What to do with our under water home after chapter 7 bankruptcy? 14 Answers as of March 26, 2015

We filed chapter 7 in 2008 after my business failed. We did not reaffirm our mortgage, but have tried, unsuccessfully, to get the loan modified. The home now is about 50-70k under water. The mortgage company does not report any payments to the credit bureaus. We have a second on the home with the same company, with the same issues. I know if we walk away from the property (only after foreclosure would we do this), there is no risk for us as far as the loan obligation. My question is, if we walk away after foreclosure, will the foreclosure hit our credit? Is pursuing a short sale more beneficial to us? What are our chances of purchasing another home right away or soon after?

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The home should have been surrendered in the bankruptcy which would have not allowed for a "chink" in your credit soon after the BKY. I advise many of my clients to surrender their homes in BKY so that this very situation doesn't happen. You would be better off with a short sale if the lender will approve it. Also, it may honestly be a few years (with NO OTHER CREDIT DINGS) before you will qualify for another mortgage.
Answer Applies to: South Carolina
Replied: 3/26/2015
Stephens Gourley & Bywater | David A. Stephens
A short sale is a little better than a foreclosure on a credit report. The first will not foreclose if you are making the payments. If you are not making the payments, you can attempt a short sale or live there for free until the first gets around to foreclosing. Most of my clients cannot get financing until at least two years after a foreclosure. You may want to attempt to purchase another residence before the foreclosure.
Answer Applies to: Nevada
Replied: 3/26/2015
Ronald K. Nims LLC | Ronald K. Nims
Yes, a short sale is more beneficial. You have no personal liability on these mortgages because you did not reaffirm them but if they foreclose, it will be on your credit report as a foreclosure. ?Doing a short sale will avoid this. Whether you can get another home immediately depends on whether you've maintained your credit since the bankruptcy. If you've made your payments on time and don't have an overload of debt, getting another loan should be easy.
Answer Applies to: Ohio
Replied: 3/25/2015
A Fresh Start
A Fresh Start | Dorothy G Bunce
Although if the foreclosure proceeds by notice only, it will not appear on your consumer credit report, it will appear on information about your credit to every future real estate lender. If the foreclosure proceeds by a judicial action, this public record will appear on your consumer credit report. In Nevada, a foreclosure can happen in one of two ways, but following notice requirements, or by filing an action in court. Until you know which way the wind blows, you can?t be entirely sure of how the foreclosure appears on your consumer credit. A short sale would be a lot less damaging to your credit than a foreclosure. As to obtaining financing for another real estate loan, lenders vary widely as to how much time must elapse between getting a new loan and a past problem, such as a bankruptcy, foreclosure or short sale. This is a question that needs to be asked from the lender, not a lawyer. However, in my experience, a local credit union may have the most favorable opportunities for you to obtain new financing.
Answer Applies to: Nevada
Replied: 3/24/2015
The Law Office of Darren Aronow, PC
The Law Office of Darren Aronow, PC | Darren Aronow
Since you filed bankruptcy, it can never report on your credit, whether you got modified or went to foreclosure auction. You can not buy a home until two years after this house is deeded out of your name so maybe a short sale is better then waiting for foreclosure. Also the government may qualify you for $10,000 incentive with short sale as opposed to foreclosure.
Answer Applies to: New York
Replied: 3/24/2015
    The Schreiber Law Firm
    The Schreiber Law Firm | Jeffrey D. Schreiber
    The bankruptcy was one "credit event" if you will which can be reported to the credit bureaus. Your personal obligation to pay the debt was discharged, which is why the creditor does not report the payments - there is no longer any loan. However, if you want to make the payments, most creditors will take the payments as if there was still an enforceable debt in place. Although you no longer are obligated to make the payments, the creditor's mortgage liens remain and to remove the liens is by paying off the loan in what amount the creditor will agree to take, whether by payoff for full or less than the full amount, refinance, full payment on sale of the house or by a short sale. If the creditor forecloses, it is on the mortgage lien and that is a separate "credit event" and the creditor can also report the foreclosure to the credit bureaus.
    Answer Applies to: California
    Replied: 3/24/2015
    A short sale would probably be kinder to your credit rating. You should be able to buy another home after 3 years from the date of the filing of the bankruptcy.
    Answer Applies to: Minnesota
    Replied: 3/24/2015
    Richard B. Jacobson & Associates, LLC | Richard B. Jacobson
    Answering some of your questions requires a lot more information. You seem to be well-informed about the effect of a bankruptcy discharge on your mortgage note obligations. It has become the practice of most lenders not to send any information about payments made under a non-reaffirmed mortgage note, and there is not much to be done about that. I expect that a foreclosure would have a negative effect on your credit. A short sale might or might not have such an effect, but if it led to a negative report, you have the right to append a statement of up to 100 words explaining anything in the credit report, and you could use it. As between the two, a foreclosure is more likely to have adverse credit effects. But there is as third option, which you might have already attempted. This is a 'deed-in-lieu' of foreclosure. Basically you just reach an agreement with the lender that you are deeding them the property and you are walking away. The bankruptcy discharge protects you from a deficiency claim. Good Luck.
    Answer Applies to: Wisconsin
    Replied: 3/24/2015
    Janet A. Lawson Bankruptcy Attorney
    Janet A. Lawson Bankruptcy Attorney | Janet Lawson
    Short sale and foreclosure.... both hit your credit. Better to stay, stop paying and save money for a down payment.
    Answer Applies to: California
    Replied: 3/24/2015
    Patrick W. Currin, Attorney at Law | Patrick Currin
    A foreclosure is worse for your credit than a BK. It would be 4 years by most bank's policies before you would be considered for a new mortgage. You should be aware that a Supreme Court case is considering allowing unsecured seconds to be completely stripped in Chapter 7 as they can in Chapter 13. That might impact your case and you could file again in 2016.
    Answer Applies to: California
    Replied: 3/24/2015
    Bird & VanDyke, Inc.
    Bird & VanDyke, Inc. | David VanDyke
    This is a really good question. Although your mortgage servicers are prohibited from reporting foreclosures on your credit directly, for them to foreclose requires them to record with your local county recorder, several documents. The first document which will be recorded and served on you, by certified mail and first class mail, is "notice of default. After 90 days another document called "notice of trustees sale" is recorded and served the same way (sometimes this document is posted on your door as well). When you try to purchase a home after these events the new lender will not only search your credit but will search public records. If the above documents are found then you probably will not be able to purchase another home for several years (depending on the type of loan you are trying to get). If you can persuade your current lenders to allow a short sale prior to the recordation of the above documents you may be ok. However, lenders generally require you to not only be severely delinquent on these payments but to also demonstrate an inability to afford the payments. (Usually accomplished by demonstrating a financial hardship). So if you can get your current lenders to do this you may be able to purchase a home soon after.
    Answer Applies to: California
    Replied: 3/24/2015
    The Law Offices of Ryan F. Beach, PLLC
    The Law Offices of Ryan F. Beach, PLLC | Ryan Beach
    There is some disagreement as to whether a foreclosure can be reported on a credit history after the property has been surrendered and the associated debt has been discharged in a bankruptcy. In my opinion, it can be reported and it should be expected. However, again, there is disagreement. It may not be reported as a foreclosure on your credit history and there may be a way to contest the reporting if it is reported as foreclosure. Certainly, it can't hurt working with the credit bureaus in contesting/correcting the reporting. Pursuing a short sale may be one way of avoiding a foreclosure. Short sales are subject to the approval of the mortgage company or companies. You will want to contact your mortgage company and see what their requirements are for doing a short sale. Since it is difficult to predict exactly how the foreclosure will be reported on your credit history and how it will impact your credit, you may want to explore the short sale option and/or consider obtaining a mortgage for the new home prior to the foreclosure being reported.
    Answer Applies to: Michigan
    Replied: 3/24/2015
    Goldsmith & Guymon
    Goldsmith & Guymon | Marjorie Guymon
    I recommend a short sale. A foreclosure will be reflected on your credit and will affect your ability to purchase a new home.
    Answer Applies to: Nevada
    Replied: 3/24/2015
    John W. Lee, PC
    John W. Lee, PC | Kim A. Lewis
    The foreclosure will show up on your credit report; however, a short sale will require both your first and second mortgage company's cooperation. You may want to contact a mortgage specialist now to discuss what you need to do to qualify for another mortgage.
    Answer Applies to: Virginia
    Replied: 3/24/2015
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