Heading for Specialized "Recovery" Dept.

[baileys dad]

This is directed towards the Prof, but anyone with info or experience is welcome to post....

Pertinent info:
second mortgage w/Specialized Loan Servicing, purchase only,
CA, 2005, 172K
No payments since Nov 2008 (7 mos)
House value approx 450K, purchase price 672K
1st mortgage = 500K, awaiting loan mod
Auction Date: 06/15/09

Prof: I spoke with the second lender today. They said that the account was going to go to "recovery" at the end of the month.
I googled "specialized loan recovery dept" and came up with a job description for the position ( I guess they are hiring....surprise). The position was for "charge-off recovery".
At any rate, can you tell me something about what I might expect at this stage of the game, based upon your industry experience?

Much thanks....

[ProfessorShays]

Well it depends upon which direction you are headed. If it is to modify the first loan and continue to keep it current, my sense is the second loan will sit quietly on the sidelines until you attempt to sell the home and then seek all they are owed (principal, interest, late charges, etc.). If the first loan forecloses, they the second will take a run at attempting to get you to pay on the second. If as you indicate it is a purchase money loan, then you need to let them know when they attempt to collect after foreclosure that CCP Section 580b effectively bars their recovery.

Daniel

[baileys dad]

Thanks for your reply, Prof!

It looks as if the first is going to modify, just spoke with them this AM. If the loan is in fact modified, I intend to stay here until they cart me out in a pine box, which could be 45 years if all goes well; I have no intention of leaving while alive.
So the second will wait until then?

[ProfessorShays]

Assuming the second is a purchase money loan, their only option is really to wait, or call your bluff by foreclosing themselves. Frankly as the market turns around (which it will eventually do), they will benefit because as the home's value begins to climb beyond that owed on the first loan, the equity increase benefit flows to them (and not you) until you reach a point where they are entirely secured and then they could proceed to foreclose and eliminate your interest in the property.

I guess my point in this is the modification in reality benefits them more than it ever will you (unless your payment on the first along with taxes and insurance is less than the fair rental value of the property and in that case you are simply paying cheap rent).

Please don't kid yourself. This may not be a good deal for you, particularly if you are paying more per month than the property's fair rental value.

Daniel

[baileys dad]

Good afternoon, Prof...
thanks for your prompt reply. If I rent out part of my house, as is my plan, then it becomes very reasonable rent, much more so than I could find around here (Santa Cruz is very pretty and a two-college town, so room and house rentals can be rather unreasonable).
I just got off the phone with the recovery dept of the second and she assured me that if the first forecloses, that the second "would hold me responsible" for whatever balance (which would be all) of the second that was outstanding. I guess that is how they are going to try to play this (that is to say, intimidation). From everything I learned and read on this website and other sources, my loan is non-recourse. I will speak to a lawyer to ascertain, but I don't think there is any question.