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Hope someone here can answer my questions. My lenders won't talk to me until I miss a couple of payments, but I don't want to miss payments until I get a straight answer from someone.
Here is my situation, our family moved out of state for a new job last year. Our house in Arizona has been vacant since last November and despite being the cheapest house on the block has not sold. I have had four offers that have all gone south, mostly because the potential buyers can't get financing. So based on the advice of my agent who says the market in Arizona is only getting worse and the advice of a family member who is a real estate attorney, we are going to let our house go into foreclosure. Almost a year of dual mortgage payments has taken it's toll.
My question is what happens to my HELOC when I let my house foreclose? We borrowed money from our HELOC to make the down payment on our new house. Do we let both our first mortgage and our HELOC go into foreclosure and let the two different companies figure out how to divide any proceeds from a foreclosure sale. Or, will we be responsible for the whole HELOC when our mortgage company takes over the property?
First, you lose options once you actually hit the 30 day late mark. You need to talk to both lenders about a short sale. You need to tell them you can't afford your payments for much longer, and the house will go into foreclosure because of this. In addition it's actually cheaper for them to have a voluntary foreclosure, and will save them attorney fees. The last thing they want is to take the house through a foreclosure process. In addition the lender on the 2nd will get the shortest end of the stick, as they are more than likely the people who will lose out when it's all said and done.
You need to call both lenders and tell them your situation. However, you can't just talk to the first donkey you're transfered to. You need to work your way up the chain some, as they customer service reps can't do anything regarding this, and they may not be familiar with it.
All in all a short sale will be your best bet. The lenders will lose less money in the long run by allowing this, so it makes sense for them to do so. Your first mortgage will be a no brainer to convince, it's the people who own the 2nd that have the largest liability, simply because their lien is in 2nd position, and gets paid after the 1st does.
Hope someone here can answer my questions. My lenders won't talk to me until I miss a couple of payments, but I don't want to miss payments until I get a straight answer from someone.
Here is my situation, our family moved out of state for a new job last year. Our house in Arizona has been vacant since last November and despite being the cheapest house on the block has not sold. I have had four offers that have all gone south, mostly because the potential buyers can't get financing. So based on the advice of my agent who says the market in Arizona is only getting worse and the advice of a family member who is a real estate attorney, we are going to let our house go into foreclosure. Almost a year of dual mortgage payments has taken it's toll.
My question is what happens to my HELOC when I let my house foreclose? We borrowed money from our HELOC to make the down payment on our new house. Do we let both our first mortgage and our HELOC go into foreclosure and let the two different companies figure out how to divide any proceeds from a foreclosure sale. Or, will we be responsible for the whole HELOC when our mortgage company takes over the property?
If the HELOC is a lien on your property, letting one go into foreclosure will cause you to default on the other
Lien language provides that you agree to keep ALL liens / loans current -
Letting the property go into foreclosure is, IMO, not good advice unless there is absolutely no way on the face of the planet to pay them.
My advice is, don't take your agents advice - consult with an attorney about your alternatives - and there are several
Also, consult with competent tax counsel too - for, if you allow the foreclosures to actually occur, you could be incurring MAJOR tax debt / liability because those loans that are foreclosed will be reported as ordinary income to the IRS.
I've already talked to a real estate attorney and his advice was basically if you can't sell and you have made every effort to do so and you are out of money, do a voluntary foreclosure. In the current real estate market there is not much else you can do. We have already bought a house and do not foresee any need to make large purchases like a car for the next 3 years or so. So we will have to grin and bear it for the next 5-7 years.
It is a frustrating experience, all the advice out there says to talk to your lender before you are late with any payments. But none of our lenders will talk to us until we are late with the first payment. I have spent hours trying to talk to someone who knows anything and the best we got was a fax number to send a letter of hardship to and they claim that they will then have someone contact us within the next couple of weeks to discuss our case.
Your attorney is wrong. The voluntary foreclosure is a viable option after you pursue doing a short sale.
I'm sorry for your lender issues (them ignoring you). Please tell the name's of both lenders which you have liens with. Some of us here may have an inside track, or may be able to provide a different direction in how to get in touch with the right people.
One other question... have you actually used the words "Voluntary Foreclosure" in your discussions? They may be advised to treat you in a certain way due to the recent market activity. There's many people out there who have panicked over a raise in rate, but they can still afford the payment. So they are probably trained to do their best to keep these people paying the high rate, and make them think they have no other options. Once you make the lender truly believe they will be taking the house back, they should start to loosen up.
SOrry to hear about this micrguy - we are still on the market ingilbert for 10 mos now - and lowering every month
can you not rent the home - to make up for the money you are putting out?
First off, it sounds like you've done some homework already talking with an attorney, and I am not going to go against what any attorney or CPA says, they are the professionals when it comes to such situations.
As far as voluntary foreclosure or short sale, I think we're using those terms interchangeably and they are two very different things. In a voluntary foreclosure you hand the lender your keys and the deed and say take it! The bank doesn't incur as much cost in this situation than a full blown foreclosure, but your credit is hurt the most this way. (your credit will be hurt badly anyway you go though)
In a short sale, you sell the home for the bank, and the bank approves what they are willing to accept. Any deficiency below what you owe your lenders, you will be 1099'd for, and you will have to pay taxes on that amount like someone has said above...consult a CPA in regards to this.
The lender not talking to you before you are late is actually pretty typical, they figure you've found a way to pay for the past year so you will continue to in the future. As soon as your payment becomes late, your file is transfered to another department in the bank that tries to get you to pay up, attempt to tell them there is no way you can pay anymore and mention you want to negotiate a short sale, hopefully they will transfer you to the loss mitigation dept at that point.
Any way I can't go into more detail over the internet, but get yourself a realtor experienced doing short sales to handle it for you, should you decide to go this route.
Here is another thought, I don't know if you have already visited this idea but why not try and help someone else out and do a lease purchase? They pay for the mortgage, taxes and insurance and maybe a little above that for your pocket. Then in 12 months time they can refi the house into there name using 12 months worth of on time lease checks to qualify for a mortgage. This way your mortgage is covered, your credit stays in tacked and you helped someone own a home who couldn't other wise buy one. And you know your house will sell in a year. You also get a large deposit on the purchase option and they maintain the house. I know getting someone who won't wreck the house is gamble, but wouldn't it be worth a shot verse foreclosed on? It is also VERY advantageous to you tax wise to have an investment property and if you have lived in it for at least 2 out of 5 years of ownership, even if you are now technically renting it out, when you sell you don't have to pay capital gains tax on it.
I have relatives that had the same situation. The former house was on the market 2 years and the company who relocated them paid on it for 12 of those months. Lenders would not talk to them, even about a short sale. The initial advice they got was to keep paying, but then they realized they lost on a short sale because the lenders wouldn't talk to them because they hadn't missed a payment. They finally stopped paying, waited two months, and then wrote a letter and mailed the keys back. They figure there will be so many people with foreclosures on their records from this time period it won't mean anything anyway.
The one thing I would want to be 100% sure of is that the mortgage company for the old house doesn't get a judgment/lien against you that they can file against the new house.
When I was with the credit card company they had a team that would review old judgments and file liens if the people had since gone out and purchased properties.
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