Bankruptcy and equity in your home Part 2: How does equity impact my choices? Can you own too much of your home?

We all hear about homes being "underwater." That means the property is worth less than the debt/mortgage owed by the property owner. When that happens, the bankruptcy conversation revolves around the value of keeping the home. So what happens to the equity, the difference of the value above the debt, when a bankruptcy debtor owes less on their mortgage than the value of house?

Image by stockimages at FreeDigitalPhotos.net

The answer is "it depends." Debtors are usually allow to keep some part of the equity. If the laws allow the debtors to keep all the value remaining in the house, the debtors usually can keep their home even through a Chapter 7 bankruptcy. Under federal law, a person can exempt, or keep, just about $24,000. If a debtor's equity is less than $24,000, he or she can probably keep the home, especially if they can afford it without the other debt. The protected amount can be as much as double for a married couple.

Under different state laws, homes can be exempt in different amounts including the entire amount in some cases. In Pennsylvania, married couples usually own their home in "Tenancy by the Entireties." It is the important the deed states the ownership correctly. If that is the case, the home may be protected. But the home is only protected if one member of the couple owes the debts. If that is the case, more than likely, the home can be protected in the bankruptcy in Pennsylvania. For other states, people need to check with a local bankruptcy attorney.

If a debtor finds they cannot completely protect his or her equity, some additional decisions need to be made. The first option may be to give the house up, or "surrender" the house in a Chapter 7 bankruptcy. If a debtor does that and he or she has a significant amount of equity in the home, the trustee will probably sell the home. If the trustee sells the home, the debtor keeps the exempt value of the home and the trustee pays the remaining proceeds will be paid to the creditors. Or, if the equity is not that much over the exemption, the trustee may just allow the bank to foreclose or the home, Many clients do not want to use this option.

The other option is to file for bankruptcy under Chapter 13. In order to use Chapter 13, a debtor must pay his or her creditors as much as they would get in a Chapter 7 bankruptcy. That means if a debtor has $40,000 of equity in a home, he or she can exempt $24,000 and that would leave $16,000 unprotected. Using Chapter 13 may allow you to keep your home through a payment plan. A debtor may be able to set up a plan to pay the remaining $16,000 over 3 - 5 years using Chapter 13.

This is a pretty basic explanation of how this might work. Any homeowner who is thinking about filing bankruptcy really needs to talk to an attorney and go through these steps. This will help make informed decisions.
 
If you want assistance, legal representation, or just want to know more about Mark Medvesky or our firm of Wells, Hoffman, Holloway & Medvesky LLP, check out our website at www.whhmlaw.com or call us a 215-660-3170 and schedule an appointment.

#bankruptcy Chapter7 #Chapter13 #MontgomeryCounty #lawfirm #BucksCounty #Pennsylvania

Are you sitting on a financial time-bomb ticking away on your home?

Image courtesy of iosphere at FreeDigitalPhotos.net

Some of my clients end up in my office because they entered into some adjustable rate loan and the payment increases to a point they can no longer pay the debt. I thought the time of these types of mortgages had passed with the 2008 real estate bubble bursting. I may be wrong.

"Millions of consumers will have to absorb a major hit to their household budget in the coming months. About $265 billion in home equity lines of credit (HELOCs) will enter the repayment period in the next few years, according to a study from Experian, and consumers may see their monthly payments spike — in some cases, triple or quadruple what they previously paid." according to Christine DiGangi as she stated in her article "The $265 Billion Wave That’s About to Crush Homeowners" http://bit.ly/1FnjK2D

In her article, she talks about how many families used the equity in their homes and have only paid the minimum, interest payments, on these loans. Furthermore, since these loans were opened in 2005 through 2008, real estate values have been stagnate. As a result, owners may have difficulty refinancing their loans. She is predicting a skyrocketing rate of HELOC defaults.

Based on what I am seeing in my practice; houses still underwater, lingering unemployment and under-employment, and many struggling to pay what they have and save a little, I tend to think she is accurate. Are you in this situation? If so, it may be time to plan.

Talk to your finance company to figure out what is going to happen and when. Even if you think you know, confirm it. I cannot tell you how many times people have told me, "it went up more than I expected!" or "I never expected it to go up that much!" If you cannot afford it, look for financing now. If that is not possible or you have time, start working on paying down the principal now.

Whatever action you plan to take, start now. Don't wait for the first payment increase to find out you cannot make the new payment and risk losing your home. Know what you are facing and plan now. If you do not, you may find yourself in an office like mine, discussing bankruptcy, realizing you have less options at that point than you may have now.

If you want assistance, legal representation, or just want to know more about Mark Medvesky or Medvesky Law Office, LLC, check out our website at www.medveskylaw.com.

#bankruptcy #Chapter_7 #Chapter_13 #Montgomery_County #law_firm #Bucks_County #Pennsylvania

My house is in foreclosure ... when do I have to move out?

Image courtesy of Salvatore Vuono
at FreeDigitalPhotos.net

This is another question I get often. I tell my clients not to move out until you are evicted. I have talked to them about the problem of vacant properties. Right now there seems to be too many for the banks to handle. For some people, it may take a couple years between a default in a mortgage and a sheriff's sale in the foreclosure. And in Pennsylvania, the new owner after a sheriff's sale still needs to take action to evict the occupant of the property.

There is no reason for a home owner to leave the house, allow it to deteriorate, and pay rent for a "second" home. People should know even after a bankruptcy, new bills and fees can add up as the bank works through the foreclosure process. On Philly.com there is an article that discusses the vacant home problem in the region: "Zombie houses - vacated but not foreclosed - haunt the market" (http://bit.ly/1yY77vT). You can also read my previous blog "Even in Chapter 7 Bankruptcy, returning your house to the bank isn't like taking a sweater back to the store" (http://bit.ly/1mizq2h) about staying in a home even after bankruptcy.

If you cannot stay in the home, you could consider other options like work with the bank on a short sale, rent it, or let a family member use it. But remember, the house is the owners' until it is sold at a sheriff sale or transferred through some other transaction. Use it to help you get back on track instead of being an anchor to continue to drag you down.


#bankruptcy #Chapter_7 #Chapter_13 #Montgomery_County #law_firm #Bucks_County #Pennsylvania

Bankruptcy Roulette ... "What could possibly happen?"

Image courtesy of patrisyu at FreeDigitalPhotos.net

When a client walks into my office to discuss bankruptcy, they usually ask what can happen or how long before creditors take action. These questions are not easy to answer. The answer to "what can happen" is everything from nothing to having a sheriff show up at your home to cease and sell your stuff. In Pennsylvania, creditors cannot garnish your wages but there is nothing from stopping them from garnishing your bank accounts and the chance at a paycheck if you have automatic deposit that hits before you know your account has been garnished.

In a previous blog, I talked about not panicking because someone threatens to sue you. I talked about and believe debtors and attorneys need to take time to understand the case they are getting ready to file. In addition to understanding the details, debtors should plan their bankruptcy when they can. The debtor should o work with an attorney and file the case on the debtor's timetable. Too many times people wait until a hearing is pending or a sheriff's sale is scheduled. It can be too late sometimes. If someone ceases money before the debtor files, the debtor may loose it. If a landlord wins an order for eviction or if a sheriff's sale on a house happens, the debtor may lose the ability to save their home.

If a debtor waits until the last minute, he or she may loose valuable assets they could have used for a new start. Within the last week, I've help or am helping people who almost lost two weeks pay in a garnishment action and had the power turned off in their home. They knew they were probably going to file for bankruptcy and that creditors were looking for their assets. They were hoping or betting the creditors would come this week.

Bankruptcy attorneys all over the internet tell people not to wait... not to throw good money after bad... not to put off the inevitable. If you know you are in financial trouble, talk to an attorney and make a plan. Don't let a creditor force you into a decision.

Pennsylvania Real Estate - murder/suicide does not constitute an actionable material defect

This week in Milliken v. Jacono, The Pennsylvania Supreme Court decided the issue of whether the sellers were required to disclose that a murder/suicide had occurred at the residence sometime before the sale. The court determined that "purely psychological" stigmas are not material and do not require disclosure.

Part of the court's reasoning:


Image courtesy of Salvatore Vuono
FreeDigitalPhotos.net

"... Regardless of the potential impact a psychological stigma may have on the value of property, we are not ready to accept that such constitutes a material defect. The implications of holding that non disclosure of psychological stigma can form the basis of a common law claim for fraud or negligent misrepresentation, or a violation of the UTPCPL’s catch-all, even under the objective standard posited by appellant,6 palpable, and the varieties of traumatizing events that could occur on a property are endless. Efforts to define those that would warrant mandatory disclosure would be a Sisyphean task. One cannot quantify the psychological impact of different genres of murder, or suicide — does a bloodless death by poisoning or overdose create a less significant “defect” than a bloody one from a stabbing or shooting? How would one treat other violent crimes such as rape, assault, home invasion, or child abuse? What if the killings were elsewhere, but the sadistic serial killer lived there? What if satanic rituals were performed in the house?

It is safe to assume all of the above are events a majority of the population would find disturbing, and a certain percentage of the population may not want to live in a house where any such event has occurred. However, this does not make the events defects in the structure itself. The occurrence of a tragic event inside a house does not affect the quality of the real estate, which is what seller disclosure duties are intended to address. We are not prepared to set a standard under which the visceral impact an event has on the populace serves to gauge whether its occurrence constitutes a material defect in property. Such a standard would be impossible to apply with consistency and would place an unmanageable burden on sellers, resulting in disclosures of tangential issues
that threaten to bury the pertinent information that disclosures are intended to convey..."

The court also talks about time and renovations that could remove or even enhance the stature of the property. But it is clear that a seller is not required to proactively disclose such events or character assigned to the property.

That doesn't mean you cannot ask. Also, the court notes the murder/suicide in this matter was well publicized and easily discoverable by the buyers. This case shows why potential buyers need to prepare when they are looking for a home. They need to know what they want and, moreover, what will be a deal breaker. They should create a list of the
se desires and show stoppers so they don't get caught up in the emotion of a particular property and overlook a deal stopper.

My wife taught me that. She grew up in a home that had water problems in the basement. She never wants to deal with that again. So when we were looking for both of our homes, one of her first stops was in the basement. She would also look around the yard to look for signs of standing water. It didn't matter how beautiful the property, If she saw a wet sump area or saw signs of puddles around the home, it was off the list... period! Do you know how many homes that rules out in southeastern PA?

The bottom-line is, you are responsible to do some of your own research on the properties you are considering.

For a summary of this decision and a copy of the opinion, you can go here:
http://law.justia.com/cases/pennsylvania/supreme-court/2014/48-map-2013.html