My spouse let our home go into foreclosure after divorce.

[LdiJ]

The home is said to be upside down by $24,000, so most of those options aren't going to work. It's going to require working with the banks and an attorney to straighten it out.

Since his name is not on the second mortgage, there's a good chance he can come out of it with his own credit intact, but it's going to take some work.

Since its upside down the second mortgage holder is not going to get all of their money back, because its going to be a short sale no matter what. The second mortgage company might very well agree to accept a short sale to him, a guaranteed buyer, rather than waiting for a stranger to purchase the house.

 

[mistoffolees]

Since its upside down the second mortgage holder is not going to get all of their money back, because its going to be a short sale no matter what. The second mortgage company might very well agree to accept a short sale to him, a guaranteed buyer, rather than waiting for a stranger to purchase the house.

That's true - if he wants the house. It would also reduce the total expense of the transaction, increasing the amount the 2nd mortgage bank gets back at any given price.

 

[frankwidner]

I am confused about the short sale suggested as I am the current owner and deed holder of the property. The only part that is not mine is the second mortgage that is secured by the property. I am the primary on the first mortgage, she is the co-signer. The first mortgage is current at this time.

 

[LdiJ]

I am confused about the short sale suggested as I am the current owner and deed holder of the property. The only part that is not mine is the second mortgage that is secured by the property. I am the primary on the first mortgage, she is the co-signer. The first mortgage is current at this time.

Per the divorce decree the equity that secured the second mortgage belonged to your ex. Therefore the holder of the second mortgage has a valid lien against the property, because your wife was the full title holder at the time that the loan was taken out. If the second mortgage didn't exist, you would owe your ex that equity. Your ex fraudulently quit claimed the house to you...therefore the second mortgage holder could easily get the deed transfer ruled invalid. The bankruptcy trustee can also rule the transfer fraudulent whether the second mortgage existed or not...because the equity in the home belonged to her and should be available as an asset to use to satisfy the creditors.

Example from another perspective: She owned the home free and clear, no liens but several hundred k in other debts. She transferred ownership of the home to a family member or significant other, and then filed bankruptcy. The bankruptcy trustee would invalidate that transfer.

Therefore, you are not going to get to keep the house without coughing up at least a decent chunk of that equity. You are not going to get to keep that equity as well as whatever you got to keep in the divorce, in exchange for that equity.

If the property is sold, its going to be a short sale. (and believe me, the second mortgage holder can force a sale) The house is 24k upside down, and between selling costs and attorney fees to force the sale the second mortgage company could easily spend another 24k...and the house could be on the market for a long time. Therefore, the second mortgage holder might be satisfied to receive 65-80k...because they might end up with even less if the house is on the market for a long time.

Your ex is also going to file for bankruptcy on the first mortgage as well, potentially causing a black mark to end up on your credit report.

If you negotiate with the trustee and the trustee with the second mortgage holder, to "buy" the house in a short sale, with a complete refinance, that satisfies the first mortgage, releases the second mortgage, and completely removes the "stink" of her bankruptcy from your credit.

Yes, you are technically the owner of the home at this time, with no responsibility for the second mortgage, but you cannot expect that ownership to hold up, because it was a fraudulent transfer. Ownership in a home cannot legally transfer unless all liens against the property are satisfied. (except in a divorce action, which is why the transfer to your ex was legal) Ownership was transferred without the second mortgage being satisfied, to someone who was not a party to the second mortgage.

If the quit claim deed has not yet been recorded, its even easier, because then you can treat it like a true short sale. You have valid motivation to do that, to protect your own credit.

 

[frankwidner]

Thank you LdiJ for the great response and advice.

I have a couple more questions to your response. Let me first say that the Quitclaim deed was recorded back in January 09 just to clarify.

1) You wrote that I can "negotiate with the trustee". Should I do this at the 341 Creditors meeting? If not how would I do that? I have called the lender of the first and the second (which is the same company) to try and work something out and the people I have talked with seem to know nothing. Can I also talk with the Lender at the 341 Creditor meeting to try and work something out? The lender's customer service dept did tell me that I would not lose the home if I kept all the payments on the first mortgage current even when the second is not, which I do not believe. I am actually surprised that they haven’t done something about the deed transfer already.

2) Can I actually purchase the property as a short sale since the bankruptcy has been filed? If so I am not sure I would qualify now since my ex damaged my credit after not making payments on the first mortgage while in her care. My credit was spotless before that.

Life was going good until she stopped making payments on the home. I was actually advised by an attorney to do the quitclaim deed and now am thinking that was bad advice. I have tried to do all the right things and it has not worked out for me. I invested all my savings in the home just to keep it from going into foreclosure and further harming my credit rating.

As far as the equity she got from the divorce. I got took all the way around and it was my mistake for marrying an alien. I brought her to the US from Peru and once she got all of her papers she divorced me. I do not know how she mortgaged the home for so much and made it so far upside down. If I was to assume both mortgages I would be paying way more for the home than it is worth. I could by a home down the street for much less not to mention that she stripped the home 2 days after I took possession which cost me thousands more in repair and replacement costs. I can't even hire an attorney because I spent every last penny of my savings and IRA trying to fix this mess.

Seriously I have tried my hardest to do the right thing. I have never tried to harm her in any way.

 

[mistoffolees]

Since both the first and second mortgage are with the same bank, you have an advantage. Keep calling and asking to speak with someone in charge of lending. They will steer you around all the arcane foreclosure rules.

You are legally liable for the first, but not for the second. Since you're willing to take over responsibility for at least part of the second, that gives them an incentive to work with you. In addition, if they have to put it on the market, they're going to be paying to maintain it plus realtor fees, etc. In addition, you may well be eligible for the $8 K home buying credit (I don't know, but do yourself a favor and check).

Your credit will be an issue, but since you had good credit before your divorce, if you stay with the same bank, they may be able to take that into account.

With a home in the $200 K range, they're going to be paying at least $15 K in expenses to get it sold, probably a lot more. Add in your $8 K credit and you're pretty close to covering the amount that the home is underwater. The bank may not loan to you anyway unless you put more equity in, but at least it clears the NEGATIVE equity off their books.

Just keep calling the bank until you get someone who will talk with you. Particularly if it's a small bank, they may have more flexibility than you think - they are facing a very bad situation where they're going to take a major hit, so they may be very flexible. It certainly won't hurt to ask.

 

[Ohiogal]

Folks you need to understand that the quit claim ONLY transferred the transferer's interest in the property however the LIENS are still good against the property. A quit claim deed has no warranty that the transfer is good nor that there is anything of value to transfer. If he wanted to protect his interests he should have had a title search performed. He didn't take steps to protect himself. The first and SECOND mortgages are good against the property. His ignorance is not a defense to this.

 

[mistoffolees]

Folks you need to understand that the quit claim ONLY transferred the transferer's interest in the property however the LIENS are still good against the property. A quit claim deed has no warranty that the transfer is good nor that there is anything of value to transfer. If he wanted to protect his interests he should have had a title search performed. He didn't take steps to protect himself. The first and SECOND mortgages are good against the property. His ignorance is not a defense to this.

Of course not. But he can either choose to roll over and play dead or he can try to resolve it.

The bank has plenty of reasons to try to work with him to get the loans and the house (legally) into his name. That is the scenario that is most likely to put him on solid ground for the future.

 

[LdiJ]

Since both the first and second mortgage are with the same bank, you have an advantage. Keep calling and asking to speak with someone in charge of lending. They will steer you around all the arcane foreclosure rules.

You are legally liable for the first, but not for the second. Since you're willing to take over responsibility for at least part of the second, that gives them an incentive to work with you. In addition, if they have to put it on the market, they're going to be paying to maintain it plus realtor fees, etc. In addition, you may well be eligible for the $8 K home buying credit (I don't know, but do yourself a favor and check).

Your credit will be an issue, but since you had good credit before your divorce, if you stay with the same bank, they may be able to take that into account.

With a home in the $200 K range, they're going to be paying at least $15 K in expenses to get it sold, probably a lot more. Add in your $8 K credit and you're pretty close to covering the amount that the home is underwater. The bank may not loan to you anyway unless you put more equity in, but at least it clears the NEGATIVE equity off their books.

Just keep calling the bank until you get someone who will talk with you. Particularly if it's a small bank, they may have more flexibility than you think - they are facing a very bad situation where they're going to take a major hit, so they may be very flexible. It certainly won't hurt to ask.

He is NOT eligible for the 8000.00 credit. That needs to be taken off of the table entirely.

 

[LdiJ]

Of course not. But he can either choose to roll over and play dead or he can try to resolve it.

The bank has plenty of reasons to try to work with him to get the loans and the house (legally) into his name. That is the scenario that is most likely to put him on solid ground for the future.

I agree that the bank would have plenty of incentive to work with him. However he has to get to the right person. That is why I am thinking that doing it through the bankruptcy may be the best way. The Trustee is going to have to be involved to some extent.

I definitely would show up at the creditors meeting and attempt to make contact with the right people from the bank.

 

[mistoffolees]

I agree that the bank would have plenty of incentive to work with him. However he has to get to the right person. That is why I am thinking that doing it through the bankruptcy may be the best way. The Trustee is going to have to be involved to some extent.

I definitely would show up at the creditors meeting and attempt to make contact with the right people from the bank.

That's one way, but he's got even more leverage if he gets to someone in the loan department.

The loan department is judged on how many of their loans are paid off. Once it's out of their hands, it's in the hands of a bankruptcy person - who is judged more on getting the matter closed out. If there is still time to pull it back from the bankruptcy group at the bank, the loan department has even more incentive to work with him than the bankruptcy group.

 

[frankwidner]

I think I will try both ways and keep calling Wells Fargo to see if I can get in touch with the person who will represent them at the creditors meeting. I will try and contact the Trustee before the creditors meeting and see if I can get anywhere that way too. I am hoping that they will be willing to work something out with me.

 

[frankwidner]

New Update:

I had three free bankruptcy attorney consultations this week. They all said about the same thing and that was “don't worry”. Wells Fargo as a creditor may or may not foreclose on the property but either way my credit will not be harmed any further because I have kept the first mortgage current and the home will sell for more than the amount owed on that loan, but not by much. They all said I should talk with the Wells Fargo Creditor/Attorney and try and work out some kind of deal to refinance the loans and put both into my name for a lesser amount than what is owed now on both loans. They all seem to think this is a good possibility since they think the bank really don't want the home back and will settle for less rather than go through the whole foreclosure deal.

They all said that if I do lose the home that I should take her back to Family Court for the losses since our decree states that she was to maintain all dept and maintenance. She cannot discharge this dept because it was divorce dept and court ordered (one item that can’t be discharged in bankruptcy). They all also said that the quitclaim deed did not change her obligation to repay the second mortgage since her name is the only one on that loan. It only gave up her rights to the physical property and not the mortgage on that property. Since she has filed bankruptcy most of the second loan will be discharged anyway.

I asked if the Trustee would reverse the quitclaim deed and they all said the same thing. The trustee could do that at his discretion but would not likely do so since the home is upside down and it has no equity in it.

 

[mistoffolees]

I had three free bankruptcy attorney consultations this week. They all said about the same thing and that was “don't worry”. Wells Fargo as a creditor may or may not foreclose on the property but either way my credit will not be harmed any further because I have kept the first mortgage current and the home will sell for more than the amount owed on that loan, but not by much. They all said I should talk with the Wells Fargo Creditor/Attorney and try and work out some kind of deal to refinance the loans and put both into my name for a lesser amount than what is owed now on both loans. They all seem to think this is a good possibility since they think the bank really don't want the home back and will settle for less rather than go through the whole foreclosure deal.

They all said that if I do lose the home that I should take her back to Family Court for the losses since our decree states that she was to maintain all dept and maintenance. She cannot discharge this dept because it was divorce dept and court ordered (one item that can’t be discharged in bankruptcy). They all also said that the quitclaim deed did not change her obligation to repay the second mortgage since her name is the only one on that loan. It only gave up her rights to the physical property and not the mortgage on that property. Since she has filed bankruptcy most of the second loan will be discharged anyway.

I asked if the Trustee would reverse the quitclaim deed and they all said the same thing. The trustee could do that at his discretion but would not likely do so since the home is upside down and it has no equity in it.

The only thing I'd add is to your second paragraph. Not only should you sue her for any losses on the property, but you should also sue her to collect the money you've spent keeping the first mortgage up to date (or maybe you already included that in 'losses).

Good luck - it sounds like you're on the right track.

 

[LdiJ]

I had three free bankruptcy attorney consultations this week. They all said about the same thing and that was “don't worry”. Wells Fargo as a creditor may or may not foreclose on the property but either way my credit will not be harmed any further because I have kept the first mortgage current and the home will sell for more than the amount owed on that loan, but not by much. They all said I should talk with the Wells Fargo Creditor/Attorney and try and work out some kind of deal to refinance the loans and put both into my name for a lesser amount than what is owed now on both loans. They all seem to think this is a good possibility since they think the bank really don't want the home back and will settle for less rather than go through the whole foreclosure deal.

They all said that if I do lose the home that I should take her back to Family Court for the losses since our decree states that she was to maintain all dept and maintenance. She cannot discharge this dept because it was divorce dept and court ordered (one item that can’t be discharged in bankruptcy). They all also said that the quitclaim deed did not change her obligation to repay the second mortgage since her name is the only one on that loan. It only gave up her rights to the physical property and not the mortgage on that property. Since she has filed bankruptcy most of the second loan will be discharged anyway.

I asked if the Trustee would reverse the quitclaim deed and they all said the same thing. The trustee could do that at his discretion but would not likely do so since the home is upside down and it has no equity in it.

I hope that you gave them exact figures when you were talking, because there is equity that can go towards the second mortgage since its the second mortgage that is causing it to be upside down.

Also I cannot believe that the mortgage holder won't force a sale rather than losing the entire second mortgage...unless of course you make a deal.