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cfortunato
cfortunato, Attorney
Category: Bankruptcy Law
Satisfied Customers: 8023
Experience:  Bankruptcy professor.
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QUESTION SURROUNDING SHORT SALE OR FORECLOSURE AND CREDIT IN

Customer Question

QUESTION SURROUNDING SHORT SALE OR FORECLOSURE AND CREDIT IN NEW JERSEY

MY SON AND HIS WIFE ARE SEPARATED AND WILL BE FILING FOR DIVORCE. THEY HAVE THEIR HOME ON THE MARKET AND DO NOT KNOW IF IT WILL BE SHORT SOLD OR FORECLOSED. OBVIOUSLY THEY ARE HOPING FOR A SHORT SALE. EITHER WAY, MY SON FEELS THAT HE SHOULD PAY THEIR CREDIT CARDS OFF WHILE THEY ARE NOT PAYING THEIR MORTGAGE AND TAXES. THEY ARE IN CONSIDERABLE DEBT TO FAMILY MEMBERS TOO, BUT MY SON SEEMS TO THINK THAT IF BOTH HE AND HIS WIFE HAS A SHORT SALE ON THEIR CREDIT REPORTS AND CREDIT CARDS MARKED "PAID FOR LESSER AMOUNT" OR MAYBE EVEN PAID IN FULL THAT THAT WILL BE BETTER FOR THEIR CREDIT. OTHERS TELL ME THAT THE BANK MAY WONDER WHY THEY CANT PAY THEIR MORTGAGE AND TAXES BUT ARE PAYING THEIR CREDIT CARDS. ALSO, OTHERS SAY THAT IT MAKES NO SENSE TO PAY THEIR CREDIT CARDS NOW AND THEY SHOULD SAVE THEIR MONEY AS BEST THEY CAN ESPECIALLY IN CASE HOME FORECLOSES. THEY ALSO SAY THE BANK MAY FORCE A BANKRUPTCY FOR BOTH OF THEM ANYWAY. IS MY SON CORRECT? IS IT BEST FOR THEIR CREDIT TO NOT PAY THE CREDIT CARDS? THANK YOU
Submitted: 2 years ago.
Category: Bankruptcy Law
Expert:  cfortunato replied 2 years ago.

Hi JACustomer,

If any debts are not being paid - such as the mortgage - it will not be much better if some debts are being paid. In other words, your son's credit rating will not be significantly better is he is paying the credit cards but not paying the mortgage.

 

I think this is what you wanted to know. If not, please let me know.

Thank you.

Customer: replied 2 years ago.

HI - THANK YOU FOR YOUR RESPONSE. THEN THE BEST COURSE OF ACTION IS TO NOT PAY ANY UNSECURED DEBT UNTIL A LATER DATE? I DON'T THINK THEY CAN FILE CHAPTER 13 AS LOANS FROM FAMILY MEMBERS MAY HAVE TO BE PUT IN THE MIX. I DON'T BELIEVE ANY ARE RECORDED, HOWEVER PAYMENTS TO THE FAMILY MEMBERS ARE CLEARLY SHOWN ON THEIR BANK STATEMENTS OVER THE YEARS ...

 

MY SON FEELS THAT THE RECOVERY TIME AND LIKLIHOOD OF LENDERS TAKING INTO CONSIDERATION WHEN EXTENDING CREDIT IN THE FUTURE WILL BE WEIGHED AGAINST THE FACT THAT NO OTHER OBLIGATIONS WERE FORFEITED ASIDE FROM THE MORTGAGE. HE ISN'T SO CONCERNED ABOUT THE SCORE BEING LOW BUT RATHER HE IS CONCERNED ABOUT THE HISTORY ONCE IT COMES BACK UP. THE MORTGAGE ONCE GONE AND SETTLED FOR LESS WILL IMMEDIATELY ALLOW FOR THEIR CREDIT TO BEGIN RECOVERY. HE FEELS THAT IF THE CARD PAYMENTS ARE MISSED THEY WILL NOT. I AM THINKING THAT HE SHOULD NOT PAY THE CARDS NOW, AND NEGOTIATE WITH THE CREDITORS ON A LOW SETTLEMENT AMOUNT NOW - BEFORE THE SHORT SALE OR FORECLOSURE. OR IS HE CORRECT IN PAYING THE CARDS MONTHLY SO AS TO ALLOW RECOVERY TO START RIGHT AWAY? I WOULD THINK THIS COULD BE A REAL ISSUE WITH REGARD TO THE SHORT SALE / FORECLOSURE. WHAT DO YOU THINK?

 

 

 

Expert:  cfortunato replied 2 years ago.

He is wasting his money by continuing to pay the credit cards if his goal is to negotiate with them. Credit card companies will not negotiate unless the debtor is at least one or 2 months in default.

He will not have to worry about having paid family members if he waits one year after having paid them, as the look-back period for family-member creditors is one year.

Customer: replied 2 years ago.

Thank you. He is continuing to pay the family members without exception now. These loans must be paid as their payments are supporting equity loans that their family members took out on their behalf. Don't know if you needed to know that. A lawyer he consulted with said those regular payments may very well need to be included in a Chapter 13 if he ever went that route, which he doesn't want to do. He wants to continue to pay his credit cards etc. just not his mortgage or taxes. Their divorce is amicable and they want each other to have the best possible shot at credit recovery as soon as possible. Do you see any problems with continuing to pay the cards and not the mortgage or prop taxes? Do you see the benefit my son is talking about in continuing to not miss any payments on the cards?

 

Expert:  cfortunato replied 2 years ago.

1) I don't see any legal problems with paying the credit cards but not the mortgage or property taxes - except of course the house will eventually foreclose if these are not being paid.

2) If he is current on all credit cards but not paying the mortgage (property taxes do not register on one's credit report), there will a slightly higher credit score than if he were not paying the credit cards either.

 

Customer: replied 2 years ago.

1) THE HOUSE COULD ALSO SHORT SELL AND NOT FORECLOSE RIGHT?

 

2) NOT AS CONCERNED ABOUT THE SCORE, AS THE POSSIBILITY OF THE CREDIT CARD COMPANIES ALLOWING FOR MORE IMMEDIATE CREDIT RECOVERY TO BEGIN ON THEIR END SINCE NO PAYMENTS WERE MISSED. DOES THAT SOUND ACCURATE?

Expert:  cfortunato replied 2 years ago.

1) Yes - it is also possible for the house to short sell.

2) What is meant by credit recovery - if not an improvement in one's credit score?

Customer: replied 2 years ago.

2.) My son (who runs credit as an automotive sales consultant) was thinking that immediate credit recovery begins right after a short sale if there are no delinquencies with the cards. he is thinking that the "repair" process to their individual credits will begin right away. Basically he is thinking 3 or 4 years, as opposed to 6 or 7 to get the scores back up if he keeps the cards current. Would that be correct?

 

Expert:  cfortunato replied 2 years ago.
Yes - that is correct, but that means his credit score will improve.
Customer: replied 2 years ago.

1. To be sure I understand correctly, he is correct in assuming that the credit scores are likely to improve in half the time after a short sale / foreclosure if he continues to keep his cards current?

 

2. Also, there is no real danger of the bank or court saying "well how can you make these large credit card payments, and payments to your families and not pay your mortgage or property taxes? "

Expert:  cfortunato replied 2 years ago.

1) Yes - because the best way to improve one's credit score after a major credit score setback is to use and timely pay credit obligations going forward. One's credit score will slowly improve after a foreclosure if there is no further negative activity - but if there is also positive activity in addition to no negative activity, the score will improve twice as fast.

2) The bank cannot question this, because a debtor has the right to pay whichever creditors he wants to pay. Only the Bankruptcy court can reverse "preferences" - which are payments to family members made the year before filing. If no Bankruptcy is filed, this cannot happen.

Customer: replied 2 years ago.

2) The bank cannot question this, because a debtor has the right to pay whichever creditors he wants to pay. Only the Bankruptcy court can reverse "preferences" - which are payments to family members made the year before filing. If no Bankruptcy is filed, this cannot happen.

 

MAYBE I DIDNT PHRASE CORRECTLY AND I THANK YOU IN ADVANCE FOR YOUR PATIENCE WHILE I GET CLARITY. IN REFERENCE TO THE ABOVE, I WAS ALSO TOLD THAT OFTEN WHEN THE BANK IS DECIDING ON WHETHER TO ALLOW FOR A SHORT SALE THEY MAY TAKE INTO CAREFUL CONSIDERATION THE FACT THAT THEY WERE PAYING OTHER BIG CHUNKS OF DEBT AND NONE OF THEIR MORTGAGE OR PROP TAXES. THIS MAY IMPLY THAT MY SON HAS MORE MONEY THAN THEY ARE LETTING ON TO. COULDNT THIS REALLY IMPACT THEIR DECISION AS TO WHETHER APPROVE SHORT SALE OR TO FORECLOSE? AND, ISN'T FORECLOSURE MUCH WORSE THAN SHORT SALE IN TERMS OF CREDIT REPAIR?

Expert:  cfortunato replied 2 years ago.

1) When deciding whether to allow a short sale, a lender will look for whether or not the debtor can afford to pay the mortgage. This is usually determined by a required income and expense analysis.

2) If the amount of money being sent to the credit card companies would be enough to pay the mortgage instead, it is possible a lender would not allow a short sale, with the expectation that the debtor will - if necessary - pay the mortgage instead. However, it is not possible to know in advance whether the lender will view the credit card payments as unnecessary expenses, as all lenders use different criteria to decide whether or not to allow a short sale, and the same lenders will use different criteria with different debtors, and when a debtor's short sale offer is not accepted, the lenders do not give an indication of how much of their decision was based on the debtor's income/expense analysis, and how much of their decision was based on the amount a potential buyer offered for a short sale.

cfortunato, Attorney
Category: Bankruptcy Law
Satisfied Customers: 8023
Experience: Bankruptcy professor.
cfortunato and 5 other Bankruptcy Law Specialists are ready to help you
Customer: replied 2 years ago.
THANK YOU SO MUCH FOR YOUR KIND PATIENCE WITH MY REQUEST FOR DETAILS, AND YOUR VERY THOROUGH RESPONSES.
Expert:  cfortunato replied 2 years ago.
You're welcome! And thank you for accepting my answer!

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