live in a state that allows wage garnishment so my available options appear to be: 1) allow foreclosure & hope they do not pursue a deficiency judgement or 2) to file a proactive ch. 7 bk
to further elaborate, yes i own 2 unfinished homes. the 1st requires about $50k worth of additional work to be finished. the problem is, it was sold to me as a finished home and the appraiser inflated the value significantly. there are also serious septic /drainage issues with the entire community so no one is buying these homes. if i were to sell this house i would likely take a $200,000 + loss (as would the bank if foreclosed). i can no longer afford to make payments on a home i cannot sell or rent and am a few months behind. the bank will be foreclosing soon.
the other property is a dirt lot that i did take a construction loan out on. when i say that this is fraud, this lot sold at an inflated price (coincidentally, same appraiser as first home and for most of the entire subdivision - he is currently being sued by others) and the mortgage broker received under the table kickbacks. the builder never started building a home on the lot before filing bankruptcy. again, this lot is worth significantly less than i paid & if i were to finish the buildout i would still lose money given the state of the community.
in sum, i look to be $250,000 to $300,000 underwater & fear a huge deficiency judgement from the banks when the properties go to foreclosure. that is why i am curious as to whether anyone knows how common it is for banks to pursue deficiency judgements?
i live in a state that allows wage garnishment so my available options appear to be: 1) allow foreclosure & hope they do not pursue a deficiency judgement or 2) to file a proactive ch. 7 bk
hi jlewen,
most banks will foreclose and seek a deficiency only after considering the cost of foreclosure and the current loan balance. if it's a large bank, then chances of filing the judgment are less as they don't lose much but you never know if they do file.
banks usually determine the costs they'll have to bear to foreclose and they shall try to find out if you are paying others bills or not. in case they find that you are repaying other debts but not the mortgage, then there's possibility that the bank might foreclose.
however, before doing that the bank will find out how much it costs them to get a deficiency judgment and if that's much more then it's worth that they'll cancel the debt and issue a charge-off. once they do so, they'll let the irs know about it and hence you will be the one paying taxes on the canceled debt amount as that will be taken as your income because you aren't paying for it anymore.
now, as to what you may do in this situation, i would suggest that you file chapter 13 bankruptcy instead of chapter 7. this was you will be able to avoid credit damage to a great extent as in chapter 7. moreover, when you file chapter 13, it means you are trying to pay off debts and that's a positive sign as far as your credit effect is concerned.
regards,
jessica.
most banks will foreclose and seek a deficiency only after considering the cost of foreclosure and the current loan balance. if it's a large bank, then chances of filing the judgment are less as they don't lose much but you never know if they do file.
banks usually determine the costs they'll have to bear to foreclose and they shall try to find out if you are paying others bills or not. in case they find that you are repaying other debts but not the mortgage, then there's possibility that the bank might foreclose.
however, before doing that the bank will find out how much it costs them to get a deficiency judgment and if that's much more then it's worth that they'll cancel the debt and issue a charge-off. once they do so, they'll let the irs know about it and hence you will be the one paying taxes on the canceled debt amount as that will be taken as your income because you aren't paying for it anymore.
now, as to what you may do in this situation, i would suggest that you file chapter 13 bankruptcy instead of chapter 7. this was you will be able to avoid credit damage to a great extent as in chapter 7. moreover, when you file chapter 13, it means you are trying to pay off debts and that's a positive sign as far as your credit effect is concerned.
regards,
jessica.
