Bankruptcy During a Short Sale?

THE IMPACT OF BANKRUPTCY ON A SHORT SALE
Sellers of real estate in distress often look to bankruptcy as a solution to their overall financial problems. Bankruptcy is a constitutional right and can in some instances, be an appropriate remedy. It is beyond the scope of this short article, however, to replace the quality consultation with one of our qualified attorneys.

BANKRUPTCIES AND SHORT SALES DON'T MIX
When one files for bankruptcy, strange things automatically happen by operation of federal law. The seller no longer owns their home or any other asset not exempted by the Federal Bankruptcy Rules. Title to their home automatically transfers to the Bankruptcy Trustee who is administering the seller's bankruptcy case. This is called the "Stay of Bankruptcy." No one (not even the seller's lender) can continue to try to collect payments from your seller or even start or continue foreclosure proceedings unless such action is approved by the Bankruptcy Court. Every collection effort stops upon the filing for bankruptcy protection.

CHAPTER 7 AND CHAPTER 13 BANKRUPTCIES ARE MOST COMMON
A Chapter 7 bankruptcy is a liquidation and is utilized when a debtor is so insolvent (meaning that the debts owed are so much greater than what is owned) that the court oversees a liquidation and gives, in most cases, a discharge of most debts allowing a debtor a "fresh start." A Chapter 13 bankruptcy is a personal financial reorganization with the court overseeing the overall "Plan" for as long as three to five years. Commonly referred to as a "Wage Earner Plan," it anticipates to a great degree repayment of some or all of the debts over time. Most debtors, presently in financial distress, find that a Chapter 7 bankruptcy is most advantageous to them in our current recessionary marketplace.

NO ACTION FOR SHORT SALES WHILE BANKRUPTCY IS IN EFFECT
It is unlawful for any lender to do anything to foreclose or collect on a debt due them while your sellers are under the Bankruptcy Court's protection. In fact, in most cases, their lender administers the case in a special "Bankruptcy Administration Department" within their organization. In addition, no lender can legally negotiate a short sale during a bankruptcy without court approval. Most courts don't even entertain such proposals. Most lenders wait for the Bankruptcy Court to terminate or complete a bankruptcy before starting or resuming short sale negotiations or the continuation of foreclosure for that matter.

WHEN TO DO A SHORT SALE
If your seller is planning on filing for bankruptcy, please consult a qualified bankruptcy attorney before they list or enter into a sale of their property. Planning is an important aspect of their decision-making process as regards bankruptcy. Our attorneys can assist them in the decision-making process. Their decision to do a short sale should be designed to complement your activities, and if not done properly, can result in a lot of wasted effort of many real estate professionals involved.

LISTING THEIR PROPERTY BEFORE A BANKRUPTCY
In our practice, we encounter on a continuing basis severe hardships, frustrations and loss of energy in transactions wherein a seller either seeks to sell their property and then files for bankruptcy or is already in bankruptcy when they enter into a listing agreement to sell or an actual purchase and sale agreement for the sale of their property.

TIPS FOR BANKRUPTCY MATTERS
Seek competent bankruptcy attorney help. You can meet with one of our attorneys or we are happy to recommend local competent bankruptcy attorneys who can assist your seller in their decision. If your seller is in bankruptcy, please advise our office immediately, as special actions need to be taken as regards a short sale. Don't assume that bankruptcy is your seller's only solution. Because Washington has many rules assisting borrowers in foreclosure, a successful short sale may be an alternative. Even though your seller may be discharged in bankruptcy, it can take as long as a month or two before such actions will "register" within the department that handles such matters at your seller's loan servicing company. This can greatly lengthen the time of negotiating your seller's short sale. If in doubt, always call our office as we are happy to answer questions you may have on bankruptcy matters and other matters regarding short sales.

A BANKRUPTCY FILING BY SELLER DURING SHORT SALE NEGOTIATIONS IS GENERALLY DEATH TO A SHORT SALE CALL US ON THE RADIO For more information on distressed property matters, please tune in to Real Estate Legal Line on Freedom 570 KVI Sundays at 10 AM. You can call Ed McFerran on the air between 10 am and 11 am at 1-206-421-5757, or toll free at 1-888-312-5757. McFERRAN, BURNS & STOVALL, P.S. Short Sale Negotiations 1-253-284-3838 http://www.mbs-law.com/ (law matters) http://www.mbs-shortsales.com/ (short sales) http://www.mbs-loanmods.com/ (mortgage loan modifications)

The Fed is Talking, but Will They Act?

This was a good article sent to me from Christina Daniels at Olympic Lending. Good stuff! Check it out!

If the Fed raises the Fed Funds Rate too soon, it could slow economic activity and cause a "double dip" recession. However, if the Fed waits too long to raise the Fed Funds Rate, inflation could result...and inflation concerns were a big reason for all the Fed chatter last week. Remember, inflation is the arch enemy of Bonds and home loan rates.

With mounting debt in the US and concerns that US debt will overtake GDP by 2012 - as well as the problems in Europe - there are many factors the Fed needs to consider before taking action. For instance, last week Fed Chairman Ben Bernanke said that the Unemployment Rate is likely to remain high for a while and he noted that the Fed "can't wait until unemployment is where we'd like it to be" before tightening credit, or inflation could too easily get out of control. That said, recent reports like May's Jobs Report and Retail Sales Report - which showed the first monthly decline since September 2009 - indicate that our economic recovery is still fragile at the moment. This means the Fed won't want to act too quickly, either.

The next Fed Meeting is June 22-23rd, and while the Fed will most likely not raise the Fed Funds Rate at this time, more and more Fed members are expressing concerns about the current very accommodative monetary policy in place. Although home loan rates are not tied to the Fed Funds Rate, I'll be watching this situation very carefully as it continues to unfold.
In addition, Bonds and home loan rates have benefitted lately from the situation in Europe, as global investors have sought the safe haven of our US Bonds. However, as the Euro's freefall is finally showing some signs of stabilization, traders and investors can be very fickle in unwinding or reversing these trades pretty quickly. This could reverse the improvement we've seen in home loan rates, and we saw a sign of that last week. Bonds and home loan rates ended the week a bit off their best levels of the week...but are still incredibly low overall.