My Own AZ Thread

[azuw67]

I just thought I would post my saga here, which I hope to update as time goes by.

Property is in AZ, less than 2.5 acres, my residence, etc.
1st balance = $259k (this is a purchase money loan)
2nd balance = $105k (HELOC) (not a purchase money loan)

We decided to try to do a short sale, since if we are lucky that would be less damaging than a foreclosure (or for less time, at least). We have a wonderful realtor who is also a very dear friend - for that I'm glad, and blessed.

We listed the house and got an offer for $218k (yay for that). We are currently waiting for the two lenders to review all of the paperwork (the offer, bank accounts, paychecks, hardship letter, etc).

The homeowners insurance is paid up through November. We have no more money to pay either the 1st or 2nd loan, so now we are just living here rent-free until the short sale or foreclosure. If the 2nd lender chooses to pursue us and won't accept a very tiny settlement, we will end up in bankruptcy, where they will learn that we have no assets and have a large student loan that will survive any bankruptcy, leaving them with not much of anything. The "blood from a turnip" strategy.

I will update this site when there is new info.

[LeavingAZ]

Thanks for posting! Hope it all works out fine for you.

[azuw67]

I got my first letter and friendly call from my 2nd lender yesterday. They were just making sure I knew that my payment was more than 10 days late. I told them yes, I knew, but I have a lousy income and no more savings, so there really wasn't anything I could do about it.

The letter was nice enough to let me know they had tacked on a late fee of roughly $100. As if that made it suddenly more affordable (?).

It is somehow strangely comforting being backed into a corner with no options (relative to the home loans). I couldn't pay them if I wanted to, so that leaves no pressure to do so.

[dogatemy]

Originally Posted by azuw67

The letter was nice enough to let me know they had tacked on a late fee of roughly $100. As if that made it suddenly more affordable (?).

Chase has called 3 times in the last 5 days to let me know I also have some late fees. I wonder if paying employees $10/hour to annoy customers leads to higher collection rates?

I do feel much better after making the decision to walk-away. It is amazing how much we have been brainwashed by the financial industry into believing that your mortgage is the most important thing in your life and must be paid at all costs.

[AZChick]

So true dogatemy.....I don't know how many times I've heard that my credit will be ruined forever because of my foreclosure. What is it with the credit score? It is a living breathing thing for goodness sake, some people need to get a grip. Last time I checked a good credit score wasn't what was feeding my family and paying the bills.

[dogatemy]

I know! What's even funnier is when they threaten you as if you had no idea and this will bring some sudden realization. They are going to save you from the Credit People!

Me: "I can't afford to pay anymore.. I am unemployed and my wife has cancer. We need to pay for her chemo treatment."
Bank: "Well.. if you don't make the payment by the 31st then we'll have to report you to the credit bureau.. *pipe organ plays an ominous tone in the background*"
Me: "Oh no! Of course! It now makes sense to me now.. Let me get a check in the mail right away!"

[azuw67]

Over the weekend I got my first letter from the 1st lender. Today I got a second call from my HELOC lender (but didn't get to the phone in time, honestly). Anyway, nothing too nasty, just friendly reminders. Last time I checked I was still broke, so it's kinda pointless to worry!

[azuw67]

It's been about 3 weeks since my last update. I get lots of friendly calls from both the 1st and 2nd lender. Most of the time they are clearly not communicating internally, as it is usually a complete surprise when I tell them they are sitting on a short sale packet.

Today I got a letter from the 2nd (HELOC) lender. We had proposed giving them $3000 out of the short sale proceeds, and they would then go away, stop collection efforts, and send us a 1099-C. Their counteroffer was amusing: We pay them $7360 out of the short sale proceeds, then they allow the short sale but do NOT cease their collection efforts. As if they think I HAVE that extra $100k somewhere. Sorry, I do not. Why on earth would I go to the trouble of a short sale if it is going to leave me with a $100k debt still following me, chasing me into bankruptcy?!? Needless to say, I will never accept their counteroffer. I will sit here until I'm evicted, if it comes to it.

Meanwhile, the last house payment I made was the first week of March. :-)

[AZChick]

Hang in there, we are all finding our own way to the light at the end of the tunnel.

[jaskoo]

I have similar situation, I am awaiting from lender on firs and second to respond on my short sale. keep us update wit your situation.

[azuw67]

My short sale is approved by both lenders, with a closing date of July 23rd. The only annoying part was that the HELOC lender would only drop down to wanting about $4300 from the short sale, and the 1st lender would only give them a max of $3000 from the short sale proceeds. The bottom line is that to make the short sale happen, we are bringing a check for about $1300 to closing. Still, not bad for a house that is more than $150k underwater.

That should be the end of things for the 1st lender (since it's a purchase money loan in AZ).

Unfortunately, our HELOC is not covered under AZ's anti-deficiency laws, so they have the option of "coming after us" for the roughly $100k deficiency. Hopefully they will see that we have no assets, and they are not likely to get any money, and will either leave us alone or offer to settle. About 3 weeks ago the HELOC lender totally stopped their daily calls, and the entire loan balance now shows online as "Loan Charge Off (eff. date 06/12/2009)"... I suppose that means they have probably sold the debt to a collection agency, but we've gotten no calls from any collectors. If I am reading the laws correctly, I think they have six years to "come after me", but for those six years we won't have any assets, and will be putting every spare dollar towards our huge student loans.

We signed a lease today on a rental house, and will be moving in a couple of weeks. I feel great peace over this, and would be walking away if the short sale hadn't come along.

[grmeyer]

Did the HELOC provide you the agreement in writing? What does it say? Real Estate transactions must be in writing. No verbal stuff.

[pattona]

grmeyer,

In my late mother's case the 2nd issued a release of lien and then the debt converted to an unsecured lien, basically like a credit card. I was told they would not issue a 1099 because they wouldn't be "forgiving" the debt. For a living person this could be a problem as that will show up as a charge-off and on your credit report for 7 years. They could also sue and try to garnish wages et cetera so most folks in this situation usually file for BK. But for a dead person? Not really an issue unless the bank suspects additional assets. In my mom's estate's case, there is tax debt owed so the government would have 1st grabs anyway.

[grmeyer]

I am sorry for your situation. It is not very comforting knowing they may at any point attempt to recoup the money. You are probably right. They will sell your loan at 20 cents on the dollar to a collector. Are there any laws that could provide some relief?

[azuw67]

In my case, the 1st lender signed papers saying they are officially happy (but will send me a 1099). The HELOC, on the other hand, waited until after the short sale closed and sent us a letter notifying us that they intend to sue. That's fine. That's their legal right, and no doubt they will "win"... but we still have no money, and will slide right into bankruptcy. I don't find it stressful, because I have no power over it one way or the other.

[grmeyer]

Just in case you may be unaware regarding that 1099:

The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.

This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.

[pattona]

Right but it must be for the acquisition or improvement thereof.

And of course, State laws do not follow the federal law. And if the new AZ deficiency law (effective Sept) isn't repealed, that is going to be darn ugly. Some lenders are going to wait to complete foreclosure until six months after some one has moved out of his principle residence.

[AZChick]

pattona, where did you hear that from about the lenders waiting 6 months after you leave to sue? That doesn't make sense to me, the law does not stipulate at what point the consecutive 6 months has to be? Have you gotten some clarification on that from someone?

[briknope]

Stay in the home until the last day if you can. That deficiency law really only applies to investors I do believe.