Deed-in-Lieu - Really? - or Chapter 7 - Tomorrow Decision

[3rdEye]

I need immediate advice,

I am a week away from being able to file Chapter 7.

At the same time, Citimortgage has agreed to a Deed-in-Lieu and Chase to a settlement for HELOC.

The problem - timing and trust.

To accept Chase's HELOC offer I must close my 401K for the money tomorrow by 1p PST to have the money in my bank account in time to wire to Chase by Friday.

It seems wrong to me to be in such a rush on such an important decision, but I must have HELOC cleared to allow Citi to accept Deed-in-Lieu.

The problem - this is my last resource. Citi approved Deed-in-Lieu on September 12 and said I would have papers in a couple of days.

2 weeks later I emailed my Negotiator at Citi that I had no papers. On my 3rd email when I said I need communication urgently as my original deadline was was approaching for Chase - he finally called me to assure me that I was simply giving the house back with no strings attached - to assure me I could go on and send the money to Chase. He said the problem was the law firm handling the DIL but that he'd spoken to the Managing Attorney who assured him the papers would be mailed in a couple of days.

I was comforted by this, but then realized that day I would still be giving away my only and last resource to Chase for HELOC with nothing in hand to prove I had DIL.

Sure enough, 2 weeks later now, nothing and no answers to my emails. So today, I miraculously found my negotiator's phone number and called him. Middle of last week I had emailed to say no papers yet and please send overnight as I had managed a new deadline for Chase which was fast approaching. He never answered.

When he surprisedly found me on the phone today he immedately called attorneys and returned to tell me the papers would be overnighted. Couldn't give me a tracking number. They should be here by tomorrow morning, and I have until 12p really to tell 401K company to close account and wire money.

Problem. 2 stage steps here in California, mail papers back and then receive 2nd stage papers to finalize.

Can I trust them? I've read all over internet how even after being told DIL approved, papers never came, so my 2nd batch could never come.

I would rather DIL, but instead will go Chapter 7 if doesn't work out, but will need 401K money to repurchase my car.

I'm loathe to complete this tomorrow in case will they will not follow through.

I could take the chance of letting Chase's settlement offer lapse with the hope they will open it again, but of course that's a big chance as well.

Finally, could do DIL after bankruptcy, but would rather not do Chapter 7 if could avoid.

Final point, house is in New York where you can be sued for deficiency. Also 12-18 months for foreclosure to take place.

Would appreciate any insight. Obviously, time is of the essence.

Finally, have been resident here in CA since November '08. Is there a residency requirement to allow CA's Mortgage Relief Act to cover me.

Thank you.

[Enough Already]

Hi 3rdEye,

Your property would have to be in CA for the CA foreclosure laws to apply, so unfortunately that won't help with your situation.

All I can say is you can't trust the banks to follow through with what they promise, agree to etc. They may come through with the DIL, but you just never know.

I wouldn't be too thrilled about wiping out the 401K either.

I know dealing with these situations can be maddening, but try not to be too hasty. Is there any way can hold off on the BK while you wait and see if the bank is actually going to pursue you for the deficiency amount?

[reddog64]

I wouldnt touch the 401K...

I believe it's safe in a BK case anyways...?

[Enough Already]

As I understand it, a 401K is safe from creditors too. They're uncollectable. Retirement account are off limits.

[3rdEye]

Thanks for your responses.

To tell the truth, I have trouble realizing why I must file Chapter 7 if the Deed-in-Lieu doesn't happen.

Isn't it wise to avoid a Civil Judgment against me? Along with not allowing them to pursue a deficiency?

So, all I ever hear is not to trust the banks to do what they say. I must say I don't think I can close my 401K in this situation. Its 11:31am here now and the overnight package has not arrived. I'd have to call to close my 401K within the next hour for this to happen. I can't do that.

Would someone outline an alternative scenario in this situation?

House in New York. I live in California 11 months.

Received notice they will start foreclosure by Dec. 27, 2009.

Even the person at California's tax board can't really tell me if California conforms to the Federal Mortgage Relief Act and if I'll be covered and if there is a residency requirement as I've been here only 10 months.

Good scenario anyone?

[Enough Already]

If they give you a DIL, and that's the only bad debt you've got there's no reason you would need to file BK.

I received a notice of intent to foreclose in April and they haven't done anything yet.

The Mortgage Debt Forgiveness Act is related to federal taxes. You'll probably still have to pay the state taxes on the forgiven debt. You really need to talk to an expert. My advice would be to contact a CPA.

Good luck.

[3rdEye]

Thanks Enough Already,

I did get the papers today, but I'm no less comforted. I meant the Bankruptcy was to avoid a civil judgment if I couldn't get the DIL because I didn't payout my 401K to the other bank to release 2nd lien.

I'll try calling a tax lawyer today as the cpa didn't know CA's law on Mortgage Relief.

Appreciate the perspective. Thanks

[dealingwithHomeEq]

To tell the truth, I have trouble realizing why I must file Chapter 7 if the Deed-in-Lieu doesn't happen.

Isn't it wise to avoid a Civil Judgment against me? Along with not allowing them to pursue a deficiency?

A Chapter 7 bankruptcy should wipe out a civil deficiency judgment, so I'm not sure why you would want to rush filing in anticipation that they may eventually get a judgment against you. At any point, if you filed bankruptcy, it would stop them in their tracks--even after they got a judgment against you.

I can't believe these banksters are shaking down DIL homeowners for their last dime of their 401(k)'s to pay off a HELOC. The housing situation is going to get much worse--along with the rest of the economy. I would rather have the 401(k) money in hand to use for survival, rather than the piece of mind that some second-position bottom-feeding bank will not sue over a deficiency. If and when they get a judgment, you can file and get some satisfaction that they spent a few thousand dollars in court and they'll end up getting jack squat because you can discharge it in a Chapter 7 when they go to execute on it.

Save your 401(k) for yourself. You'll be happy you did.

[3rdEye]

Thanks DealinwithHomeEq,

I must say you and Enough Already and reddog64 have really made me stop and reconsider. It just feels wrong to close my 401K to send this money for the second lien holder. The thought of this being over with a Deed-in-Lieu is so attractive, but I really have nothing to let me know it will go all the way through. They have all this language about what must turn out this or that way or they won't do it.

Yet, it could be over in a week this way. If only I didn't have to close my 401K. And the negotiator at the 2nd lienholder was so nasty and knew I didn't have what he asked for. He was very happy to work with me if I was closing my 401k.

I'll also think about why I have to do a Chapter 7 now.

Thanks

[auroraproblem]

Don't quote me on this, but I believe a chapter 7 filing with you stating no intent on keeping the home, results in the house being discharged along with the other debts.

In other words, you would not be responsible for any outcome as to how either the first or second comes out in the deal. The same with any car you decide not to keep, goes back to the lender and any difference in auction is their issue. This is how our attorney explained it to us.

Not trying to sway you, just saying if you are going to do a Chapter 7, then don't sweat what you are not going to keep.

[dealingwithHomeEq]

auroraproblem is correct--a Chapter 7 will wipe out both loans in one fell swoop. Once you do that, it is citi's problem. You will have a certain degree of satisfaction in knowing that when citi subsequently forecloses, the foreclosure will wipe out Chase's second position HELOC lien and they will likely be sold out.

After this all goes down, I would FedEx letters to the entire board of Chase and tell them that Chase had a chance to work with you (you were even considering giving up your 401(k)), but their negotiator jacked you around and mishandled it to the point that you finally decided to tell them to screw off. Make sure you list the people that scuttled the deal at Chase and detail the events that led to your decision.