Foreclosure Sales and Short Sales
When a person is behind on a home loan, it is very common to think a foreclosure or short sale will allow them to focus on other debts and thereby avoid a bankruptcy filing. However, all too often, a foreclosure or short sale is still followed by a bankruptcy because there is either another loan on the property which starts collecting on its loan or there are taxes as a result of the foreclosure sale which the borrower was unaware.
In many cases, a bankruptcy filing prior to the foreclosure or short sale would have discharged the liability on any additional loans on the property, avoided the tax liability completely and allowed the person to stay in the property several additional months. Additionally, a foreclosure or short sale prior to a bankruptcy filing may cause a person not to qualify for a Chapter 7 bankruptcy leaving a person in a Chapter 13 bankruptcy for 3-5 years. What should a person consider prior to allowing a property to be sold at a foreclosure sale?
First, prior to allowing a property to be sold through a foreclosure or short sale, (1) determine the affect of the foreclosure or short sale on your credit, (2) is there any personal liability after the foreclosure or short sale which could be discharged in a bankruptcy filing and (3) is there any tax liability which could be discharged through a bankruptcy filing prior to the foreclosure or short sale.
Second, could a Chapter 13 bankruptcy filing avoid a junior lien on your principal residence which would have allowed you to retain the real property? Under the Bankruptcy law, a junior lien on a person’s principal residence which does not attach to equity in the real property can be avoided through a Chapter 13 Plan. For example, if the current fair market value of a principal residence is $250,000 and the balance on the first deed of trust is $300,000, then a junior lien could be avoided through the Chapter 13 Plan. A Chapter 13 also allows a person to cure a default on a home loan over time which may be all that is necessary to avoid a foreclosure sale.
Third, are there any other reasons that a bankruptcy filing may be appropriate prior to a foreclosure sale. The most common reason is that there is significant unsecured debt which can be discharged in the bankruptcy and a bankruptcy filing prior to a foreclosure sale will allow a person to file a Chapter 7 instead of being required to enter into a Chapter 13 repayment plan. In addition, a bankruptcy filing will allow a person to remain in the property additional time.
In conclusion, a foreclosure or short sale of real property without a bankruptcy filing may be the right decision. However, a foreclosure or short sale will have serious consequences which should be analyzed by a bankruptcy or real estate attorney prior to the foreclosure sale. This is a complicated area of the law, but a bankruptcy or real estate attorney should be able to make to an analysis of your particular situation fairly quickly. I do free 30 minute consultation in my offices located in Walnut Creek, Antioch and Brentwood. There is no reason to make a wrong decision about a foreclosure or short sale when legal assistance is available.
THIS OFFICE IS A DEBT RELIEF AGENCY. WE HELP PEOPLE FILE BANKRUPTCY. THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN MAKING ANY DECISION REGARDING A VOLUNTARY DEFAULT, SHORT SALE, FORECLOSURE OR BANKRUPTCY. THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION. GRIMESBKLAW.COM
© 2011 Joan Grimes