Our real estate market here in Houston is quite strong, a "seller's market" so to speak. But there are still quite a few properties that are "underwater," that is, there is more owed on them, than they are worth.

In Chapter 13 bankruptcy, typically we provide in the Chapter 13 plans that the debtors will "surrender" the unwanted houses to the mortgage companies (if they don't want to keep them). Following the approval of the plans, the mortgage companies will eventually foreclose on them. Any remaining balance due is discharged or canceled, so at least they can't pursue the debtors for any more money, which is possible in Texas. https://www.jthomasblack.com/blog/for-some-of-our-clients--walking-away-or-short-sale-can-be-best.cfm

Unfortunately though, the foreclosure can still be reported on a debtor's credit history for 7 years, and a conventional mortgage lender will usually make you wait 7 years before giving you a new loan. But you may qualify in as little as 3 years (even less possible with "extenuating circumstances") for an FHA loan.

Anyway, to avoid having a foreclosure on your credit, you may want to consider a "short sale." A short sale is a sale of real estate in which the proceeds from selling the property will be less than the balance of debts secured by liens against the property, and the property owner cannot afford to repay the liens' full amounts, and whereby the lien holders agree to release their lien on the real estate and accept less than the amount owed on the debt.

In other words, the lenders (and possibly the homeowner association, and even real estate brokers or other parties involved in the transaction) agree to "take a haircut" or reduce what they are owed. Typically, the lenders agree not to pursue the seller for any remaining balance, but this is not always the case.

If you find yourself in bankruptcy and want to do a short sale on your home, the purchaser's title company will likely insist upon a bankruptcy court order authorizing the sale. Years ago, bankruptcy courts would not approve short sales, saying the debtors should just surrender the property.

But lately, our Houston bankruptcy judges have been routinely granting them, assuming that the lienholders have given their agreement to the short sale in writing. Once you have a short sale worked out and you have a buyer and a signed Earnest Money Contract, ask your attorney to file a Motion to Sell with the Bankruptcy Court.

J Thomas Black
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Board Certified, Consumer Bankruptcy Law- Texas Board of Legal Specialization