Foreclosure University Blog

Question:  We are considering using a holding group to transfer our property to avoid having to hassle with a short sale ourselves; in California, can my lender come after me if I transfer the property without their prior authorization? This holding group says they take care of everything including the lender.

Answer:  - You can always transfer property to another person using a quit claim deed or warranty deed, however just because a different name shows up on title and a new owner is recorded on the county records, guess who is still liable for paying off the loan(s)? You are!

The loan is still in your name. You are still responsible to pay off the liens against your home. Your credit will be the one that is affected if payments are missed. It’s fine if you transfer property to another person or company to handle the short sale process, just be aware that you’re not totally off the hook.

I’m not sure what they mean when they say, “they’ll take care of the lender.” More than likely it means they will find a buyer for the short sale which will satisfy the loan. However, just because they satisfy the loan doesn’t mean the liability is gone. More than likely you will get a 1099 for the difference between what the bank accepted as the pay off amount and your loan amount.

The only time you would need to worry is if the bank didn’t accept a satisfaction but instead just released the lien. This means they have the option of coming after you for the deficient amount. So you’ll want to make it clear to this holding company that you must get the loan satisfied, even if it means paying a little more to the bank. If the holding company is all about the money and doesn’t care about you, you may find yourself in a judgment situation that could have been avoided.

Question:  We have a deficiency judgement against us for a home we were building in Arizona. Can the bank garnish my wages and/or lien the house in which we reside. We do not want to file BK?

Answer:  - First off let’s clear up some misunderstanding on your deficiency judgment in Arizona. Arizona is actually a non deficiency state, however there are rules in order for the homeowner to apply the anti deficiency law. First is has to be a residential property on less than 2 1/2 acres. If you only have a first mortgage, chances are you may qualify. It’s the 2nd or HELOC that gives homeowners in Arizona all the problems. Usually a deficiency judgment in Arizona happens because of a HELOC since it is taken out after the 1st mortgage and it’s not a purchase money loan.

With this in mind, you need to determine what your situation is and if they have grounds to file a judgment against you based on what you’ve just read. If they can file a judgment against you than it’s best to try and work something out with the lender if you can. Usually you can make them an offer to pay it off in full or work out a payment plan. A lot of times homeowners don’t have a choice but to file bankruptcy because the lender simply won’t work with them and they can’t afford the payments or lump sum. But definitely try to settle with them if you can. If you do nothing, yes, they can garnish wages if it gets to that point.

Question:  I am married live in New York we own 2 houses. I live in one house and my wife lives in the other house (long story). We bought house #1 for $600,000 5 years ago. We have $350,000 left on mortgage one and $175,000 on a home equity line of credit. The house today is worth around $350,000, we have two different mortgage companies on this house. American Home Mortgage owns the primary mortgage $350,000 and Chase Bank owns the home equity line of credit $175,000. I have a couple of questions;
1. What happens to the HELOC and first mortgage if we go into foreclosure?
2. Do I have to pay back my HELOC if my house is foreclosed on?
3. Can either bank come after my other residence or garnish my wages or sue me?
4. We are currently up to date with both mortgages, but we are paying the mortgage with our creidt card. what would I do to get out of this situation? Foreclose, talk to both banks, short sale, etc.

Answer:  - These are some great questions… And most in this situation would even consider a strategic default because you are so upside down. Let me share with you a few ideas.

1. If your home goes through the foreclosure process, the winning bidder will end up with the home. In many cases when there are no bids, the mortgage company in first position that initiates the foreclosure will take back the property and try to sell it on their own. The 2nd mortgage, in this case your HELOC, will be wiped out if they don’t protect their position by bidding on the property.

2. If the 2nd lien holder or heloc gets wiped out, they still have options which a lot of homeowners don’t understand. Their options are to do nothing, write the whole thing off by sending you a 1099, or they can sue you for the difference, which is called a deficiency judgment and require you to pay back the amount that was lost. A deficiency judgment was something that very rarely happened to homeowners, but more and more I am seeing it’s a more common procedure with banks and I’m guessing it’s because of the volume of foreclosures that are happening right now.

3. If the 2nd decides to file a judgment against you, you will either have to pay the loan in full, work out a payment plan, a settlement or file bankruptcy. And yes, if you do nothing they can garnish your wages so they will get paid. They can’t force you to sell your other properties or assets, but the judgment requires you to pay them back which means you’ve got to come up with the money somehow. So no, they can’t come after your other asset directly, unless they were also pledged as collateral for the loan, however in many cases you will be forced to sell assets to pay off the judgment. This is why most homeowners simply file bk.

4. There are ways to avoid the judgment. One would be to do a short sale that would satisfy the loan. The short sale process has been taking a very long time lately, but is a better option than doing nothing. Benefits would be that you walk away without a foreclosure on your record and the mortgage(s) being satisfied so worst case you get a 1099 for the difference. But even this can be negated with the current laws in place. The only problem with a short sale is that you have to move out. Sometimes this might be a good thing if you are over-extended as it is.

Another option is a loan modification, although these can be very frustrating and very rarely do they ever go through. You can call you lender, let them know your hardship and ability to pay to see if they will lower your payments. This is usually a temporary solution. In your specific case where you have negative equity, a note settlement would be a great option.

A note settlement is when you settle or eliminate the 2nd mortgage completely. By eliminating your 2nd mortgage or heloc, you’ll at least get rid of the negative equity and have a better chance of selling it or keeping it. This option allows you to stay in your home and it doesn’t affect your credit because you are paying the bank off in full. No judgments, no 1099, no more 2nd mortgage because you paid it off. It will cost you anywhere from 10% to 15% of the original note amount in order to pay if off so in this case $20K – $30K. Even if you don’t have the money saved up to pay this amount, there are note investor networks that will pay it off and basically become the 2nd lien holder and you would make payments to them. I guarantee the payment on a 30K note would be a lot less than the payments on a $175K note.

Here is more information on homeowner options as well. Good Luck, I hope this has helped.

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Question:  I have both 1st and 2nd with BoA, i received a letter saying that new payment for my home equity line of credit starting this month (june) include principal and interest. I called BoA but they can not do anything for me since my first was re-financed in 2010. Is there any suggestion? I great appreciate anything that would help my payment more affordable. Thanks

Answer:  - You have a few options. If your credit is still good, income is consistent and you have equity you might try to refinance with a different lender that will combine your payment into one. This can be difficult if any of those 3 are left out. Right now with the right lender and qualifications, you can refinance your home equity line of credit with an interest rate between 3 and 4 percent. With those kind of rates, you can really get your mortgage payment reduced.

The other option would be settle your 2nd mortgage and pay it off completely. If you have a case where your home is worth more than what you owe or you have negative equity, you might be able to get the lender to agree to take less than what is owed as full payment. By going this route, you get to stay in your home, keep your good credit and reduce your mortgage payment considerably by eliminating your 2nd mortgage. It’s a great way gain equity or for a lot of homeowner at least get rid of negative equity. We settle note for homeowners if you don’t want to do it yourself.