The carnage of the real estate crash is leaving few unscathed. many Alameda residents refinanced or bought at the height of the market and now find themselves owing much more than their houses are worth. with the costs of sale factored in, some homeowners might be years away from being able to sell their homes for a break-even price. As Alameda home values continue to hover or even drop, no one knows for sure how long the recovery will take.
Some owners are trying to deal with the loss of equity through short sales. this is where the house sells for less than the total amount owed on it, with the lenders agreeing to sign off on the sale as long as the homeowners get nothing out of it. Short sales present several pitfalls for the unwary. one is that the bank’s forgiveness of debt in a short sale can be considered a taxable event. Sellers should consult a tax professional for a clear picture of the consequences. Another serious by-product of a short sale is that second mortgage lenders will usually only sign off on the short sale if they retain the right to pursue the borrower/homeowner for the unpaid balance of their loan called a deficiency balance. For instance, if owners have a $150,000 second mortgage or line of credit and then complete a short sale, they might find the lender pursuing them for that amount through a collection agency or law firm.
Homeowners looking to salvage their financial future should consider all avenues. one possibility is Chapter 13 bankruptcy, a special type of bankruptcy created by Congress to help regular folks who have a regular income stream. In today’s rough economy, many homeowners have been using credit cards to cover the shortfall in living expenses while they try to pay their adjustable-rate mortgages. they now find themselves with $60,000 $70,000 even $100,000 worth of credit card debt. Even without the mortgage problems, these individuals may find themselves in a position where they will simply never be able to pay off that amount of credit card debt. Chapter 13 may be a way for them to eliminate the credit cards while keeping their homes or completing a short sale.
Also, a powerful tool currently found only in Chapter 13 is a procedure called “lien stripping.” Basically, it works this way: if the borrower owes more on the first mortgage than the house is worth, Chapter 13 allows this homeowner to “strip off,” or eliminate, the second mortgage. thus, if a house is worth $500,000 with a $550,000 first and a $75,000 second, the owner can file a Chapter 13, stay in the house, have up to five years to catch up the payments on the first, and wipe out the second. Any remaining credit card debt would be eliminated and, in the end, the homeowner would have no debt other than first mortgage. Bankruptcy is a very complicated area of the law. Homeowners should always consult with an experienced bankruptcy attorney before deciding whether to file a bankruptcy case.
Attorney James Pixton has been filing bankruptcy cases for Alameda residents for over ten years. his office is located in Alameda at 1516 Oak St., Suite 315. He can be reached at 451-6200 or through his website at pixlaw.com.
<a href="http://alamedasun.com/index.php?option=com_content&task=view&id=7961&Itemid=14tag:news.google.com,2005:cluster=http://alamedasun.com/index.php?option=com_content”>Alameda Sun – Chapter 13: A Lifeline for Drowning Homeowners
