Strategic Default in CA... What's the best route?

[tricia88]

Hello everybody, I would like to share my story and get feedback from the community...it would fall under the strategic default category.

First off, thank you to Moe for hosting this forum and everyone for their participation and the wealth of information. LoanSafe has really given me the courage and confidence to do what we're about to do.

Loan Details:
California condo purchased Nov-2005 for $500K and 80/15 financed
1st - $400K at 5.75% interest only ARM that resets 2012
2nd - ~$63K at 6.875% 15yr fixed w/balloon payment

The condo is currently assessed by the county for $377K so we are $86K under water. Both loans are purchase money and non-recourse. Both are serviced by Chase and I believe Chase is also the investor.

Start of the Dream
I bought this condo with my sister and at the time, we were both single and first time homebuyers. We were approved to purchase this brand new condo in a great neighborhood and were so excited. Everyone told us interest only ARMs were really bad but we figured that we'd either sell the property or refinance before it adjusted. The balloon on the 2nd was no big deal because it would be taken care of when we refi the 1st. We thought that surely our lives (particularly marital status) would change within the next 7 years and the plan was to try to keep the condo as an investment after we moved on with our lives. What a great way to start building our wealth, right? We had no idea what we were getting into...

Fast forward to present - I am now married and she is engaged; my husband moved in last year so 3 of us currently live here. Sometime next year, we have to split up and move out separately once she gets married. Neither of us can afford to assume the mortgage, HOA and taxes on our own. We can't refinance because of the low property value and renting this place out would result in a deficit of approx. $1300 per month.

Decision Point:
We've made the decision to stop paying this month since it no longer makes financial sense for us to keep this condo. I can't decide whether or not to try to get a loan mod. I know it's highly unlikely that we would be approved since we don't have a typical hardship and from reading other members' experiences here, I don't know if it is worth trying. However, I can't help thinking "what if"...if I was able to get a mod, I could probably stay and wait until the market recovers.

I think my best bet is to attempt a short sale (to spare my credit) but have prepared myself for foreclosure. Hopefully we'll get to stay here a while before this whole process is over.

What To Do Next?
1. Do you think I should even try for the loan mod? I would be willing to stay in the condo if the payments were reduced and I could afford it alone. However if there's no chance, I don't want to give them all my info for them to use against me later. I don't think we qualify for HAMP as our address did not show up on the Fannie or Freddie searches.

2. Should we continue to pay HOA? I am planning to because I don't want the association to initiate a lien on the property and possibly complicate things.

3. Should we pay property taxes in December? I am leaning towards no on this one since the lien would be attached to the property and the bank would have to pay it. However, if we attempt a short sale, would this negatively affect the chances of approval?

4. Am I missing or forgetting anything? I think I have covered all my bases but this is really tough decision and don't want to make any mistakes.

Thanks for reading and I appreciate everyone's input.

[snapple candy]

tricia,
If you and your hubby have jobs, you might be able to get some kind of modification in your payments. Although it is unclear what if any hardship you have to justify a reduction in payments. The big question is, if you could make the payments before, why cant you make them now? If you want out since it doesnt make sense to hold onto it and its a business decision, I suggest going over to the other threads regarding walking away for addition info and covering your butt on this.
They usually wont do anything until you go delinquent anyways. No reason you cannot do this as a tandem effort. Id go ahead and put in mod application and see where it takes you, meanwhile consider and plan for all other options.

Personally, I would continue paying HOA. Taxes can be addressed at a short sale and I dont think would effect it.

[SwillerAlesbane]

Tough decisions, but it seems to me you have thought most of the process out and are coming to the same conclusion I have....even IF you work a mod deal, you will still be underwater...and for some time to come too!

I'd walk. You can purchase a new home in 3 years from FHA. You can save money while you default on your mortgage, this can take up to 1 year for them to even make you move out of the house. The FASTEST time allowable in CA is 6 months in order for them to foreclose and sell.

In the meantime...I'd pay HOA fees. They move quickly when you are late, and there are so many "by-laws" when you sign, I'm sure they would find a way to collect. I would *NOT* pay taxes, that will be attached to the title. I would not pay the 1st or 2nd.

Congratulations, you have overcome the first hurdle. Most people can't seperate themselves from their "home", and their financial future. It's a hard thing to do.

[MHAP76]

If I were you I would call Chase and asked if they will refinance or settle on the 2nd loan. However, if with 1st loan only you still have trouble keeping up with the payment maybe short sale would be the best option. Just keep in mind that short sale/foreclosure will ruin both yours and your sis credit and if it is a "business" decision I don't think it's worth it.

Anyway, if you go with short sale/foreclosure I would stop paying PITI. HOA usually charges a lot of late fees and banks don't really want to pay them.

[nativelasvegan]

Swiller.... great advice. I think the most difficult thing in this process is to separate yourself from this. It does come down to a business decision. When it is time to walk, it is time to walk.

[emc0317]

Originally Posted by tricia88

Hello everybody, I would like to share my story and get feedback from the community...it would fall under the strategic default category.

First off, thank you to Moe for hosting this forum and everyone for their participation and the wealth of information. LoanSafe has really given me the courage and confidence to do what we're about to do.

Loan Details:
California condo purchased Nov-2005 for $500K and 80/15 financed
1st - $400K at 5.75% interest only ARM that resets 2012
2nd - ~$63K at 6.875% 15yr fixed w/balloon payment

The condo is currently assessed by the county for $377K so we are $86K under water. Both loans are purchase money and non-recourse. Both are serviced by Chase and I believe Chase is also the investor.

Start of the Dream
I bought this condo with my sister and at the time, we were both single and first time homebuyers. We were approved to purchase this brand new condo in a great neighborhood and were so excited. Everyone told us interest only ARMs were really bad but we figured that we'd either sell the property or refinance before it adjusted. The balloon on the 2nd was no big deal because it would be taken care of when we refi the 1st. We thought that surely our lives (particularly marital status) would change within the next 7 years and the plan was to try to keep the condo as an investment after we moved on with our lives. What a great way to start building our wealth, right? We had no idea what we were getting into...

Fast forward to present - I am now married and she is engaged; my husband moved in last year so 3 of us currently live here. Sometime next year, we have to split up and move out separately once she gets married. Neither of us can afford to assume the mortgage, HOA and taxes on our own. We can't refinance because of the low property value and renting this place out would result in a deficit of approx. $1300 per month.

Decision Point:
We've made the decision to stop paying this month since it no longer makes financial sense for us to keep this condo. I can't decide whether or not to try to get a loan mod. I know it's highly unlikely that we would be approved since we don't have a typical hardship and from reading other members' experiences here, I don't know if it is worth trying. However, I can't help thinking "what if"...if I was able to get a mod, I could probably stay and wait until the market recovers.

I think my best bet is to attempt a short sale (to spare my credit) but have prepared myself for foreclosure. Hopefully we'll get to stay here a while before this whole process is over.

What To Do Next?
1. Do you think I should even try for the loan mod? I would be willing to stay in the condo if the payments were reduced and I could afford it alone. However if there's no chance, I don't want to give them all my info for them to use against me later. I don't think we qualify for HAMP as our address did not show up on the Fannie or Freddie searches.

2. Should we continue to pay HOA? I am planning to because I don't want the association to initiate a lien on the property and possibly complicate things.

3. Should we pay property taxes in December? I am leaning towards no on this one since the lien would be attached to the property and the bank would have to pay it. However, if we attempt a short sale, would this negatively affect the chances of approval?

4. Am I missing or forgetting anything? I think I have covered all my bases but this is really tough decision and don't want to make any mistakes.

Thanks for reading and I appreciate everyone's input.

Tricia88,

I dont think you'll be approved for mod because you may not convince them with your hardship, shortsale would be a better option. However, foreclosing and not walking away would be best as long as your loan is a purchase money, you'll save money with free rent and later with lower rental then wait til your next chance to buy. Good luck. I'm in your shoes too!

[davephx]

I would not go by the assessor valuation that can be way off.

Suggest checking zillow or Chase's automated valuation at
https://www.chase.com/ccp/index.jsp?...alue_estimator

The more underwater you are the better for HAMP. But if your near FMV you may try for HARM.

But if Chase is investor ... not a GSE... the reports here are not encouraging although some are modified.

The ARM with a reset rate may or may not be a good enough "hardship" especially if the reset isn't till 2012. You should consider the other legitimate hardship reasons in addition. But it sounds like you are one of millions relying on you can refinance "easily" story which is why folks were talked into ARMs but if rates stay low... not as bad as pay option loans,

I don't see any risk with trying for HAMP and giving info. You don't have to give bank account numbers or anything.

You should look at the various household members income x 31% compared to current to see if over or under as another test. Not sure new husband counts as income if not on the mortgage originally but I think his income can be included if you need it....

Others may have better experience on these ideas.

You also may be at a disadvantage if your not at least 2 payments behind so only in Imminent risk of default which is harder than if your delinquent.

I don't think you have any downside trying to see if they will qualify you for the HAMP trial.

If its hopeless may want to save cash and not pay the RE taxes, HOA etc.. although the HOA may be a personal liability even if foreclose and sell.

[AZOwner]

tricia - thank you for the post! This is a difficult decision, however, I am in much the same boat. It's a rotting investment, BAIL!

I stopped making payments strategically right after my escrow had paid our insurance on the property -- which you should maintain.

I also sent a letter saying, I'll be happy to stay in my home and begin making my on-time mortgage payments again if you reduce my principal to current market value plus 10 thousand, refinance, forgive my original first and second, and fix my credit (BofA had stated they would not work with us unless we were behind on payments).

There is no way in heck that I believe any of that is going to happen, so we are packing and leaving the one asset we invested tens of thousands of dollars of our own money into. There is no way that it will, in my lifetime, appreciate back to my original purchase price.

With little work we have been assigned a negotiator -- a week ago, after 2 months behind. I will squat and save my payments (NOT in the same bank that holds my mortgage), rent a place for 1/4 of my mortgage, and start saving for my retirement again. . .

Good luck to you!

[MHAP76]

AZ Owner, do you consider short sale? I did a short sale on my rental property (not my primary home) and got the release of lien for both mortgages so I don't have to worry of the banks ever going for deficiency judgement in the future.

[tricia88]

Wow, thanks for all the responses. I have been second guessing my decision but this feedback is very encouraging. I think I will continue to pay HOA since they will probably be knocking on my door to collect. I probably won't pay the taxes but I have until next month to decide.

Just wanted to clarify some points that may have been confusing:

Incomes
My husband is currently in grad school and has no income. My sister and I are still able to make the payments but my concern is next year when she gets married and we go our separate ways, I won't be able to keep up with this mortgage and pay for rent in a new place for me and my husband. I can't afford to assume the entire mortgage to keep this place and neither can she. Since this is imminent, I am being proactive in defaulting now instead of defaulting a year from now with all that money down the drain.

Hardship
This is a little more difficult to explain and I don't know of it is even considered a hardship but the fact is that this living situation does not work for us anymore. It has been tough sharing this condo with my sister now that I'm married. The only reason my husband moved in was because he is going to school and I was already paying for the mortgage so it was convenient. I need to start building a new home with my husband.


snapple candy - one of the reasons I wanted to try for a loan mod was to stay in the place longer but I talked to an attorney and he told me that the foreclosure process was independent of the loan mod or short sale procedures.

SwillerAlesbane - thanks for your reply. It certainly was difficult detaching myself from this home. However, I think I'm over it. I just can't help thinking "what if the market recoups in a couple years."

MHAP76 - I tried calling Chase to talk about a loan mod and all they did was transfer me a couple times and then referred me to the application packet on the website. As for my credit, my husband is not on this mortgage so if we need to get a loan in the next few years while my credit is shot, I could use his.

nativelasvegan - thanks for the confirmation

emc0317 - thanks and good luck to you too!

davephx - thanks for chiming in. I used Chase's value estimator and it came up $438k but I don't think that's right because one sold in August for $375. A broker pulled some comps for me and he estimates $380-410. That would put us at about $50K underwater. I have not heard of HARM...will need to look that up.

AZOwner - I just renewed our insurance as well, but thanks for mentioning. How did the bank's negotiator respond to your letter? Did you also apply for a loan mod?

Thank you all for taking the time to respond. I will keep this threaded updated so others can be helped from my experience.

Now I need to prepare myself for the calls...I hope they don't start until after 30 days late.

[davephx]

Originally Posted by tricia88

davephx - thanks for chiming in. I used Chase's value estimator and it came up $438k but I don't think that's right because one sold in August for $375. A broker pulled some comps for me and he estimates $380-410. That would put us at about $50K underwater. I have not heard of HARM...will need to look that up.

HARM is the Refinance version of HAMP, but your probably too far under water to qualify.

I think in areas of rapidly following prices most valuation tools are behind and showing a bit too high. That can hurt (too high) if trying to get HAMP and can help if trying to get HARP (refinance) but other hurdles to face.

The Chase valuator some have said is best supposed one that banks may use but not confirmed and no one but the banks knows whose data the banks automated value system uses.

[AZOwner]

Originally Posted by MHAP76

AZ Owner, do you consider short sale? I did a short sale on my rental property (not my primary home) and got the release of lien for both mortgages so I don't have to worry of the banks ever going for deficiency judgement in the future.

Yes, I did consider short sale. A couple of thoughts:

1. AZ is a non-recourse State, so I can just walk away -- both loans were 100% purchase money
2. I have no intention of being a slave to credit again and am willing to wait 3 - 5 years for this to close from fico
3. Not to crazy about the idea of stange people walking through my home for what may be a fruitless effort, and is definately something I would be doing to assist a bank that I don't respect

My sister has had a short sale offer in for months -- actually, she has gone through 3 buyers and this last one finally stuck. Her home is set for auction Nov 27, and they still have not accepted the short sale offer.

The banks have forced me to make a decision, and I simply am not going to be a puppet for their control any longer than I have to be.

Thank you for the thought though!

[AZOwner]

AZOwner - I just renewed our insurance as well, but thanks for mentioning. How did the bank's negotiator respond to your letter? Did you also apply for a loan mod?

I don't qualify for a mod. I am 250 thousand under water -- mortgages are 475, home value 238ish.

I spoke to a negotiator, that was assigned after I contacted my State AG office RE the continuing abuse of BofA, they sent a letter to BofA on my behalf, which is probably the only reason I was assigned a negotiator. I spoke with that person yesterday and said, these are my terms. . . . she asked about my income and I gave her very high level info to which she replied -- "hum, . . . . hum . . . . . .hum . . . yeah, you don't qualify for any of my programs." I laughed.

I said, "I already know that. The only question is does BofA want to sell my home back to me for market value, or do they want to expend the funds to take my home."

"Hum, I am going to give your file to my manager, she will call you back later today."

Guess what didn't happen?

Laugh! There's nothing more than what we are currently doing that can be done at this point!

If you have not signed the loansafe petition to congress or left you comment at Huffington about our fight, please do so with the links below. This is our only hope for giving American People back their voice to politicians. We need some mass movement here, my friends. . . for change.

Peace!

[briknope]

What I would do is not pay ANYBODY ANYTHING and save as much cash under a mattress as you can and see what comes down the pipe from the bank. They might throw you a smoking deal. They might not also. It could take a long time to get you out of your home....in the meantime you'll have cash to keep a roof over your head in the future.

[emc0317]

Originally Posted by azowner

yes, i did consider short sale. A couple of thoughts:

1. Az is a non-recourse state, so i can just walk away -- both loans were 100% purchase money
2. I have no intention of being a slave to credit again and am willing to wait 3 - 5 years for this to close from fico
3. Not to crazy about the idea of stange people walking through my home for what may be a fruitless effort, and is definately something i would be doing to assist a bank that i don't respect

my sister has had a short sale offer in for months -- actually, she has gone through 3 buyers and this last one finally stuck. Her home is set for auction nov 27, and they still have not accepted the short sale offer.

The banks have forced me to make a decision, and i simply am not going to be a puppet for their control any longer than i have to be.

Thank you for the thought though!

good luck to you! Im in the same pathway aswell.

[briknope]

Originally Posted by emc0317

good luck to you! Im in the same pathway aswell.

Chase suggested a short sale as well to me and I told them a big NO WAY for the same reasons stated by azowner. The pitch they gave is that its a way to save your credit. Now hold on I ask, I'm already 6 months behind now so what does my credit score look like now as it stands? Add a "short sale" on top of that and you got "bad credit"

I'm the Captain of this already underwater ship, and I'm going all the way down with it.