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cfortunato
cfortunato, Attorney
Category: Bankruptcy Law
Satisfied Customers: 8023
Experience:  Bankruptcy professor.
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I am currently 2-1/2 years into a 5 year C13 plan. I am moving

Resolved Question:

I am currently 2-1/2 years into a 5 year C13 plan. I am moving out of state for a new job and know that I am underwater in my house where I live now. I'm trying to decide what to do with the house. What are the implications of a short sale vs just letting the house foreclose? Do I have to refile a new C13 plan? I will still have to pay rent in my new location and my new pay is actually a little less than what I make now, so the C13 payment will more than likely calculate to be very close to what I have now.
Submitted: 2 years ago.
Category: Bankruptcy Law
Expert:  cfortunato replied 2 years ago.

cfortunato :

Hi - my name is XXXXX XXXXX I'm a Bankruptcy attorney here to assist you.

cfortunato :

If your Bankruptcy case proceeds to discharge, it will not make a difference if your house sells in a short sale or if it forecloses - as you will not be responsible for the balance of the mortgage either way.

Customer:

Hello

cfortunato :

What was the reason for filing a Chapter 13 instead of a Chapter 7?

Customer:

My salary was too high.

Customer:

Since I am relocating, I will have to obviously pick up a rent payment where I'm going. While my new job is going to give me some relocation money to spend at my discretion, I do not want to waste it all on paying too housing payments when I could have just surrendered the house to start with

Customer:

two

cfortunato :

Yes - you will be able to use the money that you were paying to the mortgage for your rent instead.

Customer:

If i spend time on trying to sell it, with the housing market here I know it will either take a long while or if I sell it quickly, it will be underwater probably by at least 40K

Customer:

So it sounds like if I stop paying the house payment here, then it would just go to foreclosure.

Customer:

I would then use what I had been paying for my house payment for my new rental

cfortunato :

It is a good idea to try to short sell the house, as this will result in a faster transfer of ownership than if you wait for the house to foreclose. You want to be able to transfer the ownership of the house as soon as possible if you will be moving - so that you are no longer responsible for it.

Customer:

Can I put the house up for sale while in C13 or will I have to get permission from the court

cfortunato :

You can list the house with a realtor who specializes in short sales, who will do all the work.

cfortunato :

You have to get approval from the trustee before short selling the house.

Customer:

What happens to the deficiency amount if it sells under short sale?

Customer:

Does it get added into my b/r case and I have to submit a new plan?

cfortunato :

By definition, a short sale means the lender is agreeing to allow the house to be sold for less than the balance of the mortgage.

Customer:

Would the realtor contact the bank then to see if they would accept a short sale?

cfortunato :

The homeowner (you) has to also agree to a short sale. You can require the lender to waive their right to get a deficiency judgment.

cfortunato :

Yes - a short sale realtor will try to sell the house for what it is currently worth, and then contact the bank to get approval for that amount.

Customer:

If I understand then, if I want to try and sell the house, I would first need to get permission from the trustee to do so. The problem I see with that is that it takes months for any motion to get through the court (we've had to file various motions over the past 2 years). I will be moving in 1 month's time.

cfortunato :

You do not have to file a motion to get the trustee's approval to sell the house. You can ask the trustee to "abandon" the house, which is something that the trustee does without any motion.

Customer:

But since it would have to be a short sale, what I don't understand is what happens let's say in 60 days if we accept an offer that will result in a short sale? Do I then have to get trustee approval?

Customer:

What does the term "abandon" mean?

cfortunato :

"Abandon" means releasing the house from the Bankruptcy estate.

Customer: replied 2 years ago.
If I stop paying house payments and the foreclosure process starts, will I have to file a new C13 plan?
Expert:  cfortunato replied 2 years ago.

If you stop paying the mortgage, you would have to submit a new plan that includes the mortgage company as an unsecured creditor.

If the house then sells in a short sale, and you get a waiver of the lender's right to get a deficiency judgment, then you would have to submit another plan without the mortgage lender as a creditor.

If the house forecloses instead, then you would not have to submit another plan, as the mortgage lender would remain as an unsecured creditor in your plan.

cfortunato, Attorney
Category: Bankruptcy Law
Satisfied Customers: 8023
Experience: Bankruptcy professor.
cfortunato and 3 other Bankruptcy Law Specialists are ready to help you
Expert:  cfortunato replied 2 years ago.
If the house forecloses instead, then you would not have to submit another plan, as the mortgage lender would remain as an unsecured creditor in your plan.

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