Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
Sell whatever you bought with the HELOC money you pulled out, and use that to help pay for it. If the money went into home improvements, then you need a good lawyer to get you ironclad paperwork.
The fact you do not live in this home as your primary residence excludes you from almost every "rescue" plan out there now and those being drawn up. Our elected officials have been very clear that any plans will not include investment properties. Has this home been vacant for 2 years? How has it been treated on your tax returns? The fact that it is not your primary residence (usually determined by any of the following: voter and vehicle registration, tax filings, address on asset accounts) could leave you wide open to judgments or a 1099 for any unpaid portion. Although it was never your intent to speculate, your circumstances just add to the typical failed investor loan. Please note, I am not saying that is the case, I am just commenting on appearances.
Such as, you bought home in the height of the bubble, as an owner occupied and took out a subsequent HELOC, maximizing your leverage with little to no equity at the time of HELOC. What kind of loan did you take out? The type of loan can even substantiate the "speculator" label you may earn. (Such as an ARM to flip the home). Also, you mentioned you were in the home building industry. Did you get a *really good deal* at the time of purchase due to connections? Did you take out a no doc or stated income loan?
While I realize it doesn't seem fair and your transfer was due to a relocation for employment reasons, there are many unanswered questions that could easily blind-side you. I concur, see an attorney, the bank now knows your assets and income level. If you obtained the loan w/ abbreviated income, your loan will be audited, particularly if in one of the high foreclosure rate states, such as Nevada.
Get your ducks in a row and be sure to tell all to your attorney. Be prepared for not only the loan being audited, but potentially an IRS audit, as well. (The two support each other).
When you took out the HELOC what did you spend it on? Because if it was anything less than a life-threatening illness or something equally critical, I have no sympathy for you. People who borrowed more than they could pay back are a big part of the economical crisis we're in now. Also, if your wife is not working because "she can't", then isn't she receiving disability payments?
I agree with you.... alady down the street took a mortgage out (first trying to get an appraisel that would appraise it for a ridiculous amount that non of the house in my community was worth), than have a boob job, eyes lasered, butt lift (no kidding), and a tummy tuck, bought fitness equipment and now has lis pendens, lien from the HOA and can't even afford to repair a window that is broken so the HOA fines will go up even more....
The price she is paying for her greed...I hope it is worth it.....Why is a mortgage of 100% on a house $ 325 K not enough and did she needed to get a new mortgage for $ 425K....well no chance for refi and I wonder how much she already had to pay to refi a few months after she closed on the house.
When you took out the HELOC what did you spend it on? Because if it was anything less than a life-threatening illness or something equally critical, I have no sympathy for you. People who borrowed more than they could pay back are a big part of the economical crisis we're in now. Also, if your wife is not working because "she can't", then isn't she receiving disability payments?
The problem with the statement above is that he did think he could pay it back simply by selling the house, which the bank told him was worth as much as he loaned. It's called a secure loan, which means that it can in fact be paid back with a simple house sale. On the other hand if he ran up 100K on his AMEX card (unsecured) then I would agree with the statement above. People we must differentiate between secure and unsecure credit. Taking out a HELOC on a home that was appraised by a so called credible bank, only to have the house value crash like a fireball only months later, is not irresponsible of the homeowner. His contingency plan I am certain was to simply sell the house if and when he decided to move on. Selling the house would have simply entailed a traditional home sale, followed by his HELOC being paid off from the proceeds of the home sale. If the banks didn't recklessly lend money to other people (stated income loans, option only loans), then this man's house value wouldn't have crashed, and he would easily be able to sell the house and pay off his HELOC. Remember this was a "SECURE" loan based on what his bank appraised his house. It wasn't an unsecure credit card.
The problem with the statement above is that he did think he could pay it back simply by selling the house, which the bank told him was worth as much as he loaned. It's called a secure loan, which means that it can in fact be paid back with a simple house sale. On the other hand if he ran up 100K on his AMEX card (unsecured) then I would agree with the statement above. People we must differentiate between secure and unsecure credit. Taking out a HELOC on a home that was appraised by a so called credible bank, only to have the house value crash like a fireball only months later, is not irresponsible of the homeowner. His contingency plan I am certain was to simply sell the house if and when he decided to move on. Selling the house would have simply entailed a traditional home sale, followed by his HELOC being paid off from the proceeds of the home sale. If the banks didn't recklessly lend money to other people (stated income loans, option only loans), then this man's house value wouldn't have crashed, and he would easily be able to sell the house and pay off his HELOC. Remember this was a "SECURE" loan based on what his bank appraised his house. It wasn't an unsecure credit card.
In the lending world, there seems to be two trains of thought.
The bank, after all their evaluations, lent somebody money and if it didn't work out, it is the banks fault.
Somebody borrowed money and agreed to pay it back. The bank decided the risk level was satisfactory and used the collateral of the house as a safeguard
Your point seems to align with the first one but most people here (including me) follow the second. If you borrowed money, it is your responsibility to pay it back. I know how you think though because I have a friend that thinks the same way. If he gets prequalified for a loan up to a certain amount, he thinks he should spend that amount. It doesn't even occur him to check what he thinks he can afford. It would not even occur to me that if I got into loan problems then it must be the banks fault for loaning me the money.
Bottom line, whether the bank was reckless or not, the borrower agreed to pay back the money.
WHAT - Sounds like you are set to walk away and stop the bleeding. At the end of the day, it is up to the bank as to how this will play out. First, you are smart to contact an experienced lawyer ASAP. The lawyer will be able to provide proper guidance and the hand holding you will need to get through this process.
As far as a deficiency judgement, that is going to be up to the bank; but there may another alternative. If you contact the bank, taking into account what you HAVE REASONABLY DONE for the past 2 years to stay afloat, they may accept a Deed In Lieu instead of going through the judicial process. With a Deed In Lieu, you will not have the deficiency to deal with. If the bank justs wants it off its books and knows that you are in no condition to make up the deficiency (they have your financials) they may open to it. That is where your attorney comes in. At this point, negoitiation is your best bet.
Besides the deficiency judgement, you also need to consider the tax ramifications, which is another reason to seek counsel. The IRS has put out some guidance regarding loan forgiveness and debt cancellation. Generally, any forgiven debt would be considered taxable income and you would have to pay income tax on the amount forgiven. Based on the guidance posted by the IRS and a quick review of the Mortgage Firgiveness Debt Relief Act of 2007, it does not cover a rental property that is not your primary residence.
However, given that your income will be reduced for this year (as compared to 2007 and 2008), the tax hit may not be as bad for you from an income tax standpoint. Also, given the time of year, the process may not be completed before the end of this year which will have this taxable event occur next year. Just something to keep in mind and prepare for that lump sum tax bill in 2009 or 2010.
And just as a side note, I am one of the people who has been there and done that. Laid off, had to move, sold the house for $100,000 less than what was owed and now paying off the debt.
little family, did your state have recourse or non-recourse laws for deficiencies?
Anyone else noticing this thread is almost a year old?
Wow! You're right. I can probably forget about littlefamily answering my question.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
Way too many variables.......
