Considering Deed in Lieu of Forclosure -- Need Guidance!

[Tjallen77]

Hi all-

First of all, let me say that I consider myself extremely fortunate to have found this forum -- not only because I am hoping to get some good advice, but also because it made me realize that I am not alone, and that there are a lot of other people out there experiencing similar hardships!

Anyway, my wife and I are in over our heads with our house in East Bay, CA. We purchased the house in May 2007 for $629,000 -- two mortgages 80% (w/ Countrywide) and 20% (w/ Chase). In August of 2008, I lost my job, making it very difficult for us to pay the nearly 4K a month mortgage. (Naturally, we had not planned for me to be laid off.) That said, we managed to find a way to pay the mortgage for September ALL the way through April without missing a payment, and without ever being late. We cut corners, trimmed our budget, spent less in general... even cut channels from our cable service. In the meantime, we made a dozen phone calls to BOTH mortgage companies to see if we qualified for any assistance... and in every instance, we were told that no, we did not. (The reason we were usually given for NOT being eligible for assistance is that we were making payments delinquent! So much for being proactive!) In March 2009, we made the difficult decision to move OUT of the house -- we have moved back in with family -- and to rent the property out, to help cover the mortgage. Sadly, in two months, our realtor has not found any renters. (The rent that we are asking for is approximately 1/2 the cost of the mortgage; the rest we had planned to pay out of pocket!)

Long story short, we have tried to do the right thing, and I honestly feel that we have done everything within our power to pay our debt, and to not default... BUT the mortgage company's inability to be proactive, combined with the fact that our savings have been severely depleted, has me contemplating other options.

Initially, I was considering doing a Short Sale; however, I am having a difficult time getting straight answers. My realtor, who has only done two Short Sales (and both have been this year), says that we should stop making payments once we decide to do the Short Sale. But I've found other places online where they say that you should NOT stop making payments. Also, my realtor says to NOT contact the mortgage companies until we have a buyer -- is that right? And should we contact them, or the realtor?

Anyway, that was Plan "A." Now -- Plan "B" -- someone else has advised that we consider a Deed in Lieu of Foreclosure. My questions are this:

* Can we do a Deed in Lieu of Foreclosure with 2 mortgages? (Again, I have received conflicting information here!)
* How does a Deed in Lieu of foreclosure affect our credit? (Everything I have seen says "less" than a foreclosure, but that is difficult to quantify.)
* Generally speaking, how long does a Deed in Lieu of Foreclosure take to complete? I would rather not deplete what little savings I have left FURTHER, by paying my May mortgage, if we're going to go this route.
* How do I get the ball rolling? What should be my first steps?

Sorry to throw a lot of information and numerous questions out in one post... but as you can probably tell, I am overwhelmed and frustrated. The mortgage companies have done nothing to help us out -- had they done so six months ago, I might not be in the situation I am in now, where I feel like I have to unload the home, one way or another. If anyone can give any advice, based on my situation (for a Short Sale OR Deed in Lieu) I would appreciate it. Thanks!!

[Tjallen77]

Oh also, we still owe just about the full $629K on the house, and our realtor estimates that the home is probably worth somewhere between $475 and $575 currently.

[JulesK]

Tjallen77- I'm afraid I don't have all of your answers, maybe not even correct answers, but I can share with you what I have learned so far, from this website and my own experience.
It appears that many lenders are not proactive, especially when you are on-time and not delinquent. It's almost as though you need to be 15 days late before they'll even take your call. But, there have been instances where lenders will try to work with you on a loan mod, if you bug them incessantly. Call them again and again and again.
Now, my lender will not do a DIL when there is a 2nd on the house. They, AHMSI, specifically states on their website that there can not be a lien or second on the home, but in some cases, if the lien is "small" then they're willing to negotiate. Check with Countrywide.
Now, DILs typically are not as bad as foreclosures. Moe has a post on DILs and how they affect your credit. (Go back to the page "Deed in Lieu of Foreclosure - Do You Need Help to Walk Away?", it should be the first or second post- lots of good info.)
My understanding is that most lenders will not consider short sales until you receive a NOD, which means you need to stop making payments and go into default. But, there are always exceptions to the rule. I think the one thing I've learned so far is that there are no steadfast rules to the game of foreclosure.
Personally, my husband and I have decided to stop making payments in June and walk away from the property. We'll see how long it'll take to receive the NOD and then talks of short sale. There are other posters' stories that you can follow which will give you more info. Good luck!

[The Professor]

Good evening Tjallen77. Thanks for being so complete in terms of providing information about your situation. The key to charting a course of action is to first determine whether you enjoy the characterization of your loans as non-recourse. Your answer comes in the form of California Code of Civil Procedure Section 580b. As always, when I discuss application of this section I believe it critical to confirm your situation with an attorney knowledgeable in California real property law and debt collection practices. Have the attorney review your purchase and loan documentation.

CCP Section 580b defines purchase money loans on owner occupied residences. If your loans fit into this category (and I suspect they do), then your lenders' sole recourse is for them to foreclose on your home. This effectively means that you are not personally liable for the debts. Yes your credit report will take a hit, but it could be much worse if you were liable for any shortfall.

As to the potential of a deed-in-lieu, your chances of lender acceptance, given you have two lenders, is slim at best. For the holder of the first loan to accept a DIL, the second lender would have to release their lien (something they are not likely to do. Otherwise your first lender would have to accept ownership subject to the second loan being elevated to the first loan on the property (because the first loan is effectively paid off as the result of your first lender's acceptance of the DIL.

As to a short sale, they are generally quite challenging where as here, you have two different lenders. Problem is reaching an agreement between the two lenders as to how the sales proceeds are to be split.

The easy path may be to simply let the first lender foreclose.

Daniel