Tag Archive: Effect on Home


In a staggering amount of cases that come across my desk, the bank issues a Notice of Trustee’s Sale that tells the homeowner the exact date and time their house is to be sold at auction – only to then postpone the sale.  Whether the reason for the postponement is a bankruptcy that was filed, a loan modification that is furiously trying to be worked out, or a short sale offer that peaked the bank’s interest, the result is inevitably the same:  Confusion, stress and worry on the part of the homeowner plagued with the most pressing questions of them all “When do I have to be out of my house?”

Of course, the best – least stressing solution – for the homeowner and his or her family is usually to find a new home well before the sale date that was originally scheduled.  Then you don’t have to worry about what happens if the sale doesn’t take place, and how long do I have to get out.  In reality, this doesn’t always work out that way, and in some cases, where the bank just simply is dragging its feet, it is almost better for the homeowner to stay in their home – rent free – while they can, and save up the often much needed funds for the move.

The unfortunate fact is, once the Notice of Trustee’s Sale has been posted, and assuming it wasn’t cancelled (and typically the banks do NOT cancel their notice of sale in a scenario as this one), the bank does NOT have to give you any additional notice of the sale.  This is true even if the original sale date has passed and the homeowner is in a kind of limbo.  The bank has the right to foreclose on your house – read: sell it at auction – pretty much whenever they please, after the original notice period has passed.

The implications of this are plentiful.  The first, and most important one is to remember that the ‘foreclosure department’ of your bank probably doesn’t even know the ‘short sale/loan modification department’ exists, nevermind ever communicates with them.  The result of this red tape nightmare is, of course:  You may me plugging along and looking hopeful for your loan modification to go through, and next thing you know you get served with an eviction notice because your house was sold to an investor last week. 

In a bankruptcy scenario, once the automatic stay has been lifted, and assuming the bank has issued their Notice of Trustee’s Sale prior to filing, the bank can move forward with their sale at their leisure.  The most frustrating part for me, as a bankruptcy attorney, is that there is no way for me to give my clients peace of mind by giving them any kind of definite answer with respect to the sale date.  All I can do is to advise them to keep calling the bank’s attorneys to find out what date the sale has been set for. 

It is hard, when there are no guarantees and no definite answers, but the best thing you as a homeowner can do is to keep on top of all of the information.  Don’t rely on what your realtor tells you (and I say this with the greatest deference to the realtors out there – the ones I work with are wonderful professionals who know what they are doing, but the bottom line remains – they do not control the bank’s foreclosure department), don’t even rely on what the bank is telling you, unless it is the bank’s foreclosure department, and certainly don’t believe what your neighbor/coworker/acquaintance/hairdresser tells you.  Every case is unique and what happened in your neighbors case will most likely not happen the same way in yours.  Probably not even remotely close to it.

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The word ‘short sale’ has become a bit of a buzz-word in the last year or two.   Everyone seems to be talking about it, doing it, or at the very least knowing someone who is going through a short sale.  But, in all of that talk, not everyone understands what a short sale really is (it is NOT a way to save your home, for example), how it works, and how it can affect you.

A short sale is a vehicle that allows you to sell your home in a market where your home is worth less than what you owe on it.  By it’s very definition, a short sale is the sale of real property for less than what you owe on it.  Because the bank(s) holding the mortgage(s) does not get all that they are owed, it has to approve the short sale before it can be finalized. 

A short sale can be the way to go for you, if your home loan is your only source of concern.  It will allow you to get out from under the big mortgage without having to worry about the potential consequences of a foreclosure. 

Most of the legwork in a short sale is done by you, the homeowner, and your realtor. A good realtor is probably the best asset to have in your short sale, and if you are looking for one, Marco | Wimmer PLLC can provide you with several names and numbers of some experienced realtors that may be right for you. 

The realtor will work with you in listing the property and completing the bank’s requirements for a short sale.  Remember, the short sale is a contract between you and the bank, and as such you want to make sure that the contract works for you.  The key component of the contract is whether the bank will consider your debt fully satisfied.  If not, they may try to come after you for the difference between the sales price and the amount owed at a later time.  Based on your individual situation, you may have more leverage in the negotiations than you think.  Finally, keep in mind that in a short sale, the bank typically forgives you a portion of the debt, so they will issue you a 1099(c) for the debt forgiven.  Be sure to talk to an accountant about how that can affect you. 

In conclusion, if your home is the only source of concern for you, and for whatever reason you wish to sell it without waiting for its value to increase, a short sale may be the way to go.  On the other hand, if you are struggling with other bills and cannot make ends meet even without taking into account your mortgage payment, bankruptcy may be the better approach.  Homeownership may affect your eligibility to qualify for one chapter over another, so be sure to talk to an attorney before starting on the path of a short sale.

If you live in Arizona, and you have done any kind of research about what happens if you just ‘let your house go to foreclosure’ you have probably come across the Arizona Anti-Deficiency Statutes (ADS), and you have probably walked away confused.   The Arizona legislature, back in the late 70s/early 80s enacted a couple of laws that protect consumers – people like you and me.  Unfortunately, as is the case with most laws, it is a bit complicated to understand, and depends heavily on facts.  Here is a quick overview of how it works:

Question:  Can the Bank come after me for the difference between the mortgage balance and the amount the house was sold for at auction?

Answer:

  1. If your house is a single or dual family residence; and
  2. it is on 2.5 acres or less; and
  3. you, or someone, has actually lived in the residence; then…

…the bank that holds the Trustee’s Sale (usually the first mortgage) CANNOT come after you.  (Be sure to re-read the previous blog post entitled “Foreclosure in Arizona – The Basics” to find out why I did not simply say “the bank that is foreclosing” here).   They will likely issue you a 1099(C) (which is a tax form), and there may be some tax-consequences, but they CANNOT bring a law suit against you for the difference.  In some cases, you may be able to avoid tax-consequences as well, but as I am not a tax attorney, nor an accountant, the best I can do on that is refer you to an accountant on how that works.

Pretty nice, right?  Now, the next question has to be “What about the second mortgage?”  A different statute applies to the bank that is not holding the Trustee’s Sale, and here is how it works:

  1. If your house is a single or dual family residence; and
  2. it is on 2.5 acres or less; and
  3. you, or someon0ne, has actually lived in the residence; and
  4. 100% of the debt owed to the bank was used to purchase the property, then…

…even the second mortgage CANNOT come after you for any monies owed, but the same tax rules still apply. 

The main problem I see in my practice, and the reason why short sales are often the better way to go when bankruptcy is not an option, is that the second mortgage was NOT in fact used to purchase the house.  Unfortunately, and in the bluntest terms possible (I hope you will forgive my bluntness), if you pulled any cash out of your house, chances are the ADS will not protect you.

Now, if ADS does not protect you, and your situation is such that a short sale alone will not solve your financial troubles, bankruptcy may be the answer.  If you surrender your house in the bankruptcy, then the discharge will include the difference between the sales price and what you still owe, AND as an added plus, having the debt discharged in bankruptcy is one of the exceptions to the general rule of taxation.

This is about it, in a nutshell.  Sounds pretty easy, right?  Well, chances are, your particular situation is a little more complicated, and in the spirit of ‘knowledge is power’ please do not hesitate to call or email us to talk specifics.  You can find all of our contact information on www.marcowimmerlaw.com.

Chapter 13 bankruptcies are a true to form reorganization, and the debtor is in a repayment plan for 3 – 5 years while in a Chapter 13.  During that time, the debtor continues to pay his regular monthly mortgage payment for the first mortgage.  If the debtor was behind on the mortgage at the time the petition was filed, a portion of his or her plan payment goes towards catching up the mortgage.  This is what makes it possible for you to ‘save your home’ with bankruptcy – you get the chance to catch up your mortgage over a 5 year period while in Chapter 13.  The trick is, your plan payment must be high enough to actually pay off the full arrearage, and all other items that must get paid through the plan (car loans, tax debts etc.).

The ability to save your home is only one of the neat things you can accomplish with a Chapter 13. The second neatest thing, in my opinion, is the fact that the Chapter 13 process allows you to strip your second mortgage from the house.  If you remember from my previous post on 2nd mortgages and Chapter 7 – a mortgage is really a two-part instrument.  The mortgage is both secured by your house (and the bank can proceed against the house by way of a sale) and it is a personal liability (meaning the bank can pursue you personally by way of a lawsuit). 

If your house is worth LESS than what you owe on the FIRST mortgage, the bankruptcy code allows you to strip the lien from the house…. in effect, once all is said and done, the bank can no longer ‘proceed against the house’ because they no longer has a security interest in it.  The personal liability on the second mortgage becomes a regular unsecured debt – like a credit card, for example, and whatever does not get paid through the plan (and trust me, usually the unsecured creditors don’t end up getting much), is discharged at the end of the plan.

To illustrate, if you have a 200K first with a 10K arrearage on the date of filing, and a 150K second, but your house is only worth 150K, then the Chapter 13 allows you to bring your first mortgage current, and remove the second lien altogether.  The greatest challenge for most people is that you must complete the plan, in order for the order removing the second mortgage from your house to take effect. 

In the grand scheme of things, however, living on a budget and making regular monthly payments to the trustee based to repay some of your debts, is not a bad tradeoff for saving your home and ridding yourself of the second mortgage. For a free consultation about this issue with an Arizona attorney, call us today at 480-275-4894.   Want to find out more about us before making the call – pay us a visit at www.marcowimmerlaw.com. We look forward to hearing from you!

One of the consequences of the real estate bubble of the early 2000s is that most people are now faced with not only one, but two mortgages secured by their home – and more often than not the home’s value is actually less than the mortgages on it.  Yesterday’s blog post discussed how your home is affected when you file for bankruptcy, but it discussed mostly information relevant to your first mortgage. 

The “rules” for your second mortgage are essentially the same, but have a little reality twist to them.  Let’s start with how it works in a Chapter 7 bankruptcy:  Technically, in order to keep your house through the bankruptcy, you must be current on the date of filing your petition.  Otherwise the bank will file a Motion for Relief of Stay, which essentially asks the court for permission to sell your house at auction.  However, if the value of your home is less than what you owe on your first mortgage, or only a little bit more, the second mortgage really has no incentive to do this.  You see,  the sales proceeds from the sale are paid to the creditors in order of priority.  Therefore, if you owe 200K to the first, and 100K to the second, but the house only sells for 150K at auction – the second gets nothing – and if the second bank is the one initiating the sale, not only do they get nothing, they also incur all the expenses associated with the sale.   This reality-based twist means that while the law gives the bank the right to foreclose if you are not current on your second mortgage when you file your Chapter 7 bankruptcy, they generally don’t.

 The only time the bank may have incentive to proceed anyway, is if the first and second mortgage are through the same bank.  If that is the case, you must be current on your second mortgage as well as your first mortgage in order to make sure that you can keep the house.

The next question then turns to what happens to the second mortgage in the bankruptcy, especially if you are not current with payments.   You have to look at your mortgage as a two-part deal.  Whenever you have a mortgage, and you default, the bank has the right to (1) proceed against the house, by selling it at auction; and/or (2) proceeding against you personally, by suing you in civil court.

Your Chapter 7 discharge will protect you from a future law suit by the mortgage company because as long as you do not reaffirm the debt (which is not a requirement in order to keep real property – don’t let your bank tell you otherwise) your PERSONAL liability on the loan is discharged.  However, the bank still has a security interest in your property, meaning they can still use option (1) and proceed against your house.  This is why you need to make sure that you deal with the second mortgage eventually (settlement, modification, catch it up) – otherwise there is a chance that when your house has increased in value, the bank holding the second mortgage forecloses….and after having paid on your first mortgage for so long, that would truly be unfortunate. 

There are some other alternatives available to you in a Chapter 13 setting – more on that tomorrow, so stay tuned, or if you cannot wait and wish to speak to me about your options – please call 480-275-4894 to set up a free consultation.

The Arizona exemptions provide that up $150,000 of equity in your home is protected from your creditors. This applies if you file for bankruptcy as well. This means that if you are current on your house payments and have, in fact, some equity in your home, the Trustee cannot make you sell your home and pay your equity to your creditors as long is it is less than $150,000. Furthermore, while too much equity is not really much of a problem these days, even if you are over the $150,000 limit by a little bit, the Trustee will often agree to let you make payments for the difference, rather than making you you’re your home. Finally, while Arizona is an opt-out state and has chosen to use its own state exemptions for bankruptcy debtors, there is a portion of the Bankruptcy Code that may have the effect of limiting your homestead exemption to $136,874.00. If you think that the current equity in your home may exceed that amount – speak to your bankruptcy attorney to ensure you are protected. Saving your home in the bankruptcy is likely your number one priority, and with the protections provided under Arizona law, and some assistance from a knowledgeable bankruptcy attorney, it is a goal that can be accomplished.