Bankruptcy can help you take advantage of housing crash
Posted Oct 05 2009 in Wink and Wink by @winkhesaidA recent article on Bloomberg.com suggests the crash in U.S. home prices will resume. That’s good news for people filing bankruptcy.
The article points out that analysts estimate there are 7 million properties which have to be foreclosed upon and have yet to hit the market. According to the article, this so-called ‘shadow inventory’ represents 1.35 years worth of inventory, assuming only these foreclosures are on the market. These same analysts expect this to cause further declines in house prices, anywhere from 8% to 13%.
Why this is good news? Well, it depends on your perspective. I think good investing requires you to accept that you can’t control the news, but you can position yourself to take advantage of it. How do you do this?
Step 1 – Put down the magic 8-ball and accept your current situation.
This is just one bit of bad news. There’s more, like the scheduled end of the first-time home buyers’ tax credit and the Fed’s plan to wind down its buying of mortgage backed securities.
If you’re underwater in your mortgage or underwater with your second mortgage or home equity line, this news means your house is not going to suddenly jump in value and bail you out. Robert Shiller, a well-known economist, professor at Yale University, and head of the Case-Shiller index of home prices, says “I think this crisis has the potential to last for years and years..” And Moody’s analyst Judy Chen says “The national price level will not regain its 2006 high until 2020..”
Don’t beat yourself up for this. Homes have been so solid for so long, how were you to know the mortgage banking industry was in the process of making trillions of dollars, yes trillions, of increasingly bad loans throughout this decade? You weren’t. But now you know.
I can’t resist the old adage – Fool you once, shame on the mortgage industry. Fool you twice….Now my wife is telling me to get on with the next step.
Step 2 – File for bankruptcy. Yes, I said it. Before you disregard my biased opinion as a Colorado bankruptcy lawyer, consider these facts. If you’re underwater merely because of a second mortgage or home equity line, bankruptcy may be able to wipe this out for you. Walla – major part of your problem solved.
If not, bankruptcy will likely give you a few months to live rent free. It will also prevent the mortgage banker from getting a deficiency judgment against you after they sell your home in foreclosure for less than what is owed.
Additionally, you can wipe out credit card debt, medical bills and other unsecured forms of debt. Now you’re cooking with gas for positioning yourself to take advantage of this ‘bad’ news.
Step 3 – Begin building your savings and credit.
There’s lots of things you can do here, like limiting your spending, applying for secured credit cards, and staying current with whatever loans you have after bankruptcy (ex., student loans, auto loans, etc.). If you do these things and have decent income, you will likely qualify for a mortgage within a couple of years of your bankruptcy.
Even then, the housing market may still be crashing. Regardless, this ‘bad’ news suggests you will still be in position to buy low.
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