Bankruptcy Question

Any answer you get here is not actionable, you need to speak with a bankruptcy atorney.
That said;
First, bankruptcy is governed by Federal Statutes/Regs. (not state)--the one exception being the homestead exemption which is defined by the various states' laws). Second, you're using terminology that indicates that you have just enough knowledge to get yourself into serious trouble (ex. "cram-down" in a personal bankruptcy scenario). Third, the look-back period for fraudulent convayances is at least 18 months so you either have to be honest or plan 19 months ahead.
Again, you need an attorney.

I believe NY state laws allows for deficiency judgements on first mortgages (whether owner or non-owner occupied). However the loan documents must have a statement allowing for a personal guarantee. I have been through this issue on a commercial property that I (stupidly) had a personal guarantee on and here are the issues:

1) New York requires a judicial foreclosure and deficiency judgement. This is a good thing for you because it's a long and expensive process for the bank (and you) and theoretically, the bank should have an incentive to work with you to avoid this. It's hard for the bank to sell the property during this process and the last thing the bank wants is more REO property. My experience was in Georgia which also has judicial foreclosure.

My bank was stupid and tried to go through the judicial process. They took the property through a foreclosure and sought a deficiency judgement against me and my partners. But they had to prove they received the market value of the property at foreclosure. That is difficult and expensive and the bank ultimately lost the case. They had to hire lawyers, appraisers, contractors, etc. and had to convince a judge that they had enough solid evidence of value to take my personal assets. That's a pretty big hurdle, especially in this environment. It cost about $25k to defend the case. In my opinion the odds are in your favor on this one because no judge wants to take your personal assets and give them to a bank. Some things that came up at trial were issues like the bonus pay of the bank's mortgage originators and how much the bank was responsible for making the loan. My lawyers didn't even make this argument, the judge himself asked. Banks are not in a strong position in this environment.

2) Because of past strong real estate performance, it has been very rare that banks have gone after deficiencies and there's not alot of precedent. Most lawyers don't have experience in this area and you need a specialist. The most important piece of advice I can give you is to hire the best real estate lawyer with the most experience in this area that you can find.

3) I did transfer every asset I owned to be jointly held with my wife, who did not sign the guarantee. There are alot of issues here, whether the bank can go after your jointly held assets depends upon your home state and whether it was fraudulently conveyed is another matter for the courts. My lawyer advised that I do it, and I did it very early, prior to any missed payments on the property. Whether that would have been enough, I don't know, and I'm glad I don't have to find out. My assets were also mostly held outside the US, so that was going to make collection next to impossible.

Here is my advice to you:

Try and work with the bank, they don't want to go through the trouble of seeking a deficiency judgement and you don't want to give them a reason to try. If you can only afford a portion of the mortgage, pay a portion and ask them for help. If you want to sell, put the property on the market, get an offer and ask the bank to accept the short sale with a non-recourse to you. Odds are they're going to play tough at first, but you can force them into negotiation. You might want to threaten them with personal bankruptcy, giving them an impression they're trying to get blood from a stone, but don't do it. Wait until the bank makes the first moves and actually goes through the years of legal work. They might even be bankrupt by then.

Much thanks on your input. I'll look into the judicial foreclosure and deficiency judgement more in depth.

On the question regarding the transferring of assets. We all saw how Dick Fuld transferred all his FL assets as well as others to his wife - essentially sold his property for a dollar to her, which I would think would make her cost basis insane when she sells the property- after the Lehman blowup.

I can understand how the fradulent coveyance look back may have a time period, but I imagine this is more case law rather than an actual statute. Say you were someone with tons of assets and in early 2008 filed to sign away all assets to a trust, maybe because you saw the sht hitting the fan. Clearly the last 6 months would have changed the world (making it hard to prove you intentionally transferred the assets only to bankrupt yourself), especially if you were a banker and had most of assets in unvested stock that are now pennies. So could you file for bankruptcy as an individual and leave all your unencumbered assets untouched?

Essentially it is my speculation that this might be an avenue for many people to explore (if they haven't already), which would only further put a damper to asset values.

I believe you folks are talking about a VERY important piece of the pricing puzzle. The ease with which one can rid themselves of over-priced assets is key. Of course the banks really don't want to talk about it because they are the big losers.

There's one other important issue for New York homeowners who are worried about recourse to personal assets in a foreclosure. I believe New York is a "one action" state, meaning the bank gets exactly one opportunity to get their cash. If they go the foreclosure route, that's all they can get, whatever the eventual sale price is. They've taken their one bite of the apple and they can't go for another suit to get personal assets. Therefore, if the lender wants personal assets, they've got to sue for the entire amount of the loan, they can't go the foreclosure route. It puts them in a fairly bad position.

There's a famous story in California in the 1960's (I think) where a bank took the checking account of someone who wasn't paying their mortgage. That was the bank's one action, and the bank couldn't then foreclose and couldn't get any more personal assets. It was a big lesson for the bank because there was something like $100 in the checking account.

This one action rule applies to each creditor, so if you have a first and a second mortgage, you've got a bigger problem because they both get one shot at your assets.

This is why you need the best real estate lawyer you can get, someone who has been through these issues. There's not many of them. I'm surprised more people aren't talking about these issues, but I think most people (including lawyers) don't understand the rules. I'd love to know more about these issues and what banks are doing with borrowers who aren't paying their mortgages. Seems to me they're the ones with the toughest choice to make.