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TReisdorf86 · Joined: 23 Feb 2010 Posts: 18 6.58 Dollars($)

I am trying to purchase a new home (closer to work) and I am running into issues. I will list the issues below and an alternative solution for you to tell me if you think it will work.
Issue 1 – I am upside down by almost $80K so selling the home is obviously out the window.
Issue 2 – This home was included in bankruptcy (CH7) April 2008 and currently shows a $0 balance on the credit reports.
Issue 3 – My Debt to Income is high because of my current home (mortgage $2600). So basically a mortgage broker told me if I did not have the $2600 mortgage payments I could easily get into a new home, but because of the current mortgage payment, my DTI is hosed.

So here is my question.
What if I call the county and change my home from a homestead to rental? I am willing to rent it out but worst case scenario I might have to let it go because I obviously can’t afford two mortgage payments.

Because this house was in bankruptcy and discharged, I really do not have any legal obligations to that property (hence why the credit report shows $0). Yes my name will show on the title search, but do I really need to disclose the $2600 monthly payments if the house was included in CH7?

Gist of it is, I need to find a way to not disclose my $2600 mortgage and I am not sure the best way (if any) to do it.

gmakerley · Posted: Tue Feb 23, 2010 10:47 am Post subject:

not disclosing your $2600 monthly mortgage payment is considered mortgage fraud. do you want to risk jail or federal fines or both in order to buy a new house? i'd think not, but that's your prerogative, of course.

TReisdorf86 · Joined: 23 Feb 2010 Posts: 18 6.58 Dollars($)

But if I was making payments out of good faith because the home was discharged, where is the fraud? According to the BK documents, the home was discharged, hence do not need to make payments.
I understand if I had financial ties to the home, but I do not.

That is where I am confused.

gmakerley · Posted: Wed Feb 24, 2010 11:10 am Post subject:

sorry...i've never heard of a mortgage having been discharged in a bankruptcy; i guess that means their right to take back their collateral has also been vacated?

i don't know the answer, i'm afraid - you must be a breed apart, as most people would take that discharge and run with it and never make another payment.

gmakerley · Posted: Wed Feb 24, 2010 11:13 am Post subject:

and i just came upon this paragraph in a google search for "can a mortgage payment be discharged in bankruptcy?"

Contrary to conventional wisdom, mortgage loans (firsts, seconds, HELOCs, and so forth) can be discharged in Chapter 7 bankruptcy proceedings so that homeowners no longer have to worry about paying an expensive loan when their income has dropped. But with a discharge, the owners will not be able to keep their house or remain living there for very long, as the bank will receive the collateral back as a result of the loan being eliminated. So there must be other reasons for owners to consider this tactic, since it does not actually save the house.

based on that, i cannot fathom how you retain the home while having the mortgage discharged.

jveenstra · Posted: Wed Feb 24, 2010 11:40 am Post subject: Mortgage

You are required to disclose monthly obligations even if they are not on the credit report.
If you are not required to pay $2,600, I see no reason to be required to disclose it. You are not lying. You have no monthly obligation. You are just paying because you feel like doing so. If you stop paying, nothing will happen. If you really want to do so, stop paying and then there is no monthly obligation at all, not even voluntarily.
Maybe the bank did not take over the property because you are paying. More than likely, they just have too many foreclosures and have not gotten around to it yet.

It does get confusing. You are supposed to disclose all property owned. Sounds like you still own the property. To note on an application you ownd property and no mortgage payments required due to BK, but, still have property taxes to be paid and in the debt ratio, sounds like it will be very confusing to a lender---not confusing to understand it, confusing as to whether ther allowed to approve another loan or not.

Changing it to a rental probably does no good. Lenders only use new rental income on what was an owner occupied home, if there is at least 25% equity in the property. The property is underwater, there is no 25% equity.

gmakerley · Posted: Wed Feb 24, 2010 12:22 pm Post subject:

thanks for chiming in, john. i surmise that you may be right about the lender not bothering to foreclose because they're getting payments. it's got to be a most unusual situation - to have a mortgage discharged yet the borrower continues to pay while the lender neglects to foreclose on its collateral.

i guess it's a new world out here.

jveenstra · Posted: Wed Feb 24, 2010 1:12 pm Post subject: Purchase

George, these days many lenders just do not get around to taking over the properties. It is rather amazing. The lenders often continue to pay the taxes and the forced home insurance besides.

I know of at least one case, a borrower did not pay mortgage on house in Florda for 18 months. House was underwater. After 18 months, the lender called and asked him if he had a job. He had gotten one. They documented his income. Told him, ok, you can pay so much monthly. You get to keep the house with the new mortgage payment. I do not know if they reduced the mortgage balance to match the payment or not, but, they were happy to have a paying customer reather than foreclose.

TReisdorf86 · Joined: 23 Feb 2010 Posts: 18 6.58 Dollars($)

Thanks guys and yes George we are probably "breeds apart" but the one reason why I stayed was because we were having a baby and there were/still are complications with my daughter. So I felt no reason to just leave as I had other MORE IMPORTANT things to take care of.

As I said in my post which seemed overlooked - my payments were "out of good faith" which is exactly what John is referring - and my BK atorney.

The credit rpt shows the house included in BK and seems with George's article, obviously can be done. So yes guys, the mortgage co basically said, hey if this fool is making payments, lets not do anything. In todays market - probably a good thing.

So as it sounds, if the home is incuded in BK, shows discharged on the BK and I have GMAC documents stating the property is in BK, then I honestly have no reason to disclose my monthy payments. Ethically is it right? Absolutely. Morally is it right? Absolutely not.

Thanks guys for your honest opinions. Classy group and professional. Doesn't come to often in a forum Smile

jveenstra · Posted: Wed Feb 24, 2010 5:27 pm Post subject: Ethically

I'm voting for morally and ethically you would not be doing anything bad by not disclosing.

By the fact that a bankrupcty did occur and there was a mortgage included in the bankruptcy, has a lender already determined the credit score and the length of time bk and foreclosue have passed is ok to do a new mortgage even if that payment is not included in the debt ratio??

One of the items included in an application is listing all the properties you own. Sounds to me like you still own it, just no payments required. Once you ethically and morally disclose that you own a property, that opens up a whole new can of worms. I am guessing a lender would have a problem lending on a new property when the last one is still owned and was included in a bk and the bank takeover process has not been completed. I am just guessing. That is new territory.

TReisdorf86 · Joined: 23 Feb 2010 Posts: 18 6.58 Dollars($)

Thx John. I am in contact with my BK attorney to see his thoughts on our conversation. I will indeed update you & George on the legalities of homestead included in BK and disclosing that to the lender.
Hopefully my research and perserverance can assist others.

jveenstra · Posted: Thu Feb 25, 2010 7:14 am Post subject: Homestead

Good luck.

We would appreciate your getting back to us with your experience in this matter. That is how we learn. It may come as no surpise, we do not know everything. Your situation is unique. Not one I have ever encountered in 23 years.

gmakerley · Posted: Thu Feb 25, 2010 10:14 am Post subject:

a most instructive thread, in my opinion. i've certainly learned, and in the process, i trust that others may have read and learned lots about the vagaries of bankruptcy, foreclosure, good faith...yes i had seen that - just didn't grasp the entire concept at the time i guess.

as john noted, we'd love for you to keep us posted - it's how we all learn, after all; and we shouldn't ever stop doing so.

jveenstra · Posted: Thu Feb 25, 2010 11:02 am Post subject: Threads

Goerge, well said as usual.

This is proof that Armani suits are not the only "fine threads"

Guest

I would disclose it anyway, just to be on the safe side. Let the lender decide what is necessary or not. DO NOT always trust a broker or loan officer.

BTW, you disclosed it to your mortgage broker so technically you have disclosed it to the professional who is handling your loan. When you work with a broker, you do not work directly with the lender so anything you need to disclose is given to them and it is up to them to disclose what they feel legally is needed to the lender.

With that said, DO NOT trust mortgage brokers or loan officers (no offense to any here). They do not always know what they are talking about and YOU are the one signing the paperwork (not them) so they seem to get a "free ride" if there is something wrong with the loan by passing the buck along to you (so it appears). I know this is NOT fair, as they are the professionals and buyers are relying on THEIR expertise as being accurate advice, but this could be the result if something is not right.

Do your own research and if you feel the need consult a Real Estate attorney. If you find something needs to be done that the broker says or makes you feel like doesn't matter, either firmly make them do what you ask or find a different broker. I unfortunately did not get the correct counsel from my mortgage broker and it could have potentially cost me dearly legally and/or financially. Big lesson learned on my part and I will most likely get an attorney involved if I ever purchase a house again. The small fee I pay them is worth avoiding any potential legal problems in the future.

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