On December 2, 2012, the Los Angeles Times ran a story about a man whose story might be relevant to underwater homeowners who are considering filing Las Vegas bankruptcy. Jeffrey Cote bought a condominium in Los Angeles in 2007, expecting its value to increase indefinitely. Obviously, this did not happen, and two years after borrowing $647,000 and paying no money down he filed bankruptcy and moved out of the residence expecting the bank to foreclose. The foreclosure never happened, but in 2012 Cote discovered someone living in his condo. Here is a list of things that went wrong:
- Although the article doesn’t say, Cote either should’ve hired a bankruptcy attorney in 2008 or he hired a poor one.
- Not resolving the underwater mortgage in bankruptcy or before it was a serious error. By walking away from the condo, Cote took the least advisable course of action. Even offering the deed to the bank in lieu of foreclosure would have been wiser because it would have saved his creditworthiness from a serious setback.
- Had he surrendered the deed or short-sold the condo before obtaining the discharge in Chapter 7, Cote could have discharged any deficiency between the remaining debt on the mortgage and the amount he received from the short sale.
- One possible cause for these problems might be the fact that his marriage was failing at the time of the bankruptcy, which may have made finding an attorney difficult. Nevertheless, having a fresh set of eyes on his problem would have helped.
- A good bankruptcy lawyer would have also advised Cote not to leave the apartment unless the bank was actually moving towards foreclosure. The lawyer might have also pointed out—as the article did—that banks don’t like foreclosing on condos because then they have to pay condominium association fees for a unit that they can’t sell on the market.
- Cote could have also waited to file bankruptcy until the bank was actually about to foreclose on the home. Filing bankruptcy without any action on the bank’s part wastes the potential protection that the automatic stay would have afforded him.
Although Cote’s story appears to have turned out for the best with him moving back into his residence, he did so at a steep price. Much financial damage could have been avoided with better bankruptcy representation. If you are in a similar situation to Jeffrey Cote, don’t file bankruptcy too early, and don’t walk away from a home before the bank says it’s considering foreclosing on it.
For more questions about bankruptcy in Las Vegas, please feel free to contact an experienced Haines & Krieger Las Vegas bankruptcy attorney for a free initial consultation. Call us at 1-702-880-5554 to set up your free consultation.