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home equity line of credit

Home Equity Line of Credit Questions

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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.

Home Equity Line of Credit and Refinancing

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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.

Home Equity Line of Credit Payoff

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Question:  I had the loan with my heloc opened on March 23, 2006 but, when I refinanced the house on September 7, 2006 the lender paid off my balance on my heloc to assume the 1st and 2nd position. My heloc is telling me that they are in 1st position and my Primary Wells Fargo claims they are not. E-trade, which is my heloc, first told me that if I gave them $2,047.00 they will postpone the auction and do payment arrangements since they know I have a hardship and I just received a forbearance from my Primary lender Wells Fargo. So when I called to make the payment on Monday the guy then said, oh you have to pay us $25,000 or the $190,000 balance. I said you quoted me $2,047.00. He said, well you have to pay the interest fee’s, late fee’s and the months the account went unpaid. I told him I don’t have that. Then he said, well we will foreclose on your house despite your forbearance because we are the Primary so the negotiation didn’t work with them at all. Now Thursday this week they are trying to sale it, so I don’t know what to do but just stick with my Primary and hope they figure this out, but it’s scary since they just took my first payment for my forbearance and they act like I shouldn’t worry, but I am. Plus my house is only worth $440,000 and my Loans on the 1st mortgage is $592,000, the 2nd is $146,000 and the home equity line is $190,000 so there’s no equity at all and if I do the Chapter 13, my Primary won’t modify me and I wont be able to get the low mortgage payment they put me on with the forbearance so it’s a risky situation. Oh well, I will see what happens. Is there anything else I can do?

Answer:  – Wow, you’ve got a lot of stuff going on… From what it sounds like here, you’ve got a first and second mortgage with Wells Fargo and a 3rd or HELOC with E-trade. Wells Fargo agreed to do a forbearance where they lowered your monthly payment. Your HELOC though is threatening to foreclose because you haven’t worked out anything with them and they are claiming they are in 1st position so they would like to foreclose so they get paid. If I was to bet, I would bet that Wells Fargo is indeed in first position still. Banks don’t just “give up” their positions, especially in this market. Lien priority is based on when things get recorded, except for federal and municipal liens, like IRS and tax liens.

If you want to know, just have your local title company pull a title report and it will tell you. The bank that you have your HELOC sounds like they are trying to settle with you which is usually what banks do in 2nd or in this case 3rd position. They know they are going to lose everything so they might as well get something. It looks like they are offering you a $25K payoff for your $190K debt. That’s not a bad home equity line of credit payoff, although because there is no equity even in the first, I would negotiate that down even more. You need to determine first of all if this house is worth saving based on your personal circumstances. If you settle with the 3rd, but end up losing the home anyway, in my opinion, it would have been better for you to start over in the first place.

We settle notes and we’ve helped a lot of homeowners like you, settle these 2nd and 3rd mortgages for literally pennies… however, even if we were to settle these notes, you’re still upside down on your first mortgage, which doesn’t give you a lot of options. Usually when we settle notes for people it gives them equity again so they can either sell their home if they get in a bind or because we’ve lowered the payments, they can stay in their home. If you do decide to settle with the 3rd or get a home equity line of credit payoff, make sure you get a satisfaction and not a release of lien because that could make your life even more hectic. Let us know if there is anything we can do to help.

Home foreclosed in Arizona. Still Paying Home Equity Line of Credit?

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Question:  Our house was foreclosed in Arizona on a little over a year ago in AZ. But we are still getting (and paying) the bill for a Home Equity Line of Credit we had on the same property. Is there anything we can do to reduce or eliminate this bill since we were foreclosed?

Answer:  -Yes, if I understand you correctly, you are making the same payment on your HELOC as you were before the auction. Usually in a situation like this, most homeowners will settle with the bank for a smaller amount and create some sort of payment plan to payoff the note within a short time. Another option is to file bankruptcy and wipe it out completely. This is the main reason why banks will usually work with you in finding a solution because they would rather have some money instead of no money. Hope this helps.

HELOC and 2nd Home

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Question:  I have a home (rental) with a first mortgage with one bank and a line of equity with another (Chase). We have our personal home with just a first mortgage but also with Chase. If we default on the equity line of credit tied to the rental home can it effect our current home since its with the same bank?

Answer:  – No, unless you used your personal property as additional collateral for getting the HELOC on the rental property. Because they are completely separate properties they can’t do anything to force the sale on you just because to don’t pay on the one. What they can do if you foreclose on the rental is file a judgment against you so you’d have to re-pay that, but usually that doesn’t happen and there are ways to prevent that from happening. Normally they will 1099 you for the amount they lost and you’d have to pay taxes on it.

Can my 2nd mortgage (heloc) foreclose on me?

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Question:  I have done a loan modification with my first mortgage and have been making the monthly payments every month with no problems. We have a Home Equity with another back which we have not been making the payments for that for over a year now. That bank is now sending us Notices Of Intent To Accelerate. Can they foreclose on our home even though they are not the first mortgage and we are current with the first mortgage company. what can this bank do to us?

Answer:  – This question comes up all the time. For some reason, many homeowners don’t believe the 2nd mortgage can force the sale of their home. In most cases, your home is collateral for the loan. That’s why when you get a 2nd mortgage, they want to make sure there is equity in the home so they can get paid if they have to foreclose. Even if you are current on your first mortgage, doesn’t matter. The 2nd mortgage can still foreclose and force the sale of your home. Although they would prefer not to because very likely they won’t be able to sell it for what they are into it.

So they will incur both foreclosure costs and lose out if the home is upside down. This is why they are so willing to work with us and other investors in settling those 2nd mortgages because they would prefer to have something rather than nothing. In any case, you will eventually lose your house if you continue on this path so it makes no sense if you are not paying your second, might as well not pay your first either. A better solution if you want to keep paying your first, is to work out something with the 2nd… basically a settlement. You’ll agree to pay them x amount to satisfy the loan.

If the 2nd forecloses, more than likely they will issue you a 1099 or they will file a judgment against you for the difference. When this happens, you can either choose to pay the judgment or the loss that was incurred from the sale or you can file bk. Hope this helps.