Hollis wrote to me through the GetOutOfDebt.org site and asked the following question. If you have a credit or debt question you’d like to ask just use the online form. I’m happy to help you totally for free.
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“Dear Steve,
I am severly under water financially having lost a second income. Now my house is upside-down by probably $80K, both my credit cards are topped out and I owe $40K on those and I have been advised to declare chapter 7 bankruptcy. My retirement savings have plummetted because of the volitility in the market, so there is not enough there to borrow temporarily to repay the credit cards. Even if I declare bankruptcy, there is still the mortgage payment that I can no longer afford.
Is there any system in place whereby one could go to a lender and ask to move to one of their smaller houses in foreclosure, pay a mortgage there that they could afford, and then short-sell the main house?
Hollis”
The Answer:
Dear Hollis,
You would think a logical solution like that would exist, but I can understand why it does not.
Between the duty to the bank investors, the pool of people owning a piece of your original mortgage and the legal and tax issues in trading down, what seems like a totally reasonable and logical solution to a difficult mortgage situation, just isn’t practical from the banks point of view.
Banks do a great job of rolling out policies for the masses and a horrible job at treating people as individuals. Just look at the mess that still exists in just trying to get current lenders to agree to rewrite or modify current loans of homeowners to avoid foreclosure. The banks swear they are doing this and it is an easy process but the word on the street is that is simply not true.
It certainly does not hurt to call up your lender with your logical suggestion but don’t get discouraged if they have no good response for you or just flat out say no.
You might just be left with letting the bank take your house back, rolling the deficiency that you will owe into your bankruptcy and let’s move on. Talk to your bankruptcy attorney about the best way to handle this. If you don’t have a current bankruptcy attorney, click here to file bankruptcy or get a free bankruptcy consultation.
As I’ve always said, logic and creditors don’t mix.
