Archive for February 8th, 2011

File Bankruptcy, Save Money, Buy a Home (Cash!)

Many prospective clients who contact Stopa Law Firm are hoping to own their home free and clear.  They see stories about foreclosure fraud and think a judge will eliminate their mortgage and give them their home for free because of fraud by a bank.  For a variety of reasons (which I’ll explain in a separate blog), it just doesn’t work that way.  That said, I am firmly convinced that owning a home outright is a perfectly reasonable goal for many Florida homeowners.  Here’s what I envision. 

Take your typical, middle-income family.  They owe $300,000 on a home worth $125,000, have $30K in credit card debt, make $40-$50,000/year, and are facing foreclosure.   One reasonable approach for this family would be to file a Chapter 7 bankruptcy, eliminate their credit card debt, eliminate the deficiency on their home (the $175,000 difference between what they owe and what the home is worth), continue living in the home (even after the bankruptcy, as is their right), defend their foreclosure case with an experienced foreclosure defense attorney, and diligently save the money that they’re not having to spend each month on their mortgage.  Given the rate at which foreclosure lawsuits are progressing (or not progressing, as the case may be), it is totally reasonable to think Florida homeowners can save enough money to buy a new house – with cash, free and clear – by doing nothing except defending their foreclosure case and saving their money. 

It sounds too good to be true, but for many homeowners, this is a perfectly legitimate, lawful thing to do.  Think about it.  We’ve all seen articles, like this one, explaining how a foreclosure lawsuit can take years for a bank to prosecute to conclusion.  That means you may be able to stay in your home for years, saving money, and if/when the foreclosure comes, you’ll have a pile of money to do what you want with, including buy a new house outright. 

Suppose your monthly mortgage payment was $1,000/month.  After a year (of defending your foreclosure case, staying in your home, and saving your money), you’ll have $12,000 cash; after two years, $24,000; after three, $36,000.  At $2,000/month, you have $48,000 after two years and $72,000 after three years.  SEVENTY TWO THOUSAND DOLLARS.  CASH.  Have you looked at the real estate market nowadays?  Do you know what kind of house you can own, right now, outright, with that kind of money?  I’m seeing nice homes – 3/2/2 – go for less. 

You’ll notice I mentioned bankruptcy as the first step in this process.  Here’s why.  If/when you lose your foreclosure case, you may be on the hook for the deficiency (in my example, above, $175,000).  This means you’ll owe the bank more money even after being foreclosed.  So if you’ve saved tens of thousands of dollars while the foreclosure case is pending, you risk losing that money to satisfy the deficiency.  You may have saved $50,000, but if you owe the bank $175,000 deficiency, you’ll lose your $50K.  And if you try to file bankruptcy at that point, to avoid paying the deficiency, you’ll likely avoid the deficiency, but you’ll be required to turn over your savings as part of the bankruptcy… so either way, you lose your savings.  But if you file bankruptcy first, before you save these monies, you get to keep all of the money you save in the ensuing months/years, as you’ll have eliminated the deficiency and your other debts. 

In sum, I find it totally reasonable to think you can file bankruptcy, eliminate your debt, live in your home, save your money, and use the savings to buy a house outright! 

This approach cannot work for all people, and it’s not intended as legal advice for any particular person.  However, I firmly believe a lot of Florida homeowners would be drastically improving their financial picture by employing this strategy, particularly if they’re already facing foreclosure.  

Some people may think this approach is slimy.  My response to that is simple.  Banks have had no problems screwing over well-intentioned homeowners.  They took the bailout money and put it in their pockets.  If you’re trying to get a loan modification, and are instead facing a foreclosure suit, what are you supposed to do?  Consent to foreclosure and let the bank through you on the street?  Keeping banging your head against a wall, hoping to get a mortgage modification that will probably never come (only to wind up foreclosed and thrown on the street with no money and nowhere to go)?  Or eliminate your debt, defend your foreclosure, save your money, and secure your financial future?  The banks did what was in their best financial interests – why shouldn’t you? 

If you’re facing foreclosure, or think you’re a candidate for what I’ve described, please call for a free consultation.  888-450-1549.

Mark Stopa

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