Negotiating with Mortgage Lenders

About a year ago I started my own business.

I took out a SBA loan and signed my house on the line. Needless to say I lost and now I'm in the process of losing my house.

I have filed for a Chapter 7 bankruptcy and currently I can walk away from 134K I owe to my first mortgage, 45K I owe to my second mortgage and 21K the SBA has the right to take.

Note that my house is worth 200K last appraisel. The problem is my 4 year old twins love the house as do I.

I have a gentleman willing to buy the house on a land contract and allow us a rent to own contract. The question I have is the sheriff's sale is 01/15/07.

How much if I decide to offer the SBA should I? 10% 20%? 30%? that goes for the second mortgage also.

In my ideal world if they all settled for 30% I can make out on this...For my family's sake I would love some advice.

Tim

Since the banks have secured interests in your house it is unlikely that they will settle for less than they think they can get at auction.

The first mortgage holder would expect to be made whole - get back all that is due.

The second mortgage holder would want the rest. If there's enough left the SBA will want its share.

Since the SBA is third in line, it might settle for a less if it looks like it will either be cut out entirely or in part.

The only way to to find out what the banks will take is to start negotiating. But you have to be realistic. [You also have to realize that what you are planning to do might be considered a fraudulent transfer by the bankruptcy court, so consult an attorney.]

If your house is worth $200K at auction, the banks will probably not settle for much less than that. I think it is unrealistic to expect that you will walk away from your situation that easily.

On the other hand, banks don't like to have to take possession of a house so you can probably work something out with them.

Perhaps it would be a good idea to have your potential buyer sit down with them. Since he is the money man, they will likely be more interested in negotiating with him rather than you.

I hope you can work something out.

[Since the subprime mess started, banks are probably more willing to work with strapped borrowers, but the lenders solution would probably be a renegiotation of the mortgage terms rather than a reduction in the amount borrowed.]

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