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socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 36174
Experience:  Attorney and Real Estate Broker -- Retired (mostly)
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I have a choice to make. Do I pay off my 30-year (23 yrs.

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I have a choice to make. Do I pay off my 30-year (23 yrs. remaining) @ 5.25% fixed principal mortgage balance of $150,000 with Wells Fargo or do I pay off my Suntrust Home Equity Loan balance of $80,000 (3.25% variable rate-zero plus prime)? The current market value is $350,000. Both of these loans were discharged under Chapter 7 last year, however, my wife is a joint owner and was not part of the personal Chapter 7. What would you suggest? Even perhaps, just walk away from the house. My concern is when I pay off one of these discharged mortgages, the other bank will quickly move to foreclose on my house.
Submitted: 2 years ago.
Category: Bankruptcy Law
Expert:  socrateaser replied 2 years ago.
Since you are discharged in bankruptcy, you are not obligated to pay either loan, if you walk away from the property. Your spouse, if she is a coborrower, would remain liable, which mean that she can be sued to satisfy the loan, unless she also files for bankruptcy.

If your spouse is not a coborrower, and the property has no equity value, then walking away would seem to be the obvious answer. Why would you pay a debt for which you have no further obligation. If your spouse is a coborrower, then she would need to file for bankruptcy protection.

Note: Very recently, the 11th Federal Circuit Court of Appeals ruled that junior loans on principal residences could be "stripped" off in a Chapter 7. So, if the property value was less than your first loan at the date when you filed your original bankruptcy petition, then you may be able to ask the court to reopen your bankruptcy, strip off the second loan, and leave you obligated for only the first loan. Whether or not this would be a viable option, I don't know, but since it has only become an option in bankruptcy very recently, you may want to discuss the possibility with a local bankruptcy attorney.

For a competent referral, see this link.

Hope this helps.

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Customer: replied 2 years ago.

My home's current value is $350,000. So in effect, when sold it will not only cover both outstanding loan amounts but provide us with $120,000 equity. My question is will Wells Fargo move to quickly foreclose in the event that I only pay off Suntrust's home equity line?

Expert:  socrateaser replied 2 years ago.
The senior lienholder won't do anything, unless you stop making payments. If you do stop, or you already have, and the lienholder has done nothing, then that's a signal that the lienholder sees no risk in doing nothing.

But, if your property has equity value, then why not just sell it yourself. Allowing a foreclosure will add a load of attorney's fees and costs of suit to the lenders' award after foreclosure. If you sell the property privately, and pay off the loans, then you save all that money (though you will probably have a real estate sales commission -- but it won't be as much as the attorney's fees).

Hope this helps.
socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 36174
Experience: Attorney and Real Estate Broker -- Retired (mostly)
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