What your bankruptcy lawyer won't tell you about your upside down homePosted by Minna Reid on Wednesday, September 5th, 2012 at 9:19am.
Many of my CT short sale clients plan to file bankruptcy or have been discharged from one. There seems to be significant confusion about what exactly happens to a house in bankruptcy and 90% of the time bankruptcy attorney's advice to upside down homeowners is "JUST LET THE HOME FORECLOSE"
While bankruptcy may alleviate your legal responsibility to the debt secured by the mortgage, it does nothing to the title of the home. Your lender does not "own" your home as a result of a bankruptcy and won't until they gain possession of it via a foreclosure or a deed in lieu. So until a foreclosure happens, YOU are still the legal owner of your property EVEN AFTER A BANKRUPTCY. If the home forecloses later - you still had a foreclosure happen to you, or if little Johnny falls and breaks his leg on your front steps - you're still responsible. It's still your property.
Letting the home foreclose - is in fact an option to eliminate home ownership...however one that has some consequences.
But this foreclosure may not even show up on your credit...so what's the problem ?
The problem is that one day you may want to own another home. Even with a good credit score and no foreclosure on your credit, your new lender will still want to know what happened to your old home. You will need to prove what happened to the home after the bankruptcy. If you short sold the home - you can expect to wait 2-3 years after the short sale to get a new loan. However, if your home foreclosed you can expect 3-7 years from the time the home foreclosed.
Currently the foreclosure process in Connecticut is averaging over 460 days. I just spoke to a gentleman who had not paid on his home for 4 years and no foreclosure activity had taken place yet. What that means is that here in CT - you can expect 1-4 years for a foreclosure to actually happen, and an additional 3-7 years from that time before you can get a new home loan.
In contrast - a short sale may take 3-6 months, followed by a 2-3 year waiting period.
SO HOW QUICKLY DO YOU WANT TO RECOVER FROM YOUR BANKRUPTCY AND BUY A NEW HOME? 2-4 YEARS OR 6-10?
Why don't bankruptcy attorneys mention any of these facts? I believe they are simply unaware as they are not real estate salespeople or mortgage professionals. Before you take your bankruptcy attorney's advice and "just let the home foreclosure"...make sure you understand the consequences of this action.
Minna Reid is a CT Licensed Real Estate Broker Associate with CG Real Estate, specializing in short sales, serving the Central CT including, but not limited to; Avon, Berlin, Bristol, Cheshire, Cromwell, Farmington, Glastonbury, Hamden, Meriden, Middlefield, Middletown, Newington, New Britain, North Branford, North Haven, Plainville, Portland, Prospect, Rocky Hill, Southington, Wallingford, West Hartford, Wethersfield and Wolcott.