Military member, underwater condo in Arizona, 80/20, please advise!

[airforceguyinphx]

Just a quick update. First missed payment was 1 August. I receive a few calls each week from PHH, the servicer of the first mortgage. So far they are all automated, informing me of the amount deliquent and the associated penalty fees, and give me an option to speak to a representative (at which point I hang up). So far I still haven't heard from USAA (who owns the 2nd, PM heloc). I'm guessing this will be the month the phone calls from live agents start.

The unit directly below me was recently foreclosed and has been empty for the past few months. I did some searching on the assessor's website and found that Wells Fargo has recently sold the unit to the Secretary of Housing and Urban Development in Washington, D.C. Someone visited the unit a few days ago and closed the blinds and removed a notice that was taped to the inside window. Can anybody tell me what this means? Is this some type of new rental gov't sponsored rental program?

A few weeks ago I called an apartment complex I would like to move to once this is over and explained what I was doing, and asked if I would be able to rent from them. I was told my situation is now pretty common and all their rules have changed. I was told I shouldn't have a problem as I don't have a criminal history and the only negative credit reporting will be a foreclosure. They even said that the USAF is one of their "preferred employers." I don't remember if she said something about a discount because of that, but certainly that will help me get approved. If anything they will make me put down a large deposit, but that is capped under AZ law to 1.5 months rent. I'm fine with that, as I should have at least $10k saved by the end of this process...

[airforceguyinphx]

Another quick update...

My credit line was slashed on my only credit card, from $2750 to $700. That's pretty fast for them to catch that, considering that I could not have been reported as late on my loans until 1 Sep. I'm glad they didn't cancel the card, but I really don't need it anyway. I like to use it at the gas station to avoid holding charges, but I can definitely do without it. It's paid off anyway.

I took the initiative and called USAA to "open a dialogue" in a settlement of my 2nd/HELOC. I explained the situation and told him I was able to but unwilling to make any payments. That really surprised him! He was adamant that USAA would not settle for less then full. Then I broke down ARS 33-729 to him, explaining that USAA wouldn't be entitled to anything after foreclosure, so it's in their best interest to just settle with me and hopefully get a little more than what they could sell it to a collector for. It's worth about $2k to me to settle (which would be about 10%) to avoid any collections calls in the future as well as not having that shown as a charge off on my credit report. Plus I'm sure a few years down the road when my security clearance is being reviewed it will make me look a bit better. Well, something I said worked, because he put me on hold for about 10 minutes. He came back on with a fax number and instructions to write a hardship letter, detailing the massive drop in value and to include the part about my place being turned into an apartment complex. He also asked me to include the CMA I had done in the fax I send to back up the financial side. There was a case # I needed to include on the fax, and finally he told me to include the price I would be prepared to settle for, "as long as it's reasonable." Apparently this will be going through the short sale department. I'm not sure if this is really a possibility or not...and when it comes down to it I really don't care either way. We'll see...

I was hoping someone knew what the Sec'y of Housing and Urban Dev. in DC buying the condo at auction below me was all about! If anyone missed it, it was in my last post. It's still vacant...

I can't wait to be out of this place. I hate the management company!! They've now started locking the fitness center at 10pm every night. I don't even get home until after 10. Being able to run on the treadmill after work and then jumping right into my own shower is what I've been paying HOA dues for the past 2 years. This is what happens when investors get a majority in a complex like this - they become the default board of directors and can pass any rule they like without needing to call a HOA meeting and put it to a vote. FML.

I sure am liking seeing my bank account grow!!

[desertrat]

Air Force Guy,
Thanks for the detailed update. I am in much the same situation as you, same lenders and also not paying both mortgages since May 2009.

I have not been receiving as much contact, either written or telephonic, as you seem to be, but have one tidbit to add from a phone call I received on Saturday. The 2nd lender, USAA, told me that as of Wednesday, my loan would be 120 days past-due and therefore would be charged off.

I asked her what that meant for me, and she stated not much, just that I would lose access to USAAs on-line banking website and "may" not qualify for any future loans from them. She went on to very carefully state that this charge-off would not necessarily impact any insurance policies I have with USAA, because they are handled by a different division. I thought it was interesting she was so careful to point this out.

Again, thanks for the update and really awesome job with the detailed and thoughtful posts - they are a great help to me.

[airforceguyinphx]

Hey desertrat, I remember your reply to my thread a couple months back, and I was wondering how PHH and USAA have been proceeding with you. I just got a letter from PHH the other day saying that if I don't bring my account current by the middle of October they will file an intent to accelerate (which I'm guessing is the NOD). So things seem to be moving along on schedule with the 6-7 month process that seems to be common with foreclosures here in AZ.

With my conversation the other day with USAA, I remember being told it would take 180 days of delinquency on my HELOC before they charge it off, not the 120 that you were told. That's interesting because foreclosure isn't finalized until after 180 days, per the normal timeline. Either way, this thing ends in foreclosure, and I've already been advised by an attorney that I'm covered from deficiency under ARS 33-729.

I was hoping someone could comment on the tax implications of settling my debt with USAA. Dogatemy, if you read this, I'm sure you'll have an answer for me If I elect to settle my 2nd/HELOC, and my first forecloses, will there be a 1099-C (cancellation of debt) issued by my 2nd that the MFDRA does not cover? I know the 1099-C issued by the first will be covered by the MFDRA, but I can't recall anyone posting anything about COD income resulting from a settlement of a HELOC. I'd rather not be responsible for paying taxes on around $20k of COD income, which might make a $2k settlement double (or more). This might put me off settling altogether...Can anyone advise me here?

[babbles]

I wanted to add a question if anyone can answer since we are talking USAA. I just started thinking the short sale route. My 1st is with EMC (horrible mortgage company for modifications) and the HELOC with USAA. If I tried for a short sale, EMC would get all there money. The thing is, the HELOC is tied to me and my wife and the 1st to just me. I know my credit would take a hit but I want to protect my wife's credit since she is active duty and I am retired. The property is a now a rental in GA and we were are in a different state. The property is severly underwater like most property. Any thoughts or suggestions?? How would I find out if the loans are non recourse? Thank you.

[babbles]

forgot to add, I am more than willing to continue my obligation to them and Navy Fed Credit union for as long as it takes!

[airforceguyinphx]

Quick update...

I'm just over 90 days late. I haven't received any official NOTS paperwork from the 1st yet, and there is nothing on the recorder's website (not yet, anyway). About three weeks ago I sent my 2nd a settlement offer of 5%, around $1200, with a letter stating my intent to allow the 1st to foreclose. They finally sent a counteroffer...Around $18k, a little over 75% of the balance, which they demanded in cash at closing. Ridiculous. Why do they think I would have $18k sitting around? This is a non-recourse state. USAA can go f* themselves.

I reconsidered things and decided I should try for a short sale, and a RE agent took pictures yesterday. It should be up on the MLS soon, and there is already a combo lock around my door handle. He was pretty confident that the 1st would accept any fair market offer, and USAA would agree to favorable SS conditions. I'll offer USAA up to 7.5%, and the 1st should top that off with between $1-2k, according to my RE agent. If USAA counters and asks for $18k again, well, it looks like foreclosure is the route for me.

Here's a few questions I hope someone can answer. USAA sent a letter the other day stating they would charge off the HELOC balance within 30-60 days if they don't receive a payment. So if they charge it off, and I have a SS offer on the table with my 1st, what happens? I'm guessing that because of ARS 33-729, there is no legal recourse by any debt collector, and my 1st is still free to accept the SS offer. How would the taxes be handled here? I'm wondering what would happen if the 2nd charges off in tax year 2009, incurring a 1099-C, and the short sale happens in January, tax year 2010. I know I can file a Form 982 as I am exempt under the MFDRA, but if the foreclosure doesn't happen until a month after the charge off, where am I?

[InTheDeepEnd]

AFGuy-

I have a question for you. I am in nearly the same boat as you in CA, but have not taken the jump yet to stop making my payments. One of the main issues I am having is with the issue of state taxes. I know we are in different states, but have you found out any info on having to pay state taxes on your forgiven debt?

Thanks!

[airforceguyinphx]

I am a NY state resident, and while serving active duty out of state I am considered a non-resident and exempt under NYS tax law. I don't know what the CA tax laws are, you'll have to contact a CPA for that. Another post on this forum said something about most states aligning with the MFDRA, but you definitely need to research that a little more. You could probably call a CPA and get the question answered over the phone for free...

[KFish]

Thanks for the update AFGuy...I have been following your post. Keep us posted how it goes....

[we're_still_reviewing]

Just wanted to wish you luck and I've been following your story ,too. Keep us updated. Hope everything works out for you.

[SciGuy]

I was reading your thread and it's a bit eerie because I'm in almost an identical situation to yours. I bought a condo in the summer of 2006 with an 80/20 loan and no down payment. My loans are now worth about 150% of the condo's current FMV, and even though I have a steady job (teacher) and can pay the mortgage I no longer see the value in doing that, especially as about 75% of the units in my complex are now apartments. Monetarily the numbers you posted are almost identical to mine; I'd also take a hit if I were to rent my unit and still be responsible for major repairs and the like I imagine.

To top this all off, I recentely got engaged and moved into a house with my fiance. We are considering having kids within a few years and that makes the idea of me losing money on this useless condo even less palatable to me when I could be using it to raise children and/or start their college funds. I did a whole lot of research on this, and I decided to let my condo go into foreclosure and will be missing my first payment as of Dec 15th. The condo is already abandoned and I cut all utilities to it, so it's just kind of sitting there now waiting for the bank to foreclose.

I called my two lenders (Citi and AmTrust) and told them I was letting the mortgage go. When they asked why, I gave them the vague "personal reasons' line and asked them to foreclose ASAP (so I can stop paying HOA dues, which I know I am still legally responsible for). I also told them I would refuse to answer any future phone calls from them, because frankly, I figure the more information I give them and the more I talk to them the longer it takes them to foreclose. I know they'll try and call/contact me anyway, but I don't have to respond and have no intention to do so.

If I could sell the condo today and pay off the loan, I would. Or, if I could short sale it without my credit taking an ugly hit (not even considering the drama of a short sale with two different lenders on an 80/20 loan), I'd happily do that too. I can't, though, and the housing market crash is hardly my fault. Having an 800 credit rating is great, but completely and utterly useless if I can't refinance and have no other loans. I can and will report any harassment from the lenders or collection agencies post-foreclosure to the AZ attorney general's office since the law is definitely on my side here.

I really, really wish it hadn't come to this, but I'm going to get out of this financial death-spiral I am in and stop throwing money down the drain. My future children will thank me for it, and their well-being is more important than my credit rating or anything else for that matter.

[Irish Gal]

Originally Posted by SciGuy

I was reading your thread and it's a bit eerie because I'm in almost an identical situation to yours. I bought a condo in the summer of 2006 with an 80/20 loan and no down payment. My loans are now worth about 150% of the condo's current FMV, and even though I have a steady job (teacher) and can pay the mortgage I no longer see the value in doing that, especially as about 75% of the units in my complex are now apartments. Monetarily the numbers you posted are almost identical to mine; I'd also take a hit if I were to rent my unit and still be responsible for major repairs and the like I imagine.

To top this all off, I recentely got engaged and moved into a house with my fiance. We are considering having kids within a few years and that makes the idea of me losing money on this useless condo even less palatable to me when I could be using it to raise children and/or start their college funds. I did a whole lot of research on this, and I decided to let my condo go into foreclosure and will be missing my first payment as of Dec 15th. The condo is already abandoned and I cut all utilities to it, so it's just kind of sitting there now waiting for the bank to foreclose.

I called my two lenders (Citi and AmTrust) and told them I was letting the mortgage go. When they asked why, I gave them the vague "personal reasons' line and asked them to foreclose ASAP (so I can stop paying HOA dues, which I know I am still legally responsible for). I also told them I would refuse to answer any future phone calls from them, because frankly, I figure the more information I give them and the more I talk to them the longer it takes them to foreclose. I know they'll try and call/contact me anyway, but I don't have to respond and have no intention to do so.

If I could sell the condo today and pay off the loan, I would. Or, if I could short sale it without my credit taking an ugly hit (not even considering the drama of a short sale with two different lenders on an 80/20 loan), I'd happily do that too. I can't, though, and the housing market crash is hardly my fault. Having an 800 credit rating is great, but completely and utterly useless if I can't refinance and have no other loans. I can and will report any harassment from the lenders or collection agencies post-foreclosure to the AZ attorney general's office since the law is definitely on my side here.

I really, really wish it hadn't come to this, but I'm going to get out of this financial death-spiral I am in and stop throwing money down the drain. My future children will thank me for it, and their well-being is more important than my credit rating or anything else for that matter.

Smart guy! Sounds like you've made a sound financial decision for you and your future family and you did all your homework. Good luck to you and your future!

[KFish]

Sciguy and AirForce...thanks for sharing the info and the updates. There are several of us fellow AZ homeowners following your story.

I didnt make the payment on our 3 AZ condos this month...my journey begins...