Posts tagged ‘debt relief’

April 16, 2012

Selling an Underwater Home

Estimates are that more than half of the homes in Arizona are underwater, meaning the amount owed on the mortgage balance exceeds the current value of the property.  A homeowner that wants to sell an underwater home is faced with the unpleasant task of bringing money to the table in order to pay off their loan balance.  The alternative is to either “short sell” the home or to just walk away and let the home go to foreclosure.

Over the past few years I have observed several homeowners that have listed their homes at a price that would just be enough to cover the payoff of any loans and the closing costs.  However, the listing price ends up being much higher than the current value and the home just sits there with no interest from potential buyers.  If they do happen to find a buyer that wants to buy the property, the deal often falls apart when an appraisal for a value that is much lower than the contract price prevents the buyer from obtaining a sufficient mortgage.  I have seen properties go through this process for two years or more, only to end up in foreclosure when the seller falls hopelessly behind in their loan payments.

Several years ago, it was very difficult to short sell a property.  The banks were not prepared to handle the rising number of requests for short sale relief, and it would take months to get an approval.  By the time the approval was obtained, the property would have dropped further in value, and the potential buyer would no longer want to purchase the property.  However, foreclosures continued to rise, and banks soon realized that they were in a much better position short selling a property than going through a foreclosure which took longer and netted them less.  These days many banks are encouraging underwater homeowners to short sell their home and the process has been expedited.  There still is quite a bit of paperwork that needs to be completed to obtain the approval, but most real estate agents have negotiators that will work with a seller to that end.  A SHORT SALE WILL NEGATIVELY IMPACT YOUR CREDIT, but your credit score will improve again over time. 

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August 23, 2011

Should I Max out my Credit Cards before Filing Bankruptcy?

We have heard of attorneys encouraging people to max out their credit cards before filing bankruptcy.  Our attorneys strongly disagree with this advice for several reasons.  First it is dishonest.  Some people would say that  filing bankruptcy is dishonest in itself, so why not get as much out of it as you can.  Filing bankruptcy is not dishonest.  Our attorneys help clients who have come to the realization that paying all of their creditors is either not possible, or puts such a burden on them and their family that it is necessary to file bankruptcy to obtain peace in their home.  This action is not dishonest, it is honestly evaluating options to get out of a bad situation, and bankruptcy is one of those options.

What is dishonest is making a promise to repay money when you do not intend to repay it.  We advise clients to first decide which option they think is best to get out of their current debt situation.  If they plan to file bankruptcy, then they need to stop borrowing money, unless there is a plan and an intention to repay the debt even after bankruptcy.  One example is borrowing money to buy a car, when you intend to keep the car and pay the debt after a bankruptcy.  When someone borrows money with a promise to pay it back, but at the time they borrow it they have no intention of paying it back, this action is fraud.  Our attorneys do not advise our clients to commit fraud, or assist them in doing so.

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March 15, 2011

Is Your Home Undewater? Is Debt Relief Moral?

When you think of Arizona being in a desert, you usually don’t worry about a home being “underwater”. However, if you happen to be among the thousands of Arizona homeowners that purchased a house between 2001 and 2006 your home may very well be underwater! These days “underwater” means that the remaining balance on your home loans exceeds the home’s present market value. Being underwater has severe adverse financial consequences, including a loss of equity, impaired borrowing ability, and the inability to sell your home unless you pay off the shortage out of your pocket or are able to get the Lender to agree to accept less than the amount owed in full satisfaction of the lien amount (“a short sale”).

Our office consults with clients everyday that are drowning from being underwater and want to know what their options are. Whether you hope to modify your mortgage, short sell your home, or to surrender your home to a Trustee’s Sale (foreclosure) or in a Bankruptcy proceeding, one result that they all share is that your credit rating will suffer as a result. One of the biggest challenges that we face when counseling clients concerning debt relief options is convincing them to let the credit rating go!

Last year a client came in for a consultation and was sick with worry. He had not paid his mortgage in over nine months, he was being sued by two of his credit card companies for nonpayment and his car had been recently repossessed. After reviewing his assets and liabilities, it was clear a Chapter 7 Bankruptcy Petition was in order. When this alternative was suggested his response was that he didn’t want to ruin his credit! He obviously had not been checking his score recently. A common statement that many frustrated clients make is that the Banks got their bailout and where is our bailout? Well there is a bailout for everyone else, but you must have the “magic ticket” to obtain your bailout. And what is the “magic ticket”? A BAD CREDIT RATING!!! And the best thing about a bad credit rating, it is fairly easy to obtain; just stop beating your head against the wall, robbing Peter to pay Paul as the old saying goes, and do not pay bills that you cannot afford, or will not be able to afford to pay.

In the words of former disgraced President Richard M. Nixon, “Let me make one thing perfectly clear!” HAVING A BAD CREDIT SCORE DOES NOT MEAN YOU ARE A BAD PERSON. And in a Recession such as the one we have been living through, avoidance of debt via legal alternatives such as debt reduction and Bankruptcy is not immoral or a bad act! Our economic system anticipates that debt obligations may need to be adjusted, reduced or even written off from time to time. That is why credit card companies charge 20% interest when the prime lending rate is 1%, and when you are required to buy PMI Insurance when you purchase a home with only a small down payment. The expectation that a Borrower may not be able to pay back a loan is built into the system. So DO NOT USE YOUR RETIREMENT FUNDS OR CHILDREN’S COLLEGE ACCOUNTS to make payments on your credit cards. DO NOT TAKE YOUR WEDDING RING TO THE PAWN BROKERS in Vegas to temporarily preserve your 800 FICO Credit Rating.

For those of you that have not been negatively impacted by this Recession and still have assets. DO NOT BE OVERLY CRITICAL of those that have experienced hard times and are no negotiating to reduce their bills or are forced to file Bankruptcy. Bankruptcy is the longstanding Federal Bailout program that was established by our Founding Fathers, more than half of whom ended up broke or in Debtor’s Prison after the Revolution. Out of the hundreds of people that we have helped settle their debts for less than the full amount, I know of not one person that borrowed with the intention of not paying the full amount back. The system was skewed in such a fashion that most borrowers truly believed that the lenders providing the loans had reviewed the application and determined that they would be able to pay back the loan. After all, what bank would provide someone with a loan or credit if it should have been obvious that the person would be unable to meet payment obligations in the future? The answer, which became painfully obvious, was a lender that selling the loan to a schmuck that would buy any piece of junk for face value, i.e., the Federal Government via Fannie Mae and Ginnie Mae loan guarantees. Consequently, do not feel sorry for these “venerable institutions” that have raped and pillaged the average American worker and left their Great Grandchildren having to pick up the future tab.

Brent T. White, a University of Arizona Law Professor drew national attention when he published a paper about Underwater Mortgages and the fact that millions more Americans were not “walking away” from property investments even when there was little chance that the investment would “recover” during their lifetime. He contrasted the lending community’s insistence that Borrowers have a moral obligation to pay their underwater loans while at the same time these lenders refuse to provide any assistance to their “most moral” customers, those with perfect credit. In his new book, Underwater Home: What You Should Do if You Owe More on Your Home than It’s Worth, points out the dilemma of the Borrower that needs help but still struggles to maintain a high credit score:

Simply put: Your lender isn’t likely to work with you if you’re current on your mortgage. Your lender has no reason to modify your loan or agree to a short-sale if you are making payments on time. Your lender also knows that the best predictor that you’ll continue making payments is a past history of making payments. To your lender, your excellent payment history isn’t evidence that you deserve help. It’s evidence that you’ll go right on paying your mortgage no matter what your bank does.

Moreover, your lender knows that borrowers with good credit scores are unlikely to default even when they’re deeply underwater. If you have a good credit score and a solid payment history, your lender isn’t likely to be interested in talking with you. You’re in a tight spot and your lender knows it. Unfortunately, there’s probably only one way out: intentionally defaulting on your mortgage.

Having spent the past two plus years working with hundreds of Borrowers under financial stress, we agree 100% with Professor White’s analysis. Whether you are insolvent and faced with mounting debt in the near future, or just want to get rid of a property investment that went bad via a “strategic default”, the first step is to stop throwing good money after bad. Ultimately, odds are either the lender will come to terms you can afford, or you will be able to get rid of the “black hole” property and get on with your life!   Either way, you need to be able to let the good credit go, and thus force the lender to deal with you in a fair manner. But please, consult an attorney and an accountant for valuable advice on how best to negotiate. Most of our clients end up paying a few thousand dollars in costs and fees and can save many thousands, if not hundreds of thousands in debt relief.

October 26, 2010

In the Wake of the Real Estate Bubble

Our nation has just experienced an historic drop in the market value of real estate. The so called “Real Estate Bubble Bust” has wiped out trillions of dollars in perceived value in real estate and has resulted in a gross devaluation of both residential and commercial real estate. The vortex of price deflation has caused an escalating number of foreclosures that is unprecedented and has cast a pall over the fundamental U.S. economy. Many of the stop-gap and band-aid “relief” measures undertaken by Federal officials have proven to be wholly ineffective. The impact has been felt at every level of real estate investment in every region. While those areas that experienced the most rapid growth in the decade prior to the “bubble bust” have been hardest hit, even those areas where there was limited growth and much more moderate price increases have suffered as buyers have disappeared from the market amidst raised borrowing standards combined with a perception that real estate no longer represents a “positive investment in one’s future.”

The Phoenix/Maricopa County real estate market represents one of the epicenters of the current real estate value crisis. By virtue of the region having benefitted from one of the fastest growth rates in population in the decade prior to the bust combined with price appreciation of up to 20% per year, the market was ripe for a fall, and when the tide turned, prices dropped like a row of dominoes. As values continued to erode speculators bailed first, followed next by financially distressed homeowners unable to keep up with their interest only and adjustable rate mortgages amid falling wages and growing unemployment. These property owners have been followed by “strategic defaulters”, those individuals that could afford to continue their payments but are opting to walk away from their investments in light of the costs of keeping the property compared to the expected time required for the asset to appreciate to its former value. The availability of Arizona’s consumer/investor friendly anti-deficiency law, which essentially makes most real estate borrowing non-recourse, has made sacrificing one’s credit rating an attractive alternative to being saddled with hundreds of thousands of dollars of negative equity in an asset whose value appears to be falling with little prospect of recovery.

In many ways, the real estate bubble was a product of its own success. Real estate prices had proven to be fairly resilient over the course of modern history and long term investment in one’s home had proven to be the single largest, and most profitable investment, that most Americans made during their lifetime. However, the advent of new loan products such as “home equity” loans that allowed borrowers to borrow amounts in excess of the value of their property for such “investments” as credit card refinancing and vacation funding turned home ownership into America’s largest casino. More and more homeowners bet that rising home prices would “cover their losses” as they continued to “eat” their home investment by tapping into perceived equity. Mortgage brokers, home builders, appraisers, bankers, real estate agents and even the federal government (via no money down home ownership programs) all joined on the bandwagon while preaching the more you owed, the richer you were! No one wanted to admit the emperor was naked since we were all too intoxicated on the liquor of easy credit with no downpayment required.

As with the bursting of any bubble, the markets tend to over-react with the acceptance of the belief that Chicken Little may very well have been right, and the sky is really falling. For many investors and homeowners the analogy is indeed true, as their financial flooring has collapsed, and they have had their homes foreclosed and have been forced into bankruptcy to seek protection from their remaining creditors. This reality is reflected in the number of bankruptcy filings in Arizona where the pace of cases exceed 40,000 per year in 2009 & 2010. Many of these debtors have left multiple properties in their wakes which are being dumped on the market in numbers far exceeding the pool of available buyers. Banks, unable or unwilling to stem the rising tide of defaulting loans are delaying foreclosures in an effort to avoid being saddled with the costs associated with maintaining their real-estate owned inventory of housing. Vulture investors with available cash for immediate purchase of distressed properties are finding banks willing to unload properties for fractions of their prior value in an effort to move these properties off of their balance sheets. Federal bailout programs and guarantee programs provide incentives for banks to take their losses now and move on, but have done little to help distressed borrowers that want to remain in their homestead.

For many of us, when, and even if, the real estate market will make a comeback is difficult to predict. However, I firmly believe that real estate will make a full recovery, and in my estimation the issue is how long will it take to fully recover. Given the extent of federal borrowing to fund the various stimulus programs, the Federal Government will continue to issue trillions of dollars in federal debt to cover these costs. Since the besieged taxpayers are unlikely to accept significant tax increases and due to the difficulty if not impossibility of government curtailing spending, the only logical way out of this mess is to stop many of the government restraints on inflation so as to let inflation come roaring back. The benefit to the government is that it will be paying off its 2008-2010 debts with inflated dollars which will come at a cheaper cost. A resurgence of inflation will inflate underlying asset valuations which should reverse the downward spiral of real estate prices. Investors will seek to invest in hard assets such as real estate in order to keep pace with inflation. In some ways this may sound like “Bizarro World” where the federal government actually is courting inflation, but inevitably I believe this scenario will begin to play out in the very near future. Just like when the dam on Tempe Lake broke, and the beautiful lake disappeared over night, we may see a new albeit, like a new dam, slowly inflated so as to bring life back to a desert land. Stay tuned! JIM CARROLL

September 12, 2010

Can I get rid of my second mortgage in bankruptcy?

During this down economy, the real estate values have declined drastically. This has caused many to find themselves in an upside- down house. This means that a home’s value is less than the mortgage owed. Unfortunately, this is causing some to walk away from their home without looking for possible solutions to their financial situation. We at The Carroll Law Firm believe that we are the perfect lawyers to help you explore all of your options.

We can help you examine both Chapter 7 bankruptcy which can give you a fresh start and Chapter 13 bankruptcy where you can establish a repayment plan for less than you owe. With Chapter 13 bankruptcy, it is possible to cancel a second mortgage completely. With our firm’s assistance, we may be able to help you obtain loan modification for second mortgages or help in negotiating interest rates.

The Carroll Law Firm understands the fear of losing your home or other property. We know that this can be both scary and stressful. That is why we want to help you to move forward by providing you with our experience, various options, and our support for your family. We recognize that every situation is different, and our goal is to help you make the best decisions for you and your family. Call us now for a free 30 minute consultation.