Settling with "in the money" 2nds

[joseph gilbert]

i'll be posting on this thread now as WF is at least 60% in the money. WF now tells me that my house value has dropped precipitously. their appraisal based on a 60 day sale was 160k in feb. now the home mod. dept tells me it's 125k! i owe 99k to WF and 41k on the house. they called 3 weeks ago hoping to "push through" a mod. before my rule 120 hearing and the sale date. i don't believe anything they say anymore. i've complained to the BBB of three states; CO, IA, and AZ. WF called me at midweek to "discuss" a complaint i had made to the attorney general of of one of these states and i directed the woman to my lawyer. the rule 120 hearing has been postponed to at least sept. 26th and probably longer as my lawyer will be in trial.

[Homeowner101]

Tom, Thanks for the replay. Here is the information you requested;

The first loan is with Bank of America
Amount of Balance: $187,000

The second (HELOC) is with CITI Bank
Amount of Balance: $305,000

Tom, what does the term "in the money" mean?

[TomEason]

Homeowner101

Thanks for your post. You've listed the loan amounts, but not the property value; unfortunately no one will be able to render any perspective or advice without that. Pleas see post #40.

Any time you need a definition, I recommend you Google the word or term, or perform a look-up in another resource.

[Daisy Cutter]

Hi thread, I settled an $85K California purchase money second last year for about $14K that was in the money. I had the same very nasty bank (e-trade) for both first and second loans. I got my first $500K+ loan modded to the 2% step rate and settled the second, even though the house is worth about $700-$900K depending on who you believe. The house is in a desirable part of San Jose (silicon valley where jobs still exist).

I had a lawyer for a while who practiced real estate law but has since left the state- I got some interesting info from him but in retrospect I really didn't need him and could have dealt with the whole thing myself.

He felt the cost of the foreclosure itself must be borne by the bank that forecloses- first or second. Say about $50K?

Surplus money after a foreclosure (meaning, the bank foreclosed on an in the money property) is regulated at the state level but generally, consumers can file a petition with the court to get the excess money back. Here is a general brochure outlining this for florida. Its hard to find info on surplus after foreclosures since almost no foreclosures produce a surplus these days.
CA Foreclosure Law - Civil Code 2945 | ForeclosureRadar
http://www.clerk.leon.fl.us/sections/clerk_services/online_forms/brochures/homeowners_rights_b.pdf

So taking an example of an in the money non recourse second that wants to foreclose- he will have to pay the costs to foreclose and cannot keep more money than the original amt of loan. So if a second is $100K, assuming $50K foreclosure costs, the most he can recover is $50K. This foreclosure cost estimate increases as the house value increases to account for real estate selling fees. In other words the second bank's proceeds are fixed at the amt of the second mortgage but his costs are not. This is one reason seconds never foreclose on in the money CA non recourse loans. Recourse is another story, of course.

I played hardball with e-trade and finally got a settlement at around 15%- not a great settlement but good enough for me and I wanted to get on with my life. Also even though my second was non recourse purchase money, I had paid down about half at one point and used the heloc checks to buy something again at a later date, so in theory, about $50K of that loan could have been considered recourse. Not sure if e-trade just had no way to track that I had done that, of if the laws are fixed at when you take out the loan as to whether it is recourse or non recourse- I chose to not bring it up, of course.

[TomEason]

Hi Daisy

Thanks for your informative post. I agree with most of it. I want to clarify one thing for other members.

The $50k figure that you mention is the average "overhead cost" post foreclosure for an REO. One of those cost items is holding costs, which include maintenance, debt service, insurance, property tax, utilities, and management. Then add the cost for fix-up, marketing, and resale. The national average is about $50k per REO property. Needless to say, that amount is higher for a high priced REO, and lower for a low priced REO.

Anyway, that overhead figure must be added to the 2nd's loan balance to determine if it makes financial sense for the 2nd to foreclose. This is why I've frequently posited that, if a 2nd is not "clearly and unquestionably" in the money, there is little danger of their initiating FC. And, since in all but a few extraordinary RE markets, like yours in Silicon Valley, values will likely to continue to fall. This will add to the cushion/margin of safety for the borrower.

[chabsin]

chabsin

Thanks for your update. FYI, lenders often send NOIs with the intent of intimidating the borrower into forking over some $$. However, seldom do 2nd lenders follow through with an NOD unless they are are clearly in the money with extra overhead for post FC expenses to include holding costs, maintenance and fix-up costs, and resale costs.

If it were me, I'd continue what you're doing - not paying the 2nd and not communicating with them.

If you have positive cash flow without paying the 2nd, then enjoy it, and sit back and wait and be patient. Unless you're in an extraordinary RE market, your value will likely continue to fall, which will add to your cushion of safety.

Good luck!

Thanks TomEason.

This 2nd is not purchase money, and I do own one other rental property which has about $150K in equity. I understand there is always the possibility that the lender will use a Judicial foreclosure hoping to then be able to sue me for the deficiency. What simple steps can I do to discourage that? (transfer to a trust; Transfer to spouse; Attach a friendly lien, etc.). I understand that it's hard to find a full-proof method which will actually hold up in court; My intention is simply to discourage the lender by making it more costly for them to pursue this.

Or maybe I'm simply worrying too much?

[TomEason]

chabsin

Thanks for your post. Yes, I think you're worrying too much, but I bet you kind of enjoy doing that, LOL!

Since your properties are in CA, you needn't concern yourself with asset protection strategies. Why? Because lenders never use judicial foreclosure on small residential loans in CA.

Good luck!

[chabsin]

chabsin

Thanks for your post. Yes, I think you're worrying too much, but I bet you kind of enjoy doing that, LOL!

Good luck!

LOL

Indeed I enjoy worrying. What will I do now that you told me they don't usually pursue Judicial foreclosures ...

[TomEason]

LOL

Indeed I enjoy worrying. What will I do now that you told they don't usually pursue Judicial foreclosures ...

Indeed; you might now have extra time to fill, LOL!

[kally95]

Hello all. Very informative forum here. Need advice on settling my 2nd heloc with chase. Im in the money so to speak, but barely. I am current on the first and stopped paying the 2nd in February. I would like to keep the home. I have small numbers compared to some of the stories I have read on the forums. I have received phone calls but not one single piece of mail from Chase. I know that it is in the charged off state. Any suggestions?

Property Value: $230,000
Property Location: Maryland
1^st Lender:WF
1^st Loan Balance:$200,000
2^nd (HELOC) Lender: Chase
2^nd Loan Balance:$25,000

[TomEason]

kally95

Welcome to Loansafe. Thanks for your post, and for supplying your critical numbers.

If it were me, I'd not communicate with Chase at all. If you've read the posts on this thread, you'll know that your Chase HELOC is just barely in the money and not clearly and unquestionably in the money. Particularly when you add on the overhead costs of handling an REO. Those costs average $50k per REO property.

Unless you're in an extraordinary RE market, your value will continue falling, likely at least another 10 - 20 percent. That will add to your cushion of safety protection against Chase FCing on the HELOC.

Good luck to you!

[kally95]

kally95

Welcome to Loansafe. Thanks for your post, and for supplying your critical numbers.

If it were me, I'd not communicate with Chase at all. If you've read the posts on this thread, you'll know that your Chase HELOC is just barely in the money and not clearly and unquestionably in the money. Particularly when you add on the overhead costs of handling an REO. Those costs average $50k per REO property.

Unless you're in an extraordinary RE market, your value will continue falling, likely at least another 10 - 20 percent. That will add to your cushion of safety protection against Chase FCing on the HELOC.

Good luck to you!

Thanks for getting back to me. Do you think I should just wait for them to contact me or should I make a 5% settlement offer and then wait? They keep calling and leaving messages with no information other to call back. Thanks!

[TomEason]

kally95

Thanks for your question. If it were me, I wouldn't call them back - those are just collections calls. They do their best job by getting the borrower on the phone! Thus, it's our job to never talk with them. That department cannot negotiate a settlement.

I recommend you review the guidance article at post #1 of Strategy for Settling Your 2nd

Good luck to you!

[fingerscrossed]

Hi Tom,

Learning gobs. Thank you for your time and energy on these threads.

Recap of my situation:
First 400,000 Wells
Second 200,000 Chase
California, both recourse loans (refi'd)
Property value: $575,000-$600,000.
Chase's latest BPO: 670,000.
Stopped paying second in March. First current.
Notice of Default filed on July 12 with County.

Note: First time I spoke with "negotiator", he said the bpo was mid $500,000's. Now he states "they must have done a more recent bpo, because it says $670,000."
States that because there's equity, he could try to send over a 30% settlement offer, but he can't guarantee that he'd get approval, and he is not authorized to send over anything less than 30%.
Trustee's sale date to be set early October.

Questions:

1) Will my loan still charge off at 180 days? Or now that it's in the foreclosure department, am I on a different road? I guess what I'm asking is, even though they are moving towards foreclosure, will there arrive a period where they will be more reasonable with the settlement considering they think they have equity.

2) How likely is it he's yanking my chain about the new bpo? Chase online value estimator currently at $553,000, Zillow higher, of course. My estimate from real estate professional and appraisal. In your experience, will they lie about the bpo value as justification for denying a settlement?

Thank you in advance for your insight.

[TomEason]

fingerscrossed

Thanks for your post and your kind remark.

The wide range in your value is critical. We're looking at as much as $95k, which is a large variance.

If you can show Chase a very recent appraisal or written CMA supporting your opinion of value, you can likely convince them their 2nd is not clearly and unquestionably in the money. Particularly when one adds the REO overhead costs of $50k to the loan balance.

Show them that they'll lose $$ by foreclosing on the second. Hopefully, a Chase officer or manager will come to his/her senses and realize he/she may get blamed if this happens. I recommend you write a letter(s) to several contacts at Chase including the appraisal or CMA and laying out your case.

1) A loan charge off is totally irrelevant, as it is but an internal accounting entry. It doesn't mean the loan will be sold. The 2nd lien isn't extinguished and the danger of an eventual FC exists.

2) Any statement from a loan servicer rep should be considered suspect and never relied upon. These people are not your friends.

Good luck!

[Fatface]

Hello, I have been on and off the message boards since Feb 2011 when I first stopped paying my Heloc. I have a 350k 1st that is current and 355k 2nd Heloc which is in default since Feb. The bank has different people and depts calling since Feb. I tried settling immediately in Feb-March and made a mistake of giving them the financials they wanted including a hardship letter since I lost my job in Jan 2011. A loss mitigation dept has been contacting me for the last 3 months and they wanted to discuss modification but had system problems with my account because they told me I skipped normal steps when going right to settlement. After hearing of the system problems for 2 1/2 months I got an email and voice message that said the system problem has been resolved and they want to try and work something out to call back to verify information. This was on Thursday. I havent called back yet. My house on Zillow says 700k so I'm right at the money. I want to get rid of the Heloc and start breathing again. Should I call back? Can I have a modification where they reduce the principle significantly? Should I offer to settle again? Can they foreclose or is that even worth it to them? I had entertained using an attorney and a Mortgage Forensic company recently to help me but I decided against it. I'm stressed because I think its close to a breaking point. Need help and advise. Thanks!

[TomEason]

Fatface

Thanks for your post. I agree with you. According to your numbers, your HELOC is very close to being in the money. The $50k overhead cost for turning an REO around is added to the loan balance. With that addition, you might be safe. And unless you're in an extraordinary RE market, you home's value is likely to continue falling. This will add to your safety cushion.

As Zillow values are most frequently off by a substantial amount, I would recommend you get a more accurate opinion of value. You might ask a local RE agent to provide you with a CMA.

I recommend you provide us with the following info so members get a clearer idea of your situation.

Thanks.

Your State:
Property Value: $700k
1^st Lender:
1^st Loan Balance: $350k
Purchase money?: Yes____ No____
2^nd Lender:
2^nd Loan Balance: $355k
Purchase Money?: Yes____ No____

[Fatface]

TomEason, Thanks. I dont know what a purchase money is? My first is with Bk of NY and Heloc with Citi. The Heloc was originally with Chase and in 2006 Citi pursued me for a higher line of credit and better rate. Amazingly we closed over the phone in about a week after they contacted me. I got a BPO on my home about 3 months ago for 549k. I dont know how accurate that is either...it may be low. But I thought of scanning it and sending it back to the Citi loss mitigator.

[TomEason]

Fatface

Please just post your numbers in the format provided. Deciphering a narrative is time consuming; most of the copy is irrelevant.

Whenever you encounter a term you don't understand, simply Google the term; you'll be served up with all the definitions you can handle.

Thanks.

[Fatface]

Thanks again. Everything formatted...

Your State:
Property Value: $700k
1^st Lender: Bank of New York
1^st Loan Balance: $350k
Purchase money?: Yes____ No__x__
2^nd Lender: Citimortgage
2^nd Loan Balance: $355k
Purchase Money?: Yes____ No__x__

[TomEason]

Fatface

Thanks for that, but what's your state? As you know each of the 50 states has its own FC and deficiency laws, so this could be very important.

[Fatface]

Sorry I missed that one, the state is New York.

[TomEason]

Fatface

Thanks for that. You're in luck in that NY has the longest FC lead-times in the country; I believe well over two years.

If it were me, I'd continue not paying the 2nd and not communicating with them.

As I stated in post #57, I recommend you get a more accurate opinion of value. This is an important factor in your scenario.

Good luck.

[Fatface]

TomEason, thanks for the advice and good news.

[matt7]

Tom, I am following up from last week. How do I know for sure how much in the money I am, and if WF will FC? Is it possible to speak with you over the phone? I received an offer from WF but think it is too high. It feels like a gamble to not communicate and hope for a much better offer in a few months based on your advice but your advice seems to be the best I have seen and the one I like the most.

Recap
1st Credit Union 250k
Purchase money?
Current Yes
2nd WF 105k
Purchase money?
Current, no?

We paid 340k in 2000 for the hobby farm.

Thank you Tom,

MnM

[Sid Farcus]

... I received an offer from WF but think it is too high. ...

I am curious as to what WF offered to settle.

[TomEason]

matt7

Thanks for your post. Sorry, I don't provide an outside service; although I was given the title of moderator, I am strictly a voluntary contributor. I recommend you contact a professional in your state.

To answer your question, you cannot know if, and by how much, your WF 2nd is in the money because you seem to be guestimating your value. I recommend you get a more accurate indication of value by asking a local RE agent to give you a CMA. CMAs are almost always provided free of charge.

You will then find be able to better gauge your strategy. If WF has made an offer, counter their offer in writing at a price below your target price. For more info about negotiation strategies, I recommend you visit this thread and read post #1. www.loansafe.org/forum/debt-settlement/37996-strategy-settling-your-2nd-62.html

[underwater100]

Thanks Tom for responding earlier in the strategy for settling second thread. Just wanted to post an update.

State: MAssachusetts
Property Value: Zillow shows 238,000 eppraisal shows 242,000 and Chase shows high at 269,0000.
Assesed at 245,500 and I quickly looked at some sales and similar houses sold less then assessed in the past 90 days.


Original Purchase Price $200,000 in 2001
1^st Lender: GMAC - 216,500 current
Purchase money? no
2^nd Lender: HSBC - 11 days past due- paying only interest and no principal monthly
2^nd Loan Balance: $140,000
Purchase Money? no

I went ahead as you suggested and sent a settlement offer. I offered 5% of the balance. Did not think I would get a response but today I got a phone call from someone wanting to do a appraisal. This within 1 week.

I called HSBC to see if they ordered this. They said yes they ordered an interior inspection and they would need to see the balance on my first and support for where the money would come from before doing a workout. I think that was the term she used??

The person is coming tomorrow to do the appraisal.

I am open to any advice. Should I look into some comps myself? Should I have city assesment info? Anything?

Around what number should I really be trying to settle for? Since my first is not underwater I want to set realistic goals.

I know nothing may happen but now I can not think of anything else!!!

I faxed them my statement for the first mortgage but did not send anything else. I need to know what they think the value is.

This site is so great!!

[TomEason]

underwater100

Thanks for your post.

If it were me, I wouldn't provide any disclosures to HSBC, including an appraisal. I would phone the appraiser and tell him/her that you won't allow access to your property, including the lot, for an appraisal. Said appraiser will have to do a "drive by" or "curbside" appraisal.

According to your numbers, your 2nd is underwater and you have no risk that HSBC will FC.

FYI, a reasonable settlement amount is 5 - 10 percent of the loan balance. Set your goal price accordingly. However, a settlement counteroffer by you should be below your target price.

I recommend you visit this thread and read the guide at post #1. Good luck.

Strategy for Settling Your 2nd

[Sid Farcus]

I have been following this thread and wonder what the outcome was for SShine....

[poorhouse]

Hi Tom,
Here's my deal:

Property A:
CA resident and CA rental property
1st with chase $220k bal
2nd heloc with Wells $101k bal
Both refi'd non purchase loans
Balloon pmt due end of Oct on wells, property value approximately $375K, 321k total loan balances so right at the limit for potentially being out of the money.

Property B:
2nd rental property also in CA, both 1st and second with wells, both refi'd, $30k bal on 1st with wells, $75k bal on wells heloc 2nd, value is $95k. Loan bal $105k total. Balloon payment on wells 2nd is due in just under 2 years.

Property C:
Primary residence, $560 bal on 1st w/chase, $150k bal on wells heloc second, though upon reviewing the note, this second can be paid off over the next 20 years. Both refi'd, value around $900k, loan bal $710k total.

I'm self employed and income has fallen off a cliff the last 2 years, making pmts using savings, all payments are current and have never been late, and will be starting a regular job hopefully in a few months.
The balloon payment due next month is going to clean me out if I can even make it and at that point, I won't be able to stay current on all of the other payments and will probably ruin my credit. It appears to me that property A is just ITM and wells would likely FC. In a brief conversation with a wells representative on the phone, they mentioned something about very large payments over the next year or so. Would I be able to negotiate that so that no pmts are reported late on my credit bureau?

What are your thoughts on this?

Ideally, I'd keep all my properties and not lose any of them but if I were cleaned out right now by making the balloon pmt on the $101k wells 2nd due next mo, then I'd just assume go ahead and let them have property B back, or tackle that when the time comes and deal with settlement at that time as it will most likely be out of the money at that time and I might be able to settle at a much lower percentage of the bal due. Your thoughts?

How long, if property A and B go into FC, does it really take for them to legally own the property?

I realize that one option would be to just go ahead and pay the $101k, and then sell the home in the next few months allowing me to come out ahead rather than lose the home and ruin my credit.

Some additional thoughts are that if the above mentioned scenario evolves, how do I deal with the wells heloc on property C since it seems like this property is well ITM? My guess is that they would then just FC. Any chance settling for much less on a property that's well ITM?

I appreciate your thoughts on my situation and any other suggestions you may have to handle all of this.

many thanks

[TomEason]

poorhouse

Thanks for your post and welcome to Loansafe.

I'm sorry but unfortunately, I'm afraid I can't afford to spend the time necessary to consider all the options in your situation.

I recommend you consider consulting with experienced and knowledgeable local professionals, i.e., financial planner, CPA specializing in RE, RE broker, mortgage broker, or ? It might help if you consult with more than one.

I wish you luck.

[HopingtoFind]

Poorhouse welcome to loansafe,

Your property A and property C are very much in the money, I can't see how you could negotiate anything with them unless they make a mistake in their appraisal. In a way you're much better off then a lot of others on this forum since you can simply sell your properties given that the values you presented are true values, and not have to ruin your credit with foreclosure or short sale.

As far as your property B, you could probably negotiate a settlement with them, but I think you would still have to come up with a large chunk of money to settle it and of course your credit will be effected.

Best of luck with whatever you decide.

[joseph gilbert]

just an update from another weary warrior: i got a CMA from a local realtor on wednesday. his firm, the biggest in the county, is selling, almost exclusively, foreclosures. he is very experienced in the field. we did a review of comps and he put my CMA at $117,100.00, very much under what the WF BPO was last february (160k on a 60 day sale). he told me that 160k is purely wishful thinking. therefore, i advise all of you to get one done if you can. they are almost always free and very informative. my CMA very clearly puts WF about sixty percent "in the money", NOT 100 percent, as they claim!!

[joseph gilbert]

actually, if WF thinks it through, they pay off my first of 41k, that leaves roughly 80k for them, then the cost of FC of 30k, and they are left with 50k on a 99k HELOC.

[Gambled and lost in Vegas]

Hi Tom, need some help on my strategy.

This is a rental property.

2001 purchase price $250,000 in Nevada
1st $104,000 Chase (current)
2nd $175,000 WF (7 months behind)
Property Value $200,000

2nd is partly in the money


I have been following your steps for settling the 2nd, ignoring all calls. One got through yesterday by accident, told them I didn't want to talk unless they were able to settle the loan. They transfered me to the settlement department. They said they would need 80%, I offered $10,000. We left off there. They said the loan was in the process of being charged off, I said ok, end of conversation.


Here is my concern, my 1st is a 15yr note, so most of my payment is going to the principle. 7 month ago when I stop paying my 2nd I owed $112,000 on my 1st now I owe $104,000. Each month the 2nd is getting in a stronger position.

Should I stop paying my 1st?

Best case scenario is to settle the 2nd as soon as possible and be in a equity situation.
Worst case scenario is the 2nd does nothing and lets me pay down my house.

[TomEason]

Gambled and lost in Vegas

Thanks for your update. FYI, even though you're paying down on your 1st loan's principal, you have a long way to go before your 2nd is in the money.

I recommend you continue doing what you're doing. You likely still have a very long time before you need to eventually settle with WF.

And the property's value will likely continue falling, thereby maintaining your cushion of safety.

[Gambled and lost in Vegas]

Ok Tom, I keep paying my loan the next 7 months now I owe $95,000 on my 1st. If I do the math right:

Property value $200,000
1st $95,000
FC expense $50,000

Net $55,000

The secound gets $55,000. A lot more than I'm willing to settle max is $20,000. Why would WF settle when they can make more FC on me?

Thank you for your reply

[TomEason]

Gambled and lost in Vegas

Thanks for your post. The reason WF won't FC is that they'll have to actually make a cash outlay of $$ to FC. Why, because they will need to pay $95k in real money to pay off Chase. And that's not how banks behave. Banks are focused in making money, not spending it.

If WF were to FC and spend that $95k to pay off the Chase loan, they then get to spend even more $$ in fix-up costs, holding costs, and REO resale costs. WF will then be hoping the property sell anywhere near the $200k you cite. And, in the LV RE market, that may not happen. REO buyers buy only when they can buy at a very attractive bargain price.

And the value of your property will likely continue to drop.

You may not agree, and that's OK; you will do what you think is best. Good luck to you.

[Gambled and lost in Vegas]

Thanks Tom, I better understand that logic. I hope to settle at soon but not untill the begining of the year so I will have a full year to save up tax money for the 1099.