bankruptcy vs. foreclosure - Posted by Colleen

Posted by E.Eka on October 29, 2003 at 11:51:37:

You’ll never know unless you try.

The bank would rather get some money now, rather then run the risk of get less or nothing from the bankruptcy trustee.

bankruptcy vs. foreclosure - Posted by Colleen

Posted by Colleen on October 29, 2003 at 24:25:32:

I’m just beginning to get my feet wet in learning this business, and am going to start with short sales. I had a gal e-mail me who wants to sell her home now, has filed bankruptcy and is wanting to avoid foreclosure. Can someone tell me the basic difference between bankruptcy vs foreclosure and how short selling can be of benefit to one or both? Thanks for any info you can give. Feel free to e-mail me directly. - Colleen

Re: bankruptcy vs. foreclosure - Posted by E.Eka

Posted by E.Eka on October 29, 2003 at 09:00:55:

Colleen,

Bankruptcy and foreclosure aren’t necessarily related. They however can be. A person or debtor VOLUNTARILY files for bankruptcy when they can’t pay their debts as they become due. It’s voluntary because the debtor chose that option. Creditors can also force a debtor into bankruptcy. Either way, the bankruptcy goes to court where a trustee or administrator is appointed to take care of/divide the property of the debtor.

Creditors are one of 2 things. Secured or unsecured or a combination of both. A debt is secured when a particular property is offered as collateral for a loan or the creditor attaches to property of which the money was lent for. For example when you buy a car and are financed by a lender, the loan is “secured” by the car. If you default or fail to pay as agreed in your financing statement, the lender will repossess the vehicle.

Unsecured debt is debt that has no particular collateral associated with it. For example your visa/mastercard credit card debt. If you fail to pay, visa or mastercard is not going to come take your sweaters, dinners, vacation trips etc.

There is a list of who is paid first after a person is in bankruptcy. According to federal law (state may have their differences, but I believe the fed supercedes state in this):

  1. Secured Creditors
  2. Admin costs from bankruptcy proceedings
  3. Gap Creditors. Debts occuring after filing but before relief
  4. Wages unpaid to employees up to $4,650
  5. Employee benefits up to $4,650
  6. Grain producers/fishermen unpaid
  7. Consumer deposits for goods/services not received
  8. Alimony/Child support
  9. Taxes unpaid
  10. All other debts from creditors who filed timely

Also, Taxes owed within 3 yrs of filing, school loans, debts resulting from fraud, alimony, child support, willful or malicious injury settlements (intentional harm) ARE NEVER DISCHARGED.

Foreclosures.

This results when a mortgagor (home owner) defaults making payments according to the financing agreement. In english, it means when you stop paying your mortgage on time. A mortgage is usually secured by the property that the loan was used to buy. So if you stop paying, the bank/lender/loan shark/mafia will come and take your house. Normally, you would have to be behind or in arrears of several months. The lender then files a notice of default in the legal paper where everyone and their momma can see. The end result in foreclosure is your house being sold on the county steps in an auction to the highest bidder. if no one bids on it, the lender takes the property back and it becomes REO. (Real Estate Owned)

Short Sales
Banks are not in the business of owning property, or else they would be called banks and property management. Also, the FDIC and other bank regulatory agencies penalize banks for the amount of foreclosures and bank owned properties. The banks just want to mitigate their losses (cut their losses) hence the dept is called Loss Mitigation. Anyway, REO property is usually listed through local realtors or through the bank themselves at the amount that was owed on the mortgage. A short sale results when you, the investor, approach the bank and offer to buy their abandonded property for less than it’s listed. Or discounted. You would ask the lender/bank for a short sale package which lists all the documents that you would need to start negotiating. The banks are eager to rid the property off it’s books and is willing to take less and just cut it’s losses and move on. Rather than have to pay property tax, maintanance and other expenses on the property. That’s why they would be interested in a short sale.
Foreclosures are only related to real property.

You can find foreclosures from HUD.org, your local realtor, bank websites, local newspapers, auction sites etc.
I don’t even bother paying for this services because a lot of the listings they have are old.

And last but not least, buy yourself a course or a book to familiarize yourself with the terms. What I like to do is go to Barnes & Noble on a saturday afternoon and read their real estate books. Take notes etc. but remember that the more education you have, the better off you’ll be in this business.

Re: bankruptcy vs. foreclosure - Posted by Colleen

Posted by Colleen on October 29, 2003 at 11:26:56:

Thank you for responding and for clearing that up! Very helpful & informative. So, it’s safe to assume the bank will entertain a short sale even though the homeowner has already filed bankruptcy? - Colleen