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Avoiding a Mortgage Scam

I'm at my wits end with my finances. I'm in debt with two mortgages to pay. Help!

I am in a financial crisis! I am divorced and now single at 54 years old. I have lost my job and have no income whatsoever from any source. (I'm sending out resumes like crazy too.) I have had my house listed for sale for 6 months, but with no interested buyers. I am receiving social assistance of only $800 a month, and utilizing the food bank in my community to feed myself and my son. I have a first mortgage for $120k with my bank and a second mortgage for $165k with a private lender, (which I had to take out to pay my ex husband in the divorce settlement). I am 3 months behind on my 1st mortgage and 5 months behind on my 2nd. That totals to $298k that I owe. I can't make payments on any of my credit cards either, and the balance owing on those is $35k. Due to the real estate economy, my home has now been appraised at $330k ($100k less than last year). I have been talking to a private investor, who said that he would pay me $270k for the house, but only show it as $220k and give me the $50k in cash, so the lenders wouldn't know about it. He told me that way, The bank gets paid out, and the 2nd mortgage private lender would get $97k, about 50% short of what I owe him, and that he would have to accept that money as final payment as he is not in a position to get anymore from me, as he only has a 2nd charge on my home. Then if I file for bankruptcy after the sale, showing that I only got $220k for the sale of my house, and that I wasn’t able to realize any equity, then I wouldn't have to pay the remainder to the private lender or the debt owing on my credit cards. And by receiving $50k in cash from the investor that no one knows about, then it will help me to move forward with my life again. Please let me know your thoughts, I'm just at my wits end!

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Bill's Answer
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I am sorry that you are experiencing such financial distress. If you have not already done so, I strongly encourage you to consult with an experienced bankruptcy attorney in your area to discuss the options available to you. For example, if you file for Chapter 7 bankruptcy, it could discharge all of your unsecured debts, such as credit cards, hopefully freeing up some money which you can use to pay down your mortgage delinquency. Even if your bankruptcy does not free up sufficient funds to pay your monthly mortgage, it will hopefully stall the foreclosure process long enough to allow you to find a new job and put the mortgage payment within your means.

If you feel that you will be unable to pay your current mortgage even with a significant reduction in your other debt obligations, you may be able to surrender your home as part of your bankruptcy filing. The primary benefit to surrendering a home as part of a bankruptcy proceeding is that most consumers in a situation like yours can give up their home without the fear that they will be left owing a large deficiency balance (the difference between what you owe and what the lender receives at the foreclosure sale), as any remaining balance of the mortgage can usually be discharged as part of the Chapter 7 case.

For more information on bankruptcy visit the Bankruptcy Advice page.

As for "private investor" to whom you have been speaking, my best advice would be to avoid this type "under the table" real estate transaction at all costs. The fact is this--if the investor pays you $50,000 in cash, and then you file bankruptcy and fail to disclose this money, you will likely be guilty of bankruptcy fraud, which is a federal felony and can result in time in federal prison. Anyone who would recommend that you take any action that is illegal and could result in your imprisonment is almost certainly not looking out for your best interest. The type of arrangement that you are describing is also generally illegal in that you and the "investor" would be defrauding your current mortgage lenders, asking them to agree to a short-sale price at a certain amount when the lender is actually paying you more.

Again, this action could be criminal (bank fraud), which could result in heavy fines and/or imprisonment. Because what this investor is proposing is potentially illegal, and at minimum dishonest, I encourage you to contact your state Attorney General's office as well as the US Attorney's Office for your federal district to report this "investor's" activity. As for selling your house under the terms he is proposing, while it sounds attractive, this is one of those "too good to be true" situations that you need to stridently avoid. You can work with your lender to arrange a short sale, but taking money "under the table" as part of a real estate transaction could cause you many more additional problems.

Again, I strongly encourage you to consult with a local bankruptcy attorney to discuss the options available to you. I wish you the best of luck and hope that the information I have provided helps you Find. Learn. Save.



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