Stop paying heloc, foreclosure?

[bgriff]

OMG, you guys are ganging up on me!!!!
This is her line of thought when discussing the issue:

The 170 they loaned me is long gone...... -170 So they are sitting on a 170k loss.
Decide they are going to FC and sell the house for FMV of +410 (I know it will be less of course, but how much is anyones guess)
Payoff first of 264 and have $147 left over..
Turns out it cost them $40 in fees, etc to do all this...
Of the $147K left over subtract the $40 in fees so there is $107 left over...
So of the 170K loss, they recoup 107k instead of 0..


One thing that is unclear, can they pay the 1st later after the sale or do they have to pay the 1st right off the bat to be able to foreclose?

not ganging up - just trying to give you a perspective. The 2nd has to satisfy the 1st before the sale can take place (they can't sell the house from under the first and then pay them later - so it has to be paid prior to the auction.

I changed the previous post include your #'s (I missed the $264 - I had $240). I also changed the assumption to include the Auction yielding a 90% return.

Foreclose			No Foreclose
Payoff 1st	$264		Payoff 1st	$0
Total foreclosure costs	$40		Total foreclosure costs	$0
Loss on 2nd	$170		Loss on 2nd	$170
Total cost	$474		Total cost	$170
FMV	$410		FMV	$410
Auction/REO value @ 90% of FMV	$369		Auction/REO value @ 90% of FMV	$0
Net Loss	($64)		Net Loss	($170)

The bottom line is the bank would loss either $64 or $170, or from your analysis - it would better it's loss by $106. When you find the manager that will put up another $264 (with all kinds of risks and uncertainties) with the expectation of "recouping" $106, you've found the next guy in the unemployment line. It's far better for the bank to settle this then to go through all of the problems, not to mention financial pitfalls (what happens if you get so pissed off you trash the place before you leave? What if the market keeps going down (really likely) ? )

I didn't read all of your post but why not take the $'s your paying and put them in a bank account and see what the bank does ? If you get get the sense they're likely to do something you can always bring the account current. Everyone is different and has different tolerances to risk. There is a risk in doing something like this but you have to decide what is best for you.

[hammerman]

Oooops....made a mistake posting..
Anyhow, I do appreciate the ganging up!!! It helps me to be more precise in my discussions with my wife.

Much thanks to Tom and you....

[bgriff]

bgriff
I see your point, but the bank can also look at it this way:
Foreclose net loss $101
Don't Foreclose net loss $170
Bank avoids losing $69,000 if they FC.

Also, if the banks stands to lose $1, won't they foreclose as against losing $170? i.e. at what amount do they need to lose or gain to motivate them to FC?

The bank has to put up another $264 - this would be a waste of capital to them (ie they could lend this to someone else) plus, there is no guarantee what the sale or auction would yield. They'd also have the costs of foreclosure and other costs to resell/maintain - they'd be much better off settling.

Banks, contrary to popular belief, don't like to foreclose, especially if you can show them it would be better for them to settle. In the above case - if you offered the bank 15% ($26) and showed them how much they'd get from the foreclosure vs no foreclosure ($69) for a differential of $43, and they wouldn't have to put up the $264 or have to deal with the legal headache - I bet the bank would go for it.

[hammerman]

Here I go again.... Trying to work through the numbers, shouldn't that net loss of $64 be $105 instead? I have to present this info to my wife so she can eventually see the light..

That would mean $105 - $25 with a differential of $80, even better I believe...

[hammerman]

Well, good news I do believe.....The realtor gave me a FMV of $380 on the house at this moment....that will narrow the gap even more for the 2nd mortgage...

[bgriff]

Here I go again.... Trying to work through the numbers, shouldn't that net loss of $64 be $105 instead? I have to present this info to my wife so she can eventually see the light..

That would mean $105 - $25 with a differential of $80, even better I believe...

Yes - the loss is $64, see latest post.

This just off AP wire (part of an article) -

"Meanwhle, distressed sales accounted for 29% of all transactions, down from 34% in February and 40% a year earlier. Foreclosures typically sold for 19% below market price and short sales were discounted 16%, the NAR said."

[hammerman]

So by going with say 15 percent off of FMV and plugging in the numbers, it would look like this:

Foreclose			No Foreclose
Payoff 1st	$264		Payoff 1st	$0
Total foreclosure costs	$40		Total foreclosure costs	$0
Loss on 2nd	$170		Loss on 2nd	$170
Total cost	$474		Total cost	$170
FMV	$380		FMV	$410
Auction/REO value @ 85% of FMV	$323		Auction/REO value @ 90% of FMV	$0
Net Loss	(151)		Net Loss	(170)

[bgriff]

So by going with say 15 percent off of FMV and plugging in the numbers, it would look like this:

Foreclose			No Foreclose
Payoff 1st	$264		Payoff 1st	$0
Total foreclosure costs	$40		Total foreclosure costs	$0
Loss on 2nd	$170		Loss on 2nd	$170
Total cost	$474		Total cost	$170
FMV	$380		FMV	$410
Auction/REO value @ 85% of FMV	$323		Auction/REO value @ 90% of FMV	$0
Net Loss	(151)		Net Loss	(170)

Yes - this correct.......... like Mr. Eason has stated, as long as the Foreclose column yields a negative amount, the second has no incentive to foreclose. They're likely to not sit back and do nothing, but a FC is not an economical options.

[TomEason]

bgriff

Thanks for your post. I disagree with this statement

They're likely to not sit back and do nothing....

There is nothing else that lender can do but watch and wait (probably for a very long time) and hope the market eventually recovers.

It's a very advantageous position for the debtor, who has the creditor over a barrel.

[bgriff]

bgriff

Thanks for your post. I disagree with this statement

There is nothing else that lender can do but watch and wait (probably for a very long time) and hope the market eventually recovers.

It's a very advantageous position for the debtor, who has the creditor over a barrel.

I didn't see what state this was. I believe in some states the lender can get a default judgement and then garnish wages etc.
They're also likely to try and scare you into believing there is something they can do by sending letters from attorney's etc. They may offer a "work out" or "modification" - (which is absolutely the last thing anyone should do (they're not out to help you - trust me, you think your going to get a lifeline and they're going to toss you an anchor)) or maybe even a settlement. These will happen first before the lender gives up and leaves you alone.

[hammerman]

Arizona
We had a Chapter 7 bankruptcy in 2010 and both of the mortgages were NOT reaffirmed..... Does this fact make much of a difference?

[TomEason]

bgriff

Thanks for you post.

In only two of the 50 states can a secured junior lender legally opt to sue directly on the note in lieu of first FCing. Those states are FL and MD. A lender is legally barred from doing so in the other 48.

I stand by my statement that the lender can really do nothing but watch and wait. Particularly when there is a savvy property owner who understands the options.

You might visit the Success Stories in Settling 2nds thread to view the growing number of successful settlers.

Success Stories in Settling 2nds

[TomEason]

We had a Chapter 7 bankruptcy in 2010 and both of the mortgages were NOT reaffirmed..... Does this fact make much of a difference?

hammerman

It matters not a wit.

[joel1]

joel1

Thanks for your post. But you're reading the worksheet incorrectly and have therefore come to a faulty conclusion. You have it backwards.

A net loss of a minus (-) number is a relative net gain, i.e. a smaller loss. Accordingly a net loss of ($170) is a smaller loss than a net loss of ($101). Hence not foreclosing will result in a smaller loss to the lender than would a foreclosure.

In answer to your last question, an underwater 2nd lender will never make money foreclosing. Hence there will no motivation until such time that the 2nd loan balance exceeds the property value by at least $50K.

To confirm, you might want to add the figures yourself.

Tom,
I don't think I have it backwards. Try plugging in 530 as FMV and you'll end up with close to 0 lose. So how can a smaller net loss of 0 NOT be better for the bank?
If the bank stands to lose just $1, won't they still FC? If yes, then at what amount will banks be motivated to FC rather than accept a 5 to 10 percent settlement?

[TomEason]

joel1

Thanks for your post.

An underwater junior lender will never FC. Let's put it this way. As bgriff said in post #23, "Would you bet $450 to win $410 (at best)?"

Furthermore, buying a FC is fraught with risk, requiring time and effort to research the property. A junior lender buying at FC buys the property without warranty, and subject to any liens on the property, to include senior mortgage liens, unpaid property tax lien, judgment liens, mechanic's liens, ad nauseum.

Then once the junior lender has title, that lender must bear costs of reselling that REO property. Those costs, which include holding costs, fix-up costs, marketing costs, and commissions, average about $50K per deal.

Thus, a lender/bank will never be "motivated" to buy an asset worth less than they would pay for that asset. Banks don't pay out real cash $$ to buy anything that's not a sure winner (and a big winner at that). A FC which causes a lender to lose $$ would be a career ending move for the bank manager responsible for making that decision.

[bgriff]

hammerman

It matters not a wit.

Actually I think it puts you in an even better situation - if you walk, they collect $0 and can't come after you.

[hammerman]

For Tom.... What is the best time to submit the permission letter giving them permission to contact me about settling.. (we had the chapter 7) Immediately or after a few months?

Thanks for all the great info...

[TomEason]

hammerman

Thanks for your question. I would send them the letter now.

[hammerman]

Our next payment is on May 1st and we are not late yet (I will follow the steps outlined by you in the other thread) so it is okay to send it in even before we are late?
Thanks..

[TomEason]

hammerman

I didn't know you were still current. Since you are, there's no rush in sending it.

[TomEason]

Here's the link to a current Bloomberg article discussing the number of 2nds that are currently underwater, and being written off by lenders. Not surprisingly, BOA leads the pack with its big number.

Bank of America Faces Bad Home-Equity Loans: Mortgages - Bloomberg

[joel1]

Tom,
Thanks for your reply,
Won't the banks rather wait it out for the property (which won't be in the near future) to appreciate, rather than settle for 5 to 10%?

[hammerman]

To Tom.... I wish I had the 2nd with Bank of America... My 2nd is with BBVA Compass and the 1st is with B of A

Joel1, I think, not sure though that if one is not making payments, that bank has to do something, either settle or foreclose....If you are making the payments, they will keep riding along and wait for a good opportunity to collect, perhaps when you pay the first mortgage down low enough or when the house goes up in value. They like those payments, it gives them time. (at least that is what I think)

[TomEason]

joel1

Yes, the banks can wait it out. and in most markets it'll be a very very long wait, many years in most cases. The time horizon before a borrower is compelled to settle, is thus very long. I address that issue in the strategy guide piece.

The many results posted in the Success Stories thread speak volumes.

[davephx]

Bank of America Faces Bad Home-Equity Loans: Mortgages - Bloomberg

Also note poor BofA only had $1.6 billion in profits for 3 months. Plus millions in salaries and bonuses to many execs.

[TomEason]

davephx

Thanks for your post.

I believe you may be missing the point which is applicable to many Loansafe members.

I'm not addressing BAC's overall performance, but rather the topic of the large amount of underwater, non-performing assets, specifically junior RE loans, that BAC is still carrying on its books at full value. Unlike their peers, to wit Chase, Wells, and Citi, they have yet to reclassify an estimated $4.1 billion of those junior loans as nonperforming assets.

Since addressing loans and helping borrowers with their loan questions is the mission of Loansafe, why not post some actionable advice for your fellow members?

[joel1]

joel1

Yes, the banks can wait it out. and in most markets it'll be a very very long wait, many years in most cases. The time horizon before a borrower is compelled to settle, is thus very long. I address that issue in the strategy guide piece.

The many results posted in the Success Stories thread speak volumes.

Tom,
Thanks for the reply.
I stopped paying Chase last October per the strategy. Have ingonred their calls, but now recieved voicemail from their recovery department to return their call. Is it time to return their call since its coming from their recovery department?

[TomEason]

Tom,
Thanks for the reply.
I stopped paying Chase last October per the strategy. Have ingonred their calls, but now recieved voicemail from their recovery department to return their call. Is it time to return their call since its coming from their recovery department?

joel1

Thanks for your post.

I would not return the calls.Per the strategy, a borrower should return a call only if a voicemail states there is a settlement offer. FYI, almost all settlement offers are coming by letter.

[hammerman]

Anyone having any results as of now? Anything new to report?

[bgriff]

Nothing new to report here. Haven't pd 2nd in 12 months. Sent in an offer to settle in May and haven't heard a word. House is $160k+ underwater (had BPO done so I'm confident there). First is $290k and 2nd is $72k. Not sure what they are thinking but who cares, the RE market may never get me back to $360k before I die (and I'm pretty young). There was a sense of urgency in the beg. to settle, but as time went by and the market went lower, the urgency faded. I live in NY and read on the state banking website that it takes almost 450 days from the first missed payment for a foreclosure to go through. NY has a law that went into affect a few years ago that you and your bank have to go to a mandatory settlement conferences, which is overseen by the court. More of reason for your bank to settle if you ask me.