Strategic Default, Chase 2nd

[Of All Trades]

Hi, I could use some advice regarding my 2nd mortgage with Chase. I've started a strategic default on my property with the following details:

California
Value of home: ~$150k
1st Mortgage (Citi): $240k
2nd Mortgage (Chase): $30k
Never refinanced, 2nd was 10% at time of purchase.

I just want to be rid of the property which will never come back to value.

I did not make a payment in May. Citi called routinely until the end of May asking when I was going to pay, didn't do anything. Chase has had someone (and it's the same person each time) call from (I think) their collections department. I talked to him once on the phone and basically said I wanted to foreclose. He said in so many words that it doesn't matter what I want to do, I had to pay Chase. I said the loans were purchase and therefore non-recourse. His response was to keep returning to "that only applies if Chase participates in the foreclosure, and we won't". I said that everything I've read contradicts that, etc. Ultimately he said that if I don't pay in some vague timeframe then they would charge the loan off as unsecured and... it goes to collections? Not sure if it meant Chase's collections or outside.

Basically, I was under the (possibly mistaken) impression that since both of my loans were purchase money, as a CA resident they can't do anything. Am I wrong? I thought that once Citi forecloses then that's it (outside of possibly needing to send a letter back reminding them of the law).

Additionally, what happens if Citi takes forever to foreclose? Could Chase do something before then? I can afford to pay Chase, so should I until Citi forecloses and then let it go?

Thanks for any help! It's very frustrating and unnerving!

[goldie]

Hi, I could use some advice regarding my 2nd mortgage with Chase. I've started a strategic default on my property with the following details:

California
Value of home: ~$150k
1st Mortgage (Citi): $240k
2nd Mortgage (Chase): $30k
Never refinanced, 2nd was 10% at time of purchase.

I just want to be rid of the property which will never come back to value.

I did not make a payment in May. Citi called routinely until the end of May asking when I was going to pay, didn't do anything. Chase has had someone (and it's the same person each time) call from (I think) their collections department. I talked to him once on the phone and basically said I wanted to foreclose. He said in so many words that it doesn't matter what I want to do, I had to pay Chase. I said the loans were purchase and therefore non-recourse. His response was to keep returning to "that only applies if Chase participates in the foreclosure, and we won't". I said that everything I've read contradicts that, etc. Ultimately he said that if I don't pay in some vague timeframe then they would charge the loan off as unsecured and... it goes to collections? Not sure if it meant Chase's collections or outside.

Basically, I was under the (possibly mistaken) impression that since both of my loans were purchase money, as a CA resident they can't do anything. Am I wrong? I thought that once Citi forecloses then that's it (outside of possibly needing to send a letter back reminding them of the law).

Additionally, what happens if Citi takes forever to foreclose? Could Chase do something before then? I can afford to pay Chase, so should I until Citi forecloses and then let it go?

Thanks for any help! It's very frustrating and unnerving!

For anyone who is facing foreclosure, I think its a good idea to seek a consultation with a qualified attorney. That way you will know what your rights and options are and can strategize accordingly.

Real estate, predatory lending, consumer advocate (NACA) & some BK (not the assembly-line style) attorneys can probably competently answer your questions. Don't listen or concern yourself with the minions at Chase. They are only trying to collect a debt & don't know much else.

[Foreclose On Me]

It sounds like the Chase representative was confusing the one-action rule with the California Code of Civil procedure section 580b, which states that a lender may only look to the security in the case of a purchase-money mortgage, regardless of the method they choose for foreclosure. Under the one-action rule, the second lienholder would be able to pursue you for a deficiency if the first lienholder foreclosed because they become effectively unsecured. The second lienholder may ONLY seek a deficiency judgment if it is not a purchase-money mortgage.

You should certainly consult a qualified real estate attorney for advice specific to your situation, but 580b is quite clear -- a lienholder who lent money for the purchase of a principal residence only has one remedy -- foreclosure -- and may not seek a deficiency judgment.

[jayguy0710]

Hi Foreclose - I would hope that what you just said was correct, because if not it would be an EASY way for banks to circumvent 580b, right? If both 1st/2nd were purchase money, then the 2nd would just wait and wait and wait until the 1st foreclosed, then pursue the unsecured debt. But they CANNOT do that if the 2nd was purchase money, even if the 1st forecloses first, right? (.... I hope)

I suppose that is what attorneys are for, but about 95% of the time I see my particular situation (80/20 purchase money in CA no refi) as an "open and shut" case - they cannot come after me, period. But it's that 5% that I'm not so sure about!

[monty15]

Hello jayguy0710,

I'm in almost the exact situation as you (80/20 loan, both purchase money, never refinanced), except that I'm about $225K underwater. I too worry from time to time that the bank will somehow be able to come after me with a law suit and hit me with deficiency payments etc., but everything I've read on this forum and the resources I've spoken to in person have told me the contrary.

Still, I feel your pain! This is not an easy process to go through, even with all the support of this forum. Keep doing research, and ask lots of questions. Also, don't be afraid to send your debt collectors *I mean lenders*, cease & desist letters so they'll stop contacting you via the phone. Good luck.

[esmom7]

I am in the exact same situation with my 2nd being with Chase. It was a purchase money loan, and I actually went ahead and consulted with an attorney just to be sure it was non-recourse. Good thing I did because I found out that even though California is a non-recourse state, the judges have tended to side with the banks on 2nd loans, even though they are purchase money loans. Basically, my attorney said they could potentially come after us but chances would be low that they would since it's costly to chase us for such a minimal amount. However, we are not taking our chances and are doing our best to settle with Chase at this point. Good luck with your situation!

[Foreclose On Me]

I am in the exact same situation with my 2nd being with Chase. It was a purchase money loan, and I actually went ahead and consulted with an attorney just to be sure it was non-recourse. Good thing I did because I found out that even though California is a non-recourse state, the judges have tended to side with the banks on 2nd loans, even though they are purchase money loans. Basically, my attorney said they could potentially come after us but chances would be low that they would since it's costly to chase us for such a minimal amount. However, we are not taking our chances and are doing our best to settle with Chase at this point. Good luck with your situation!

Esmom, I'd really like to see what that attorney is referring to. I have found absolutely zero by way of case law supporting that attorney's position that a second mortgage secured for a loan of purchase money has any right to pursue the borrower for the deficiency. If there is one case out there, there would be a question on the issue. I'd love to read the case if you could ask your attorney for a citation.

[jayguy0710]

Hi esmom7 - really? That is alarming... I was under the impression that the 2nd could not do that. What is 580b for then? That law is seemingly useless if the 2nd can pursue in the event of foreclosure, especially because the 1st mortgage is already taken care of by the one-action rule. Anyone else have any thoughts on this? I wonder exactly how likely they (WF, in my case) to pursue after the 1st forecloses?

Also, based on what you said it sounds like you're talking about judicial foreclosure (judges lean toward banks) - from what I've researched judicial foreclosure is almost unheard of in California, especially for primary residence's (?) - the banks are seen as "going after the little guy". And as you stated, there are costs associated with going to and fighting it in court, so I think that's why they don't pursue judicial foreclosures. I wonder if the sheer volume of these cases of strategic default will drive banks to pursue judicial foreclosure more often (knowing that, yes, there are costs involved, but perhaps if "everyone" is doing SD, they need to stop/mitigate their losses).

But I can say that I'm a lot less comfortable in my position to walk now, with that small possibility hanging over my head. Anyone have some thoughts?

[Foreclose On Me]

"A purchase money trust deed is not like an ordinary trust deed and note upon which only one action may be brought under section 726. Under section 726, as above stated, it is held that whether there is a security is determined as of the time the action is commenced and if the security is lost or has become valueless, an action on the note will lie because the events which caused it to become valueless were beyond the control of the trustor and were not contemplated at the time the money was loaned and the trust deed given. With purchase money trust deeds, however, the character of the transaction must necessarily be determined at the time the trust deed is executed. Its nature is then fixed for all time and as so fixed no deficiency judgment may be obtained regardless of whether the security later becomes valueless."


Brown v. Jensen, 41 Cal. 2d 193, 197 (Cal. 1953) (holding that a sold-out junior [i.e., second] mortgagor may not sue on the underlying promissory note after senior mortgagor sold the property in foreclosure and extinguished the security).

Brown v. Jensen is still followed and is still governing law.

UNLESS there is another case that goes to the California Supreme Court, all California purchase money mortgages, whether second or third or even fourth in position, are subject to rule 580b and may only look to the security (by foreclosure on the property) for recovery after a breach (nonpayment) under the promissory note.

Anything else that attorneys might be telling you about judicial discretion are bogus.

[Of All Trades]

Thanks for all the info. With regards to existing case law, while Chase is certainly aware of it, would a "normal" judge? Should I be concerned that Chase could try to drag me to court in the hopes that the legal fees would be more damaging than a settlement, and thus would try it anyway?

Is there a more plain-language form of 580b that would be easier to use in discussions with Chase (assuming any occur)? The language in Brown is pretty clear but if possible I'd appreciate something that made the part where they can only look to the security (regardless if they charge off or sell it to a collector or whatever) a bit more clear. Or maybe it is clear and I'm not reading it right. Lots of "or"s.

[Foreclose On Me]

580b is pretty "plain language" -- "No deficiency judgment shall lie in any event after a sale of real property ... under a deed of trust ... given to the vendor to secure payment of the balance of the purchase price of that real property."

[esmom7]

I hope you are right, ForecloseonMe. But I am conservative and can't take a chance on what the attorney said being true. I cited the same case (Brown v. Jensen) to my attorney, and in the short 1 hour consultation with him he said that it didn't matter because the judges were still siding with the banks with deficiency judgements. He also based this information after reading my purchase money loan agreements too. You are more than welcome to reach out to him: ASC-LAW.com | Law Offices of Arthur S. Charchian, Glendale Attorney. I'm definitely not going to since I don't want to have to pay another dime for an attorney.

[Foreclose On Me]

Esmom, that kind of talk from an attorney is code for "I haven't done the research, I don't know, but I'm going to say what I think is going to get you to retain me and pay me more." I don't mean to disparage Mr. Charchian, but he's only been practicing for 3-1/2 years in a wide variety of practice areas, so he does not have a large amount of experience in any one field and couldn't be considered an expert. In addition, although he graduated law school in 2003, he wasn't admitted to the California Bar until 2006. Did he fail the bar 6 times?

[yomann]

Underwater seconds are SOL !
Even if there is a fair amount of equity for the second, they will generally not front the $50K it costs the banksters to complete a foreclosure, as their financial outcome is less than certain.
My 2nd (PNC) charged off last Dec. and other than one letter in Jan., I have not heard a word from them ..........
Upon receiving the letter to contact them, I called and was on hold for 5-7 minutes, and then hung up .....

[Robb471]

Underwater seconds are SOL !
Even if there is a fair amount of equity for the second, they will generally not front the $50K it costs the banksters to complete a foreclosure, as their financial outcome is less than certain.
My 2nd (PNC) charged off last Dec. and other than one letter in Jan., I have not heard a word from them ..........
Upon receiving the letter to contact them, I called and was on hold for 5-7 minutes, and then hung up .....

So what do you do if your second is not purchase money? I am in the same boat with Chase, am current so far on the bills, and want to keep the house. The 1st is under only about 40k, and the second balance is 174k.

I was thinking about just stopping payment on the 2nd, but with the first current I don't what they would do. I don't want them coming after me for the difference....

[Foreclose On Me]

Robb, if the second is not purchase money, after the first forecloses, the second becomes an unsecured lender and has the right to pursue you directly for the deficiency. If the first does not foreclose, the second has the right to foreclose, but a second mortgage almost never forecloses because they would first have to pay off the first mortgage and then have to pay all the costs of foreclosure, which would likely leave them with nothing. Practically speaking, if you stop paying on the second, they'll eventually charge it off and sell it to a collection agency. Then you can settle for less than the amount due, if you negotiate properly.

[SurfwhenUcan]

Hi, I could use some advice regarding my 2nd mortgage with Chase. I've started a strategic default on my property with the following details:

California
Value of home: ~$150k
1st Mortgage (Citi): $240k
2nd Mortgage (Chase): $30k
Never refinanced, 2nd was 10% at time of purchase.

I just want to be rid of the property which will never come back to value.

I did not make a payment in May. Citi called routinely until the end of May asking when I was going to pay, didn't do anything. Chase has had someone (and it's the same person each time) call from (I think) their collections department. I talked to him once on the phone and basically said I wanted to foreclose. He said in so many words that it doesn't matter what I want to do, I had to pay Chase. I said the loans were purchase and therefore non-recourse. His response was to keep returning to "that only applies if Chase participates in the foreclosure, and we won't". I said that everything I've read contradicts that, etc. Ultimately he said that if I don't pay in some vague timeframe then they would charge the loan off as unsecured and... it goes to collections? Not sure if it meant Chase's collections or outside.

Basically, I was under the (possibly mistaken) impression that since both of my loans were purchase money, as a CA resident they can't do anything. Am I wrong? I thought that once Citi forecloses then that's it (outside of possibly needing to send a letter back reminding them of the law).

Additionally, what happens if Citi takes forever to foreclose? Could Chase do something before then? I can afford to pay Chase, so should I until Citi forecloses and then let it go?

Thanks for any help! It's very frustrating and unnerving!

Paying or not is up to you, but in order for Chase to do anything, they would need to pay Citi off in full and take first position on title. they aren't going to do that.

If the 2nd is a HELOC, there seems to be some gray area in the law right now about how anti deficiency applies - in other words, you may have some exposure but I don't think so. IF the loan is fixed rate, I would say ignore Chase.

If you want definitive answers as to what your exposure is, the last place you should look is the creditor who stands to lose if you default. I would research anti deficiency law in CA and see how it applies to your situation

Basically, what you should do, if you can't pay, is let the chips fall where they may. If the house is going to go, it's going to go. If for some reason chase can come after you, wait until they do - then settle or wait for the judgment and then settle or file a BK.

[Of All Trades]

Paying or not is up to you, but in order for Chase to do anything, they would need to pay Citi off in full and take first position on title. they aren't going to do that.

If the 2nd is a HELOC, there seems to be some gray area in the law right now about how anti deficiency applies - in other words, you may have some exposure but I don't think so. IF the loan is fixed rate, I would say ignore Chase.

If you want definitive answers as to what your exposure is, the last place you should look is the creditor who stands to lose if you default. I would research anti deficiency law in CA and see how it applies to your situation

Basically, what you should do, if you can't pay, is let the chips fall where they may. If the house is going to go, it's going to go. If for some reason chase can come after you, wait until they do - then settle or wait for the judgment and then settle or file a BK.

The loan is fixed with a 15-year balloon (which bursts in 10 years).

I do understand that the creditor is the least likely person to be honest (although I'd be curious to see if I could get them to lie or mislead, which according to their own letter is against CA law). My concerns largely stemmed from things said which indicated that, at the very least, Chase has taught their "get the money" department new arguments and defenses, but if were true would indicate that things could get ugly at some point, somehow. I know they are going to try to intimidate me, and when I thought back over the conversation, at a couple points it seemed that I might have been hovering over questions that he wouldn't be able to answer without outright lying and that would have pretty much deflated his position. What was mostly an attack of "what Chase can and is going to do" shifted to "don't be silly that doesn't make any sense does it?", and I made this thread to try to make sure I'm not missing anything during one of those situations.

That said, I can currently pay (the actual monthly payment is relatively small), but like I said, I'm strategically defaulting (although there may be a somewhat brief period of being unable to pay coming soon); I have resolved (resigned?) to simply waiting for the endgame and ignoring the calls. Thanks for the help everyone, and if anyone has more information please share!

[Leilah]

Can someone please give me their thoughts on this strategy...we have a 1st through Wells Fargo that resets in 2013. Our second is through Chase that is a 30/15 loan. We are underwater. We weren't successful in getting a principal reduction with Wells Fargo. They are extremely difficult to deal with. We bought at the peak in 2006 and our value has fallen.

Both of these loans are purchase money.

If we default on the 2nd with Chase, is it likely that they will foreclose on us?

Have people had success with negotiating away the 2nd mortgage with Chase for 10 cents on the dollar and then were able to stay in their home and keep paying the 1st?

We are trying to figure out how to make the 2nd mortgage go away. We want to stay in our home, but can't figure out what to do. We don't want to file for bankruptcy because we have no other debt. Our plan is to stop paying the 2nd and let it go into collections and then see if we can negotiate the 2nd away. We would make sure that we have something in writing that the 2nd was paid in full and that they cannot come after us for the remainder owed.

If someone could please offer any advice, I would be most grateful. Thank you so much. I appreciate it.

[lanbor]

Hello, can someone help me?
My first is with B of A and it's $350,000.00
My (Heloc) second is with Chase for $470,000.00.
My house is worth $600,000.00

How do I settle with the second and not touch the first?
Any ideas. How much can offer to Chase to release the lien.

[SurfwhenUcan]

The loan is fixed with a 15-year balloon (which bursts in 10 years).

I do understand that the creditor is the least likely person to be honest (although I'd be curious to see if I could get them to lie or mislead, which according to their own letter is against CA law). My concerns largely stemmed from things said which indicated that, at the very least, Chase has taught their "get the money" department new arguments and defenses, but if were true would indicate that things could get ugly at some point, somehow. I know they are going to try to intimidate me, and when I thought back over the conversation, at a couple points it seemed that I might have been hovering over questions that he wouldn't be able to answer without outright lying and that would have pretty much deflated his position. What was mostly an attack of "what Chase can and is going to do" shifted to "don't be silly that doesn't make any sense does it?", and I made this thread to try to make sure I'm not missing anything during one of those situations.

That said, I can currently pay (the actual monthly payment is relatively small), but like I said, I'm strategically defaulting (although there may be a somewhat brief period of being unable to pay coming soon); I have resolved (resigned?) to simply waiting for the endgame and ignoring the calls. Thanks for the help everyone, and if anyone has more information please share!

I'm not sure what law you are referring to about lying but I think you may have misunderstood it. They can pretty much say whatever they want to you and it doesn't hurt their position at all. There is no law that stipulates a creditor must be truthful with you in all respects. If there were, they would all be in jail.

Really, I wouldn't worry too much about your 2nd. If it's purchase money you are fine. Highly unlikely they have any recourse at all. But don't be surprised if they send you things like Notice of Default, Notice of intent to foreclose, things like that. You would be surprised how many naiive borrowers panic and pay up because they don't know the law. That's part of the game the banks play.

[SurfwhenUcan]

Can someone please give me their thoughts on this strategy...we have a 1st through Wells Fargo that resets in 2013. Our second is through Chase that is a 30/15 loan. We are underwater. We weren't successful in getting a principal reduction with Wells Fargo. They are extremely difficult to deal with. We bought at the peak in 2006 and our value has fallen.

Both of these loans are purchase money.

If we default on the 2nd with Chase, is it likely that they will foreclose on us?

Have people had success with negotiating away the 2nd mortgage with Chase for 10 cents on the dollar and then were able to stay in their home and keep paying the 1st?

We are trying to figure out how to make the 2nd mortgage go away. We want to stay in our home, but can't figure out what to do. We don't want to file for bankruptcy because we have no other debt. Our plan is to stop paying the 2nd and let it go into collections and then see if we can negotiate the 2nd away. We would make sure that we have something in writing that the 2nd was paid in full and that they cannot come after us for the remainder owed.

If someone could please offer any advice, I would be most grateful. Thank you so much. I appreciate it.

Hi Leilah, welcome to the site.

the best thing to do with these questions is to start a thread. There are lots of knowledgeable people on this site who are dying to post advice.
I'll try to address your questions here though.

first, research Anti-Deficiency law in your state. In my state, CA, if I had your situation, Chase would be in a VERY bad position. Anti deficiency laws in many states protect the homeowner in the case of loans used specifically to purchase a primary residence. The lenders cannot come after you for deficiency, so, depending on your state, it could very well be that they don't have any recourse against you. You need to research the laws in your state on this.

Second, if you default on secured debt (a mortgage secured by your house), the one who can foreclose to cure the default by taking the collateral is the lender in highest (1st)position on title. Anyone behind that guy has to pay off everyone in front of them, take over 1st position and then they can foreclose. Chase is unlikely to do this, although don't be surprised if they start screaming and hollering if you stop paying.

The results you will get do not depend on the bank - they are just the servicer. the one who approves the settlement is the investor who owns the note. Virtually all seconds are held by investors on wall street who have taken it in the shorts and if they are not getting paid, they are ready to settle, especially in a case where they cannot pursue relief in the courts with a deficiency judgement. BUT, they don't just cave - it can be a lengthy negotiation process.

Will you get a settlement for 10 cents on the dollar? who knows, that will very much depend on what you look like on credit - if all your other bills are being paid on time, it will seem to Chase that you have the resources to pay them on time too. That will make settling tougher for you. It will also depend on what you tell them. They cannot magically see into your bank accounts so if you do not have bank accounts with Chase, they don't know what money you have. Typically, you do not submit a financial package for them to review - you just stop paying, let the loan default, then let it charge off and then make them an offer (start at 4 cents on the dollar with non-recourse loans). That's a little oversimplified but essentially that's how it works. Do not expect them to just say OK - you will have some back and forth but really, there is nothing they can do if you have no equity, they are in 2nd position, have no recourse and don't want to have to pay off the 1st mortgage to take 1st position.

I hope that helps answer some of your questions.

[SurfwhenUcan]

Hello, can someone help me?
My first is with B of A and it's $350,000.00
My (Heloc) second is with Chase for $470,000.00.
My house is worth $600,000.00

How do I settle with the second and not touch the first?
Any ideas. How much can offer to Chase to release the lien.

What state are you in?
You are in a difficult situation for a couple of reasons: 1) Stand alone 2nd liens usually have recourse - they could sue you for a deficiency judgement if you default, opening you up to wage garnishment and bank levies - not good. 2) 2nd partially covered by equity - if I was Chase, I sure wouldn't settle and let you recover a huge chunk of equity. At the very least, I would want $250,000 leaving you with $0 equity, but really, if I can sue, I would probably not settle at all and take you to court.

Chase will likely not pay off the first so they can foreclose - it would be cheaper for them to sue you probably.

I think your three options are: 1) File a BK and liquidate the property 2) short sells (you have to look like you can't afford the house to do this) 3) stay with what you have and wait for the market to come back.

I don't know what your hardship or financial situation are, but this is a tough position you are in.

[Of All Trades]

I'm not sure what law you are referring to about lying but I think you may have misunderstood it. They can pretty much say whatever they want to you and it doesn't hurt their position at all. There is no law that stipulates a creditor must be truthful with you in all respects. If there were, they would all be in jail.

Really, I wouldn't worry too much about your 2nd. If it's purchase money you are fine. Highly unlikely they have any recourse at all. But don't be surprised if they send you things like Notice of Default, Notice of intent to foreclose, things like that. You would be surprised how many naiive borrowers panic and pay up because they don't know the law. That's part of the game the banks play.

I'd have to dig out the letter but there was a paragraph that specifically stated that as a CA resident they can't lie or mislead; that said, I wouldn't be surprised if that was actually a lie in order to attempt to structure any future conversations with a false framework (since I'd then think they couldn't lie so by definition anything they said must be true, even if it was a lie).

I'm 2 months behind now (or 45 days late I guess); Chase calls every day, and it's usually from the same person (they leave names and extensions), but every now and then another person will call, probably to make it seem like THIS TIME IT'S SERIOUS NO REALLY. It's always the same number so I never pick up the phone. I figure when they really want to get serious then they'll actually leave meaningful details in the message or send me a more detailed letter.

[SurfwhenUcan]

I'd have to dig out the letter but there was a paragraph that specifically stated that as a CA resident they can't lie or mislead; that said, I wouldn't be surprised if that was actually a lie in order to attempt to structure any future conversations with a false framework (since I'd then think they couldn't lie so by definition anything they said must be true, even if it was a lie).

I'm 2 months behind now (or 45 days late I guess); Chase calls every day, and it's usually from the same person (they leave names and extensions), but every now and then another person will call, probably to make it seem like THIS TIME IT'S SERIOUS NO REALLY. It's always the same number so I never pick up the phone. I figure when they really want to get serious then they'll actually leave meaningful details in the message or send me a more detailed letter.

When I settle 2nds I usually don't approach the bank until just before 120 days late - at 120 days they can charge off the debt.

Charging off, by the way, simply means they designate the debt as "Uncollectible". The loan is still secured by your property and you still owe it, but the loan will be used to offset revenue when they do their taxes next. Charged off loans with no recourse are actually kind of fun to work on.