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WALLSTREETESQ
WALLSTREETESQ, Attorney
Category: Bankruptcy Law
Satisfied Customers: 16142
Experience:  14 years exp., CH 7 AND 13 Bankruptcy cases, AFL-CIO UNION PLUS, UFT NYSID AND ALL MAJOR UNIONS
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I have a rental property that was damaged badly by huricaine

Customer Question

I have a rental property that was damaged badly by huricaine Sandy. Six months ago I filed ch 7 and was hoping to file a ch 13 to try and get the property back. I was told that if I get a check from flood insurance, it would be in both the bank and my name this way the bank can make sure that the money spent was going to repair the house. I would like to know if the bank is going to require only licensed contractors to do the work or if I would be allowed to do the work. I was the one who renovated them before and took pride in the work. I also would like to save money. I was wondering if I saved money by doing the work myself if the remaining balance could be applied toward my loan for when I file a ch 13. My attorney said to wait to file the ch 13 for awhile. If the bank will not let me do the work, can I tell the bank to apply the money from the insurance to the loan and pay for the materials myself to do the work. Will any savings go towards the loan and not back to the insurance company. Is this a smart thing to do or not? Thank You.
Submitted: 1 year ago.
Category: Bankruptcy Law
Expert:  WALLSTREETESQ replied 1 year ago.

WALLSTREETESQ :

Hello I am a licensed attorney here to help you with your question, please review my response and do not hesitate to ask for clarificati on

WALLSTREETESQ :

This is an unfortunate situation,

WALLSTREETESQ :

if the insurance company will issue the check to to mortgage company, in most cases, they will require a licensed contractor to perform the repairs, however, you can still save money by doing much of the work yourself,

WALLSTREETESQ :

if you have a licensed contractor perform the major issues and allows you to do other work.

WALLSTREETESQ :

In terms of applying the money saved to the mortgage that would be allowed as well, if their is savings.

WALLSTREETESQ :

Also, be aware you can apply for FEEMA funds for any non compensated repairs as well which may benefit you if you do the repairs, they may not require a licensed repairmen.

Customer:

I was told by a Fema representaitve that they only help primary residences.

WALLSTREETESQ :

Right, this is a rental property so they would not help,

WALLSTREETESQ :

Then your best option is to have a licensed contract work out a deal with you,

WALLSTREETESQ :

where they allow you to do certain tasks under their supervision if possible.

Customer:

My attorney had said that the second mortgage would be stripped because the value of the property was under my first mortgage. By trying to apply money now to the loan

Customer:

does it affect anything later.

WALLSTREETESQ :

The balance would be lower, so it may affect the lien strip.

Customer:

I guess that kind of ruins my whole idea right there.

WALLSTREETESQ :

You need to have an appraisal to see what the value of the property would be after repairs.

WALLSTREETESQ :

It may be best to use the entire proceeds for repair, and file the chapter 13 for the lien strip,

WALLSTREETESQ :

as the value of the property should be the same or even lower then before the storm.

Customer:

We were slightly under the first mortgage value and if I did a lot of the work I was hoping to apply a large sum towards the loan but then as you saaid

Customer:

I could see us bringing down the first mortgage value to below the value of the house causing the second to now come into play.

Customer:

I don,t want to kill myself anymore. I have been doing it for years because could not afford contractors when

Customer:

ever there was a problem and now this is a lot of work.

WALLSTREETESQ :

It would be better to pay a contractor the funds, and not lower the first mortgage, then you can strip the second, and save more in the long run.

Customer:

I agree unless you could think of anything else I could do.

WALLSTREETESQ :

That would be best, XXXXX XXXXX file a chapter 13 now, and have the mortgage stripped as the value would be much lower, however the insurance funds would then be considered by the trustee, if your attorney has considered this, his suggestion of delaying the chapter 13 would be best.

Customer:

I believe he thinks I could keep going for another two years collecting rent and that property values will still be coming down in the future. But its going to be more then six months before I could even get it fixed contractor or not. So I am not sure whats best. Would the trustee then let me use the funds for renovations. Also my attorney had told me that I would be able to cram down the first mortgage to the value of the property. But afterwards I found out they do not allow cram down on rental properties. If they allowed cram down on rental properties, then obviously this probably would be the best time for the ch 13.

WALLSTREETESQ :

As an investment property you would be able to “cram down” the loan to the value of the property. But there is a problem that may make this “unrealistic” for most debtors. If you have a $400,000 loan for your rental property that is worth $100,000, you can change the loan to $100,000, but you have to pay off the entire $100,000 within five years of filing the Chapter 13.

WALLSTREETESQ :

In terms of the insurance proceeds, if the lender is also on the check, the trustee may use the money to pay the lender first.

Customer:

So would the proceed then go towards the $100,000.

WALLSTREETESQ :

Yes, the trustee could force that.

Customer:

So cram down is allowed on rental properties for the first mortgage but you must be able to pay everything in five years? Right now the house is probably under a $100,000

WALLSTREETESQ :

Yes, as their is a chapter 13 payment plan for your debts, the lien could be stripped but converted to unsecured debt, which has to be pay in some percentage over your 60 month plan

Customer:

How long would it take my attorney to file a ch13 so we could get an appraisal while the house is destroyed. I would think this could be my best bet, but I would have to renovate and get tenants after the appraisal and ch 13 was approved in order to assist in paying.

WALLSTREETESQ :

It should not take more then 2 weeks for your attorney to do this.

WALLSTREETESQ :

An appraisal may be hard considering the enormous damage to the properties, and the surrounding area at this point.

Customer:

And then I could renovate or do you mean just to file the ch 13. I meant how long for it all to be approved by courts so I could then renovate and start to get tenants.

WALLSTREETESQ :

You would be able to renovate within 3-6 months a chapter 13 take 3 to 4 months to be confirmed, if not longer.

Customer:

Ok thank you very much for all your help. I have a separate question about rental reimbursement from insurance company I would like to ask you but want you to get credit as it is separate. Thanks again.

WALLSTREETESQ :

Good luck, and if you have any further questions please do not hesitate to ask for wallstreet esq.

WALLSTREETESQ, Attorney
Category: Bankruptcy Law
Satisfied Customers: 16142
Experience: 14 years exp., CH 7 AND 13 Bankruptcy cases, AFL-CIO UNION PLUS, UFT NYSID AND ALL MAJOR UNIONS
WALLSTREETESQ and 3 other Bankruptcy Law Specialists are ready to help you

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