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  1. #1
    Join Date
    Jul 2018
    Location
    California
    Posts
    2

    Default Will Surrender of Rental Properties After Bankruptcy Affect Personal Credit

    My question involves real estate located in the State of: My question involves real estate located in the State of: California (need a refi of primary residence) and New York (Ch7 surrendered rental properties)

    I surrendered two New York rental houses to the court during a Chapter 7 BK here in my own state of California after they both went vacant at the same time during the economic down-turn. Both mortgages had my name on them with the bank and were fully discharged in the California BK, but upon surrender, the property titles themselves were still being held separately in my single-member LLC. Even though we no longer owned the properties, a couple of YEARS later a notification letter was sent to the LLC address stating that the properties had ultimately been foreclosed on and solt at a tax sale by whomever it was that ended up taking over each of the surrendered properties from the court.

    Only the Chapter 7 BK appears on my personal credit. The subsequent sale of either of these properties do NOT show up on my personal credit since title was held by the LLC. I'd like to refinance my primary CA residence now but the last lender told me I needed to wait at least 3 years after the final sale of those rental properties, even though they were both surrendered/discharged and I was no longer the owner at the time they were sold.

    What is actually looked at with respect to refi for my primary CA residence given that the much later sales of the surrendered properties were not even in my personal name and do not appear on my credit at all – only the BK? There is a question I saw on the FHA loan form that asks if I was ever “connected” to a foreclosure. In my mind… “no”….. because I only have a bankruptcy. I didn’t actually own them anymore when they continued on with foreclosures MUCH later. Can I answer “No” on that question? Lenders don't seem to be able to give me a straight answer on how to answer this. I only know about the sale dates because I actually opened the notification letters they sent to the old LLC address.

    Thank you.

  2. #2
    Join Date
    Mar 2013
    Posts
    15,776

    Default Re: Will Rental Houses Surrendered in Ch7 and Aren't on My Personal Credit Affect My

    Quote Quoting LC Field
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    What is actually looked at with respect to refi for my primary CA residence given that the much later sales of the surrendered properties were not even in my personal name and do not appear on my credit at all – only the BK? There is a question I saw on the FHA loan form that asks if I was ever “connected” to a foreclosure. In my mind… “no”….. because I only have a bankruptcy. I didn’t actually own them anymore when they continued on with foreclosures MUCH later. Can I answer “No” on that question? Lenders don't seem to be able to give me a straight answer on how to answer this. I only know about the sale dates because I actually opened the notification letters they sent to the old LLC address.
    Oh, but you certainly were connected to those foreclosures. You OWNED the LLC that OWNED the properties. If that's not a "connection" I don't know what is.

    Anyway, I'm looking at an FHA sample loan application and the question is:

    "Have you had property foreclosed upon or given title or deed in lieu thereof in the last 7 years?"

    http://fha-home-loans.com/forms/Loan%20Application.pdf

    Looks to me that your answer to that question should be yes.

    When you say lenders don't seem to be able to give you a straight answers are you talking to loan officers who make the decision or to mortgage brokers who have no clue as to what any given lender will do about the information?

  3. #3
    Join Date
    Oct 2006
    Posts
    14,360

    Default Re: Will Rental Houses Surrendered in Ch7 and Aren't on My Personal Credit Affect My

    Quote Quoting adjusterjack
    View Post
    Oh, but you certainly were connected to those foreclosures. You OWNED the LLC that OWNED the properties. If that's not a "connection" I don't know what is.

    Anyway, I'm looking at an FHA sample loan application and the question is:

    "Have you had property foreclosed upon or given title or deed in lieu thereof in the last 7 years?"

    http://fha-home-loans.com/forms/Loan%20Application.pdf

    Looks to me that your answer to that question should be yes.

    When you say lenders don't seem to be able to give you a straight answers are you talking to loan officers who make the decision or to mortgage brokers who have no clue as to what any given lender will do about the information?
    I think that his argument is that he surrendered the properties in bankruptcy so neither he nor his LLC technically owned them at the time that they were foreclosed upon. Plus, the debt associated with them was discharged. The mortgage companies never put them in their names because they didn't want to pay the taxes or insure them. That happened a lot between 2008 and 2015.

    Therefore he is getting a double whammy on his credit if he also has to take responsibility for the foreclosure.

  4. #4
    Join Date
    Sep 2005
    Location
    Behind a Desk
    Posts
    98,368

    Default Re: Will Rental Houses Surrendered in Ch7 and Aren't on My Personal Credit Affect My

    Did you list your membership in the LLC as an asset of your bankrupt estate? Did you continue to operate the LLC after the bankruptcy? Did the LLC lapse before the tax foreclosure occurred?

  5. #5
    Join Date
    Jul 2018
    Location
    California
    Posts
    2

    Default Re: Will Rental Houses Surrendered in Ch7 and Aren't on My Personal Credit Affect My

    Quote Quoting llworking
    View Post
    I think that his argument is that he surrendered the properties in bankruptcy so neither he nor his LLC technically owned them at the time that they were foreclosed upon. Plus, the debt associated with them was discharged. The mortgage companies never put them in their names because they didn't want to pay the taxes or insure them. That happened a lot between 2008 and 2015.

    Therefore he is getting a double whammy on his credit if he also has to take responsibility for the foreclosure.
    Yes... exactly this.

    That does help, than you. Whenever I have seen that exact question, I always checked “yes” because of the deed part. But somewhere (perhaps on another application?) it was only asking about the foreclosures by themselves, so I guess that is where the real question showed up for me. When you asked about my getting straight answers – correct, I do believe it was a broker I was dealing with, so that may explain it. Thanks again for your help.

    Quote Quoting Mr. Knowitall
    View Post
    Did you list your membership in the LLC as an asset of your bankrupt estate? Did you continue to operate the LLC after the bankruptcy? Did the LLC lapse before the tax foreclosure occurred?
    I don’t think the LLC was necessarily listed as an “asset” in the BK. I am not sure about that. I disclosed it and the BK lawyer asked me if there were any other assets or if it was just protection of the properties, and I answered the latter. I am pretty sure the final tax return had been filed before that point as well, but the LLC itself was never officially closed-out. I think it’s still there. Anyway, that helps tremendously, thank you all for your kind assistance!

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