CA 2nd home walk-away journal...taking the plunge 5/16/09

[ocdreamer]

Hey everyone,

Long time lurker here, I appreciate everyone's time/effort going into helping others. I've found threads like these the most helpful, so I thought I'd start my own.

Back story:
We're about $100k under water on a second home down in Orange County...purchased for about $500k in 2004, comps in the area are running about <$400k and continue to fall.

We have a 1st TD with Washington Mutual for $450k purchase money, but since this is a 2nd home, I do not believe we are considered "recourse." This is actually hazy since we did live in the home up until 2008 and recently moved back to our primary residence in northern california (3 years away from fully paying it off!). Unable to sell, we've had reliable renters/family friends in the home ever since covering 2/3 of the mortgage payment + taxes.

Long story short, life changes have caused us to choose a walk away as the best option since we're unable to sell. I have no need for my credit score anymore (kids are grown, I have a home already, cars are fairly new) and will gladly trade in a few hundred points for ~$100k. Cash flow is an issue for me.

We made our last mortgage payment on April 15th (auto debit), turned off auto-debit for everything last week (HOA + mortgage), and closed our Wamu checking accounts for good measure. We've also alerted our friends/renters and are offering them half the normal rent once the NOD is filed, they're our #1 priority at this point. I've filed a POA so my son will be handling the bulk of this as he lives in the area, I'm getting a little too vintaged (in fact, he's typing this post up and it was his idea anyway).

So now, we wait...we'll be in technical default on May 16 and I'll be posting here our experiences. Questions, comments, or a really really good argument as to why we should make the May 15 payment are all appreciated!

[justus]

You say you turned off your auto-debit for your HOA dues, but it is unclear if you intend to continue to pay them by other means. Most posts in this forum indicate you are personally liable for HOA dues and should continue to pay them until the home is foreclosed.

Otherwise, good luck to you! I am sure it will be nice to be rid of the burden of the second home.

[ocdreamer]

Thanks for the tip...I hadn't thought of that. There have been foreclosures left and right within the HOA of this particular property, in fact dues have been raised recently, I hadn't seen any action taken. I was under the assumption the HOA would be wiped out on foreclosure but didn't consider the liability aspect of it.

We'll be sending off payments in the meantime, sounds like a prevention 1oz/cure 1lb kind of thing. Thanks!

[HopingtoFind]

Did you purchase this home as owner occupied or second home... it should say in your loan documents. If you purchased it as a second home then all loans are considered recourse... even if they are purchase money. That said, if lender chooses to go with non-judicual foreclosure... it's very rare that they wouldn't... they cannot come after your for deficiency.

Also, not having 2nd to deal with puts you in much better position to walk away free and clear then most others who have 2nd mortgages on their property.

Best of luck to you.

[ocdreamer]

Originally Posted by HopingtoFind

Did you purchase this home as owner occupied or second home... it should say in your loan documents. If you purchased it as a second home then all loans are considered recourse... even if they are purchase money. That said, if lender chooses to go with non-judicual foreclosure... it's very rare that they wouldn't... they cannot come after your for deficiency.

Also, not having 2nd to deal with puts you in much better position to walk away free and clear then most others who have 2nd mortgages on their property.

Best of luck to you.

It was purchased as a 2nd home in 2004 and "became owner occupied" for a time after, but we are aware this automatically means the loan is recourse. We've been scouring the court websites looking for judicial foreclosures and haven't been able to find anything relevant.

We are keeping a deficiency judgment on the table as a possibility, albeit a somewhat rare one.

Also, I forgot to mention this is an 5/1 IO ARM that resets in 2010, but the primary motivator is the personal situation that I'll elaborate on later.

[Boneman]

I'll be watching with interest-- We are in a very similar situation with a second home in Palm Springs.

[ocdreamer]

Thank you much, I hope I won't disappoint! The walk-away journals have been most helpful to us too, but there'd always be something slightly different (ie 2nd TD, etc...)

Also, to clarify, it was a 5/1 ARM IO that resets in 2011, we got a letter from Wamu in 2006 that asked us if we wanted to "refinance" and lock-in a rate for another 5 years from that date. I don't even think that counts as a refi, it was a one page "okay" and it was done and over with.

[ocdreamer]

Well, we're officially late on the mortgage. Guess what happened so far...NOTHING!

No phone calls, no letters, nada. Then again, it's only been 4 days and the 16th was a Saturday.

Will keep everyone posted.

[The Professor]

ocdreamer:

I respectfully disagree with HopeingtoFind's conclusion that just because your home would be characterized as a second home, means the loan is recourse. The key to this issue is the language of CCP Section 580b. It states:

580b. No deficiency judgment shall lie in any event after a sale of real property or an estate for years therein for failure of the
purchaser to complete his or her contract of sale, or under a deed of trust or mortgage given to the vendor to secure payment of the balance of the purchase price of that real property or estate for years therein, or under a deed of trust or mortgage on a dwelling for not more than four families given to a lender to secure repayment of a loan which was in fact used to pay all or part of the purchase price of that dwelling occupied, entirely or in part, by the purchaser.

Note that there is no requirement that the dwelling be your primary residence. You just need to occupy it. The key determination is at the time the loan was created (when you purchased it). Was it purchased for occupancy?

In any event, the discussion is purely academic in reality I suspect, since the lender on your loan will undoubtedly follow the non-judicial foreclosure path, effectively making the loan non-recourse once the trustee's sale is completed.

Daniel

[ocdreamer]

Originally Posted by Professor Shays

ocdreamer:

I respectfully disagree with HopeingtoFind's conclusion that just because your home would be characterized as a second home, means the loan is recourse. The key to this issue is the language of CCP Section 580b. It states:

580b. No deficiency judgment shall lie in any event after a sale of real property or an estate for years therein for failure of the
purchaser to complete his or her contract of sale, or under a deed of trust or mortgage given to the vendor to secure payment of the balance of the purchase price of that real property or estate for years therein, or under a deed of trust or mortgage on a dwelling for not more than four families given to a lender to secure repayment of a loan which was in fact used to pay all or part of the purchase price of that dwelling occupied, entirely or in part, by the purchaser.

Note that there is no requirement that the dwelling be your primary residence. You just need to occupy it. The key determination is at the time the loan was created (when you purchased it). Was it purchased for occupancy?

In any event, the discussion is purely academic in reality I suspect, since the lender on your loan will undoubtedly follow the non-judicial foreclosure path, effectively making the loan non-recourse once the trustee's sale is completed.

Daniel

Thanks for the reply, I much appreciate it. The home was purchased and loan classified as a "2nd home" and not primary or investment. Our RE agent at the time even explained some guideline that we'd need to occupy it 2 weeks out of the year, or at least that was needed to classify it as a 2nd home, not an investment property.

Also, the property needed to be X number of miles away from the primary residence to be classified as a 2nd home.

I don't know if that was a) made up, b) a load of bunk, c) dependent on other factors, or d) dead on. With a "wink and a nod" we stated this in the origination of the loan. It was plausible since the home was in orange county (vacation spot) and 500+ miles away from the primary home.

That statement wasn't entirely untrue, however; more background on this condo, it was purchased primarily for the benefit/occupation of the son who was attending college nearby. Instead of paying rent, the idea was to get "in" on the market, rent the remaining rooms out, and have the son live in there.

Frequent visits probably equate to 2 weeks, and since the son was a full dependent claimed on taxes, would that count as "owner occupied?"

You're right, this is purely academic...but I like giving these things some thought, it's a little fun to think of (no offense to anyone going through actual difficulties with these loans).

In the back of our heads is the idea that they could order the sale of the primary residence in a judicial foreclosure...absolute worst case scenario, we're thinking of evasive action to take (ie set up a life tenancy and transfer the property to the son).

[ocdreamer]

and my apologies if the original story does not fully match what I just wrote, I was on hyper paranoid mode and "changed the names to protect the innocent" so-to-speak. After reading around, I don't think that's really an issue anymore, but the fundamentals of this thread are still correct.

[ocdreamer]

So quick update to those following the thread...no real "meaty" updates, but here's what we got so far.

1) We got a "friendly reminder" phone call on 5/30...actually, it was just a message left on the answering machine. No further follow ups that we know of.

2) Bill for the June payment came in the mail indicating the May payment wasn't received. Wasn't certified or anything special, just the bill.

3) Our tenants want to paint a giant mural of the ocean in the living room. I figure...why the hell not? However, if someone thinks this isn't a good idea (not for aesthetic reasons), be sure to let me know.

Geesh, I was so amped up last month when we missed the payment, this is almost a let down, I kind of want the NOD filed so we can get on with this.

[tryingtostay]

I love reading everyone's stories.

The mural sounds wonderful. Maybe they'd like to do a jungle in the office? ROFL.

Good luck on the NOD!! We stopped paying in Dec and no NOD yet.

[Boneman]

I didn't realize that you had rented the property out...

Does this impact 'the rules' in any way. Maybe I should at least try to rent our second home out?

[ocdreamer]

Wow it's been a while...aside from daily calls (ignored, we have caller ID), we got a few "we can help" letters via 1st class mail.

It got a bit more serious on June 29th when we got a "notice of collection activity" stating the amount past due and that they'll send along the "notice to accelerate" if this isn't taken care of within 30 days.

Another notice/letter to help was sent via certified mail earlier this month (July) to all addresses.

So no NOD or anything...from reading around, it's looking more like we *might* get it by the end of the year, or we'll get it in October. Don't worry, I still remember this thread and will keep you all updated.


Oh and we nixed the idea of a mural, we'd feel bad for the poor realtor listing the house...plus they might make us paint it back as part of a "cash for keys" settlement. As for renting the place out, only 2 of the 3 rooms are rented (individually) to friends, the third one is still used by us. When I say "us" i mean the borrower and family, don't know how that would be argued in court...but hopefully that would be moot since this will most likely go non-judicial.

[ocdreamer]

Well...that was quick.

Washington Mutual filed their Notice of Default on within the past 2 weeks (date withheld for whatever shred of privacy is left, haha).

This puts me on track have the trustee's sale in early December. Total time to foreclosure is ~6 months at the rate we're going!

[ocdreamer]

Just wanted to add...

Quality Loan Service is going to town on sending notices! Since it's husband + wife community property AND the fact that there are two addresses on file (primary/home residence & the address of the property in question) the amount of paperwork is insane (substitution of trustee, etc...).

I'm thinking they charge for each piece and are billing the bank for services, more power to them.

Still in that 3 month window...phone calls have largely stopped. Still current on HOA.

[ocdreamer]

Notice of Trustee's Sale filed with the county and published as of November 2009...date of sale for the first week of December 2009 on the courthouse steps.

NTS was tacked to the door (and in multiple languages).

[KFish]

Excellent! Trustee sale means no chance of deficiency right? Congrats! Soon to all be behind you...lucky you!

[ocdreamer]

Originally Posted by KFish

Excellent! Trustee sale means no chance of deficiency right? Congrats! Soon to all be behind you...lucky you!

Yup! I knew from the moment they filed the NOD that this was probably going down the non-judicial route (otherwise I would have probably seen a lis pendens filed).

Since this was a 2nd property, we'll get hit with the income taxes, but that will be a ways away. Since the foreclosure is in December...this thing won't be sold until mid-2010 at the earliest, so taxes due 2011 will see the tax bill.

I'm sad but I'm relieved at the same time!

[KFish]

Well, start saving now for the tax hit..that is what we are doing. Luckily, ours are rentals, and we have a huge amount of losses stacked up for years that we have not been able to claim..so it will offset.

Might be a good idea to talk with the tax guy about it...try to prepare for it the best you can. I still can't wait to be in your shoes...to have the stress behind me