Expert: Terry Leeders - 11/16/2007

Question
My wife and I filed for Ch. 7 bankruptcy at the end of 2005. We were discharged from all our secured & unsecured debt Feb. of 2006, including our home that we included in the filing. We did not reaffirm the loan, so we can walk away and owe nothing. All we did was make a verbal agreement with the lender that we'll continue to pay on the loans as long as they don't take it from us. We have an 80/20 loan from the same lender and make 2 pmts to them. Well we continued to pay, as rates kept going up so did our mortgage on both loans. We couldn't catch up and fell behind. So we paid on the smaller loan only (Still owe $20,000). Now the bigger loan (still owe $89,000)is in default and they want to foreclose. I've talked to Loss Mitigation, but we don't qualify. I'm trying to sell the home and they are aware of this. But my foreclosure sale in nearing, Dec. 14th, and the asking price of $125,000 my realtor suggested, has gotten only a few bites. I need to move on this quickly or face the foreclosure. But why only on the $89,000 loan not the $20,000 one? Will this one loan also go to foreclosure in the near future? It was the one loan I made more payments on before finally halting this one too? I can sell the house for a sure $110-115K given ample time and payoff both loans $89K + 20K = 110K, if it sells. Since only the larger loan is in foreclosure, can I only pay this off (89K) and be done with? Or will I still need to pay off the smaller one (20K)also, to keep my credit from more damage? Both loans have been discharged. Only one is in foreclosure. I just want what's best for my credit report. I don't want the house. Should I try a pre-sale or a deed-in-lieu? This should be better than walking away from my debt, as I easily can, right? Help?? If you need more info, please ask.

Thanks.  

Answer
Both loans are still a lien on the home, so you would have to keep paying them to avoid a foreclosure.  You can sell at any time, but the liens will be paid when you do.  If your offer on the home is less than the mortgage, your real estate attorney can work out a short sale with the lender. Good luck!