Know This Before Deciding to Sell Your Home

If you’re a homeowner who is selling his or her home for any of the following three reasons, think again: 1) you can’t afford the house payments, 2) you owe income taxes with a tax lien on your house, and/or 3) your mortgage modification application was rejected.

In my last blog I told you the first three of ten reasons why you should get advice from a bankruptcy attorney before selling your home. Here are the next three. All of these are about saving you money, and helping you make much better decisions about your home.  

1.  Can’t Afford the House Payments:   It’s sensible to sell your home if it’s more house than you need, or you’re not able to make the payments. But you may really need to hang onto the house, and are selling it because you think you have no choice. If so, you may instead be able to keep your home either by reducing the debt attached to the house or by reducing the rest of your debt so that you can afford the house debt. I gave you some ways to reduce the debts on the house in my last blog, and will give some more in the next one. As for reducing or getting rid of the rest of your debt, even if you are resisting the idea of filing bankruptcy “just so I can afford my house,” you still owe it to yourself to know your options. We live in truly extraordinary times in terms of home values and economic uncertainty. So especially now, it’s wise to be open to creative ways of meeting your financial needs.

2.  Have Income Tax Debt:   If you owe back income taxes, these taxes may have already attached to your home’s title with the recording of a tax lien. Or that may happen in the near future. You may feel extra pressure to sell your home to pay those taxes. But Chapter 7 and 13 bankruptcy options can often help you deal with your tax debts, sometimes in ways better than you expect. Some income taxes can be legally written off altogether. Others would likely be able to be paid much less than outside bankruptcy, through huge savings in interest and penalties, and other possible advantages. The details are beyond what I can cover in this blog. But if income tax debts or tax liens are part of why you are selling your home, first find out how bankruptcy would deal with them.  

3.  Your Mortgage Modification Application Was Rejected:   Mortgage modification programs—both governmental ones like HAMP as well as private ones—have been tremendously controversial and of questionable benefit to homeowners.  They are almost always terribly frustrating to go through. Without getting into all that here, there are definitely times when mortgage modification requests are rejected because the homeowner did not fully complete the application or the mortgage lender did not process it accurately. Often it is not really clear why the modification was not approved. After going through this challenging process without a reduction in your mortgage payments, understandably you may well feel like you have no choice but to sell your home. But sometimes a bankruptcy filing—either Chapter 7 or 13, depending on the circumstances—can help get a mortgage modification approved, either the first time or in a renewed application. Reducing your debts through bankruptcy provides you more resources to put into your house, generally making you a better candidate for mortgage modification.

Deciding whether to sell your home involves a whole lot of factors–personal, financial, and legal. Virtually every time I meet with new clients who are thinking about selling their home, they learn a bunch of things which puts that decision in a whole different light.  Often, my clients are pleasantly surprised by options and advantages they did not know were available. Let me help you, too, make an informed and wise choice about most important asset.

 

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10 Big Reasons to Get Legal Advice about Bankruptcy Before Selling Your Home

The SINGLE overarching reason to get advice from a bankruptcy attorney before selling your home is to save money, possibly a great deal of money.  I’ll tell you ten ways to do so—three today and then the rest in my next couple blogs.

1.  Avoiding judgment liens:  If some creditor has sued you in the past, that creditor likely has a judgment against you. You might not even realize or remember if this has happened to you. Or, a creditor may sue you in the near future, and get a judgment against you before the sale of your home closes. If a judgment has been entered against you, this usually means the creditor has a lien against your home. That lien amount is almost always substantially larger than the amount you owed the creditor. Most of the time, that judgment lien has to be paid in full before the house can sell. If the judgment is paid out of the proceeds of the house sale, this reduces the amount you receive. Or the lien could reduce the money you thought would go to more important debts, such as taxes, child support, or an ex-spouse. If there aren’t enough sale proceeds to cover the judgment, you will either have to pay the full judgment amount out of your pocket, or at least some discounted amount to get the creditor to release the lien. If you don’t pay it in full, you would likely continue owing the balance. And if the creditor won’t settle, you may not be able to go through with the sale. In contrast, either a Chapter 7 or 13 case often can get rid of that judgment lien and write off the underlying debt, allowing you to sell the home without paying anything on that debt.

2.  Stripping second and other junior mortgages:  Chapter 13 often allows you to “strip” your second (or third) mortgage from the title of your home. The law changes that debt from a secured debt to an unsecured one. It can do this when your home is worth no more than the first mortgage (plus any property taxes or other “senior” liens) by acknowledging that all of the home’s value is exhausted by liens that legally come ahead of that junior mortgage. As a result, these junior mortgage balances are thrown into the same pot as the rest of your other regular unsecured debts—all your other debts that have no collateral attached to them. When this happens, depending on your situation, you often don’t pay anything more into your Chapter 13 Plan. And even if you do have to pay something more because of that stripped “junior” mortgage, almost always you only have to pay pennies on the dollar. And you end up with your home completely free and clear of that mortgage.

3.  Buying time for a better offer:  A home sold in a hurry is seldom going to get you the best price. A basic rule of home sales is that the maximum price is gotten through maximum exposure. If you feel under serious time pressure to sell because of creditor problems, the extra time provided by filing either a Chapter 7 or 13 case could get you just the additional market exposure you need. No question–filing a bankruptcy can in some respects complicate the sale of your house, and there many situations when a bankruptcy filing will not likely help you reach your goals. But in the right situations the advantage of getting more time on the market far outweighs any potential disadvantage.

In my next blog I’ll give you more ways that bankruptcy can give you huge advantages involving your home. If some of these apply to your situation, they can totally change whether or not you should sell your home, and if so, when you should do so.

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