Oct 05 we purchase an investment home for 391k, it was a new home and we planned to make payments with a equity line on our primary home for 1yr and sell the investment home for a large profit, which was projected to be about 50k. Well, now the market went south and we still have the house, can't sell it for near what we even owe, not to mention, trough out this time we have racked up about 76k on our existing heloc account. We have seen a bankruptcy lawyer and was advised to file chapter 13 and include the 2nd home. My question is, is there any other solution to our situation, we are afraid of what the bankruptcy payment is going to be because it is going to stress us just to pay our primary mortgage payment and now an equity line payment. What are the risks if we just let the banks foreclose on the 2nd home and don't file chapter 13?Can they take our primary home even though we are making payments?We are just thinking of a way to avoid bankruptcy if at all possible. We have paid all our bills in the past and have had great credit up to this point.Also what are the risks of just signing the house back to the bank, if they agree to, or short sale?I have heard there are tax implications on a short sale.Any suggestions on the best route to take? Thanks! :confused:

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Originally Posted by Reddog68

What are the risks if we just let the banks foreclose on the 2nd home and don't file chapter 13?Can they take our primary home even though we are making payments?We are just thinking of a way to avoid bankruptcy if at all possible. We have paid all our bills in the past and have had great credit up to this point.Also what are the risks of just signing the house back to the bank, if they agree to, or short sale?I have heard there are tax implications on a short sale.Any suggestions on the best route to take? Thanks!!:confused:

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First, if you let the bank foreclose, this does not relieve you of the obligation on the loan. What will happen is the bank will foreclose and sell the house at auction. You will still be responsible for any balance left over after the auction. The bank will then come after you for that.

You can try just signing the house back to the bank, but they would have to agree and they have no incentive to. A short sale is stronger possibility. In a short sale, the lender agrees to accept an amount less than owed and charges the difference off. This difference then becomes taxable income to you.

I have to ask who projected a $50K gain on this investment? The housing market was beginning its downturn more than 2 years ago. So it would appear you got very bad, possibly criminally bad advice. You might consider pursuing a case against whoever advised you into making this "investment".

RENT THE HOUSE... don't mess up your credit with a BK when you can lease the home, get income and wait out this RE market...

Yes, if this will be possible you should try to rent and get some income. If rent will not cover mortgage expenses consider short sale. Be aware of foreclosure consequences.

Do not go for BK if you do not have to. You will have two mortgage payments. Can you afford to pay more?
There is one more option- "Deed in Lieu" if loss mitigation can not solve your problem. This is not simple process.

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Originally Posted by Reddog68

Oct 05 we purchase an investment home for 391k, it was a new home and we planned to make payments with a equity line on our primary home for 1yr and sell the investment home for a large profit, which was projected to be about 50k. Well, now the market went south and we still have the house, can't sell it for near what we even owe, not to mention, trough out this time we have racked up about 76k on our existing heloc account. We have seen a bankruptcy lawyer and was advised to file chapter 13 and include the 2nd home. My question is, is there any other solution to our situation, we are afraid of what the bankruptcy payment is going to be because it is going to stress us just to pay our primary mortgage payment and now an equity line payment. What are the risks if we just let the banks foreclose on the 2nd home and don't file chapter 13?Can they take our primary home even though we are making payments?We are just thinking of a way to avoid bankruptcy if at all possible. We have paid all our bills in the past and have had great credit up to this point.Also what are the risks of just signing the house back to the bank, if they agree to, or short sale?I have heard there are tax implications on a short sale.Any suggestions on the best route to take? Thanks!!:confused:

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I'll answer some of your questions:

1. My question is, is there any other solution to our situation, we are afraid of what the bankruptcy payment is going to be because it is going to stress us just to pay our primary mortgage payment and now an equity line payment.

Yes, there is a solution. What you have done is not uncommon in a time of panic, i.e. throwing good money after bad debt.

2. What are the risks if we just let the banks foreclose on the 2nd home and don't file chapter 13?

The bank can come after you for the difference between what you owed and what they sold the property at auction for. However, the difference between this and and previous debt is that it will no long be secured (against a property). But, the bank can continue to go after you until the debt is settled.

3. Can they take our primary home even though we are making payments?

The short answer is NO. The long answer is also NO. Even if they attempt to force you into an involuntary bankruptcy, the court will simply either impose a payment plan (provided the trustee believes you can make the payment) or dissolve the debt altogether. Your home will only be a risk if you cannot/will not make the payment on it's note.

4. Also what are the risks of just signing the house back to the bank, if they agree to, or short sale?

You are talking about a deed in lieu of foreclosure. When a bank does a DIL, they forfeit future recourse. The same goes for a short sale.