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Diana in LB · Jul 26, 2012, 04:59 PM

My husband and I lost our jobs. We filled for BK that settled in 3/2012. We have missed 14 mortgage payments. We cash out our $40,000 IRA to survive, now we need the NOD from lender in order to avoid penalty on IRA, but the lender is not sending it... Mortgage loan amount is $175k -condo is worth about $75k plus I owe 4months of HOA. Im too stressed out to think straight please help?

AK lawyer · Jul 26, 2012, 05:18 PM

4 months ago your bankruptcy discharge was granted, but at that time you were already 10 months behind on your mortgage? Presumably you were far upside-down even when you filed for bankruptcy protection. It looks like you should have surrendered the condo. Then you could have avoided liability for a deficiency judgment. Ask your bankruptcy lawyer if it's not too late to amend.

By "NOD", I guess you mean notice of default. The lender can take all the time it wants to provide that, I think.

Fr_Chuck · Jul 26, 2012, 06:33 PM

Yes, why was the home not included in the bankruptcy

AK lawyer · Jul 26, 2012, 08:05 PM

Originally Posted by Fr_Chuck

Yes, why was the home not included in the bankruptcy

It probably was included. But mortgagees are secured. The automatic stay would have prevented them from foreclosing until the bankruptcy was complete, but once the bankruptcy is over, they can proceed to foreclose.

But I'm not sure what I was thinking earlier. The deficiency, being unsecured, would have been discharged. The bank can't go after it now.

I am assuming the condo was OP's residence. If so, they would not have been able to "cram down" the mortgage to the $75K present value.

Diana in LB · Jul 27, 2012, 10:25 AM

Thank you for the information.. Yes the condo was part of the BK but the bank has not even sent anything regarding the foreclosure process. According to the bank they will send me a 1099 for the difference if the house gets sold in a short sale. Can they do that even though it was part of the BK.

AK lawyer · Jul 27, 2012, 12:36 PM

Originally Posted by Diana in LB

... According to the bank they will send me a 1099 for the difference if the house gets sold in a short sale. Can they do that even though it was part of the BK.

I think the difference will be $0. As I said, you don't owe them anything more than what they get for it.

Diana in LB · Jul 29, 2012, 04:58 PM

Me and my husband lost our jobs and our home is in the process of foreclosure. We cash out our retirements as long as its towards a purchase of a new home (as advised by a friend). Another thing we are hoping for is that since the condo is in the process of foreclosure we can receive a Notice of default (NOD) and use that to protect ourselves from being penalized by the IRS (hardship clause/ per IRS). All of these where a result of advises and internet research. I want to know if there are other implications that I'm not aware off? If so how much will the IRS penalize me for using my 401K and IRA? Please advise. Thank you!

AtlantaTaxExpert · Jul 30, 2012, 06:45 AM

Unfortunately, the provision that allows you waive the penalty on an early withdrawal from your IRA is for the purchase of a NEW home, not to pay your mortgage or prevent foreclosure.

And there is no such provision for using your 401K funds for this reason.

ebaines · Jul 30, 2012, 10:00 AM

Your friend was misinformed. There is an exception for being hit with the 10% early withdrawal penalty from an IRA for first time home buyers, who are allowed to take out up to $10K for the purchase of a first home. You would qualify if neither you nor your spouse had any interest in a main home for the previous two years, but that's not the case here. If you cashed out $40K from your IRA then plan on paying the $4K penalty with your 2012 tax return.