Repercussions on unfinished remodel job

[kcbmj8]

Like many, we are in the process of deciding to continue negotiations with the bank, short sell the house, or just walk away all together. One of the things I'm worried about is an unfinished remodel job we started 2 years ago. My husband tore apart one of the bathrooms and slowly started putting it back together. Unfortunately, this was just as the economy started going south and his hours were cut back. Now, not only has his hours been cut back, but his wages were cut as well. Because of this, the bathroom hasn't been worked on for over a year.

If we decide to go into foreclosure and walk away, will the banks come after us for this? Will it play any part in the process?

[caldwellb02]

Can you do something really cheap that makes it look okay? If possible, that would be the way I would go. I don't know which parts of the remodel you still have left, but if you could spend a little to put a cosmetic fix on it I would do that. Course I'm not the law or an attny, so others who know more will probably chime in (I hope). Like you I've heard that people get in trouble when they rip things out of the house, but people who have put in fancy fixtures are also talking about taking them out and putting something cosmetic in their place.

[kcbmj8]

The remodel is still in the beginning stages. The toilet is still in, but the shower is completely ripped out and so it most of the tile. The sheet rock is about 2/3 completed and there's still a hole in the wall from where we moved the window. It's something that was done before we ever thought we would lose the house, but now we're conflicted. Do we spend the money when we know we're just going to lost the house, or do we do nothing and risk them coming after us?!? Even on the cheap side, I think it would cost us 1-2,000 to get it looking somewhat usable.

[knownick]

I'm sure it's at least somewhat dependent on the laws of your state and how easy it is to get a judgment for things like that in the foreclosure process, but frankly I wouldn't sweat about it too much. If it looks like an obvious remodel job that was never finished and not "someone pissed they're losing their house and tearing out the fixtures" then I would think the bank is just going to eat it and move on. It's just not cost effective to try and bring suit against most people that are already losing their homes... blood from a turnip and what not.

[kcbmj8]

Thank you knownick and caldwell for your responses. That's exactly what I'm hoping for - that they'll see it was an existing condition. When they send out the foreclosure notice, do they send anyone out to view the condition of the house?

[dogatemy]

Originally Posted by kcbmj8

Thank you knownick and caldwell for your responses. That's exactly what I'm hoping for - that they'll see it was an existing condition. When they send out the foreclosure notice, do they send anyone out to view the condition of the house?

I am currently living in Arizona. I secured a Home Equity Line from Chase. A check was written against the HELOC to completely demolish the kitchen (including plumbing, electrical, drywall, flooring, etc..) as well as rip up all the flooring in the house. Chase froze the HELOC the following week then told us we "willfully demolished the home" and threatened to raise our interest rates to "maximum rate allowed by law" under the default clause of our loan. I had a choice between writing a $25k check to restore the house or walk-away.

The Trustee Sale is scheduled for November 6th. My attorney said I should take photos and expect a lawsuit. Of course I could pay legal fees to challenge Chase or I can wait for a default judgement and file for bankruptcy. The 1st is around $130k and the HELOC is $40k. The house is only worth about $45k in its current condition in this market.

Now.. Back to your problem.. You do not provide enough details to give you much help. There are sooo many variables to contend with that inking out a roadmap here will take forever but the 'Decision Tree' is pretty straight-forward.

The first few questions will help move the process along..

- Do you and your husband make good money?
- Do you have assets such as another house? land? expensive cars?
- Who is on the loan? One of you? Both of you?
- Where do you live?
- Is the loan non-recourse?
- Do you have any savings? (401k, IRA, stocks, bonds, expensive cars)
- Do you want to stay in your current house, buy another house or rent?
- What is the market like in your area?

[art4ari]

I have the same situation since 2006. I already told chase I need at least 15k to complete the remodeling including a new AC ( broke down, too hot of a summer this year) I am missing kitchen cabinets and lots of stuff (some carpeting, flooring and patio)are not finished. This is part of my hardship. There is no way I cant finish this remodeling before they take the house, I am telling them now. They can send somebody to take pics if they want,
I am not fixing it if I am not to keep the house.

They can do whatever they want o can. I just dont have the money now, maybe later but not in the next 6 months to a year.

[dogatemy]

Originally Posted by art4ari

This is part of my hardship. There is no way I cant finish this remodeling before they take the house, I am telling them now. They can send somebody to take pics if they want,
I am not fixing it if I am not to keep the house.

They can do whatever they want o can. I just dont have the money now, maybe later but not in the next 6 months to a year.

If you are in an anti-deficiency state then my attorney has made it clear, more than once, that you should not provide any information that is not absolutely necessary. If your bank knows in advance of the Trustee Sale that your house qualifies for a deficiency suit then they can get attorneys involved early and begin the lawsuit within hours of the trustee sale. In many cases the largest lenders are so flooded with paperwork that it becomes difficult to document, retain an attorney and file the lawsuit. Why HELP THEM file a lawsuit against you?

[art4ari]

Yes, this is what happens when we have no idea what are we doing or where to look for advice or help. I found this site after the fact. I told them because my contractor will put a lien on the house if I dont reach an agreement. Paying him was part of my hardship for I intended to pay and get the job finished when things got better, I never tought they would give me such hard time modifying my loan, most probably not happening for me. I am in CA.

[dogatemy]

Originally Posted by art4ari

Yes, this is what happens when we have no idea what are we doing or where to look for advice or help.

Don't feel bad. I made the same mistake.

[kcbmj8]

Originally Posted by dogatemy

The first few questions will help move the process along..

- Do you and your husband make good money?
- Do you have assets such as another house? land? expensive cars?
- Who is on the loan? One of you? Both of you?
- Where do you live?
- Is the loan non-recourse?
- Do you have any savings? (401k, IRA, stocks, bonds, expensive cars)
- Do you want to stay in your current house, buy another house or rent?
- What is the market like in your area?

1. No - I am a stay-at-home mom and my husband's hours and wages have been cut. (He is a foreman plumber, who works in new construction.)
2. No - We have a 96 Honda, which is paid off, and a 2006 Honda Pilot.
3. We are both on the loan. (And had EXCELLENT credit until now.)
4. We live in CA (Bay Area).
5. I'm still trying to understand the term "non-recourse". We live in a "non-recourse" state and our mortgage is thru HSBC. It isn't a HUD/FHA backed loan and the loan is our original loan on our property, which is our primary residence. I believe that means it is a non-recourse loan. Am I right?
6. We have about $5,000 in savings and we both have 401ks.
7. We want to stay in our current house, but I don't think we're going to be able to. We are doing the circus rounds with HSBC and are trying to get a loan mod. We recently got a 3 month forebarance, which we are debating whether to accept or not. We want a principal reduction in our loan, but aren't hopeful. We think we are going to have to walk away and start renting until we can buy again. Our mortgage was an IO with a locked in IR for 5 years. In June, the IR readjusted higher and Principal was added in.
8. The market is TERRIBLE in our area. We bought the house for $390 and it's only worth $191. We put 20% down, but it still means our loan is way higher than the house is worth. Trying to fight for a house that just isn't worth it, is a hard pill to swallow. On the other hand - who wants to lose their primary residence?!? Not us!

[Riley18]

It is best to give the banks only the information they request. Remember that they tell us nothing. Do you still have the receipts for the work you already started? Anything that will prove you started that work long ago, and ran out of money because of the bank's refusal to modify. Only use this information if you are contacted by them after they have taken the home.

The bank rep might call for info from us, but just try and get any real information from them. I know that all I ever get is vague statements from them. It will be a year since I first contacted them about my situation last November, and the only thing I have to prove it is a few letters from them with stuff like "we are reviewing your situation" - which tells me absolutely nothing.

Personally, I am looking around my home and deciding what to change in the home. Do I leave all the nice plants around my home? It will hurt to kill them, but I do not intend to leave anything that will make this house more valuable for them. Also, a nice paint job. So far as I know there is no law against very poor taste How does black clouds on the ceiling sound?

[dogatemy]

Originally Posted by kcbmj8

1. No - I am a stay-at-home mom and my husband's hours and wages have been cut. (He is a foreman plumber, who works in new construction.)
2. No - We have a 96 Honda, which is paid off, and a 2006 Honda Pilot.
3. We are both on the loan. (And had EXCELLENT credit until now.)
4. We live in CA (Bay Area).
5. I'm still trying to understand the term "non-recourse". We live in a "non-recourse" state and our mortgage is thru HSBC. It isn't a HUD/FHA backed loan and the loan is our original loan on our property, which is our primary residence. I believe that means it is a non-recourse loan. Am I right?
6. We have about $5,000 in savings and we both have 401ks.
7. We want to stay in our current house, but I don't think we're going to be able to. We are doing the circus rounds with HSBC and are trying to get a loan mod. We recently got a 3 month forebarance, which we are debating whether to accept or not. We want a principal reduction in our loan, but aren't hopeful. We think we are going to have to walk away and start renting until we can buy again. Our mortgage was an IO with a locked in IR for 5 years. In June, the IR readjusted higher and Principal was added in.
8. The market is TERRIBLE in our area. We bought the house for $390 and it's only worth $191. We put 20% down, but it still means our loan is way higher than the house is worth. Trying to fight for a house that just isn't worth it, is a hard pill to swallow. On the other hand - who wants to lose their primary residence?!? Not us!

California has a fairly easy test to find out if a loan is recourse or non-recourse. If the full amount of the loan was used to purchase a 1-4 unit home, the owner occupies at least one of those units and you have not refinanced the loan since its inception then the loan is generally non-recourse. A non-recourse loan means the mortgage company can foreclose but that is the limit of your liability. Have you refinanced your home since you bought it? Have you taken any money out?

Do you have a HELOC or 2nd mortgage on the home that was not used to purchase the home when you originally bought it?

These questions will help decide if you can safely walk away or not.

[kcbmj8]

Originally Posted by dogatemy

California has a fairly easy test to find out if a loan is recourse or non-recourse. If the full amount of the loan was used to purchase a 1-4 unit home, the owner occupies at least one of those units and you have not refinanced the loan since its inception then the loan is generally non-recourse. A non-recourse loan means the mortgage company can foreclose but that is the limit of your liability. Have you refinanced your home since you bought it? Have you taken any money out?

Do you have a HELOC or 2nd mortgage on the home that was not used to purchase the home when you originally bought it?

These questions will help decide if you can safely walk away or not.

Our house is a standard single family home and is our primary residence. We have not refinanced since we've moved in. We have only 1 mortgage and it's with HSBC. No - we haven't taken any money out on the house thru our mortgage company. In fact, one of the few things we have going for us right now is that we have NO DEBT other than the house and our car loan, which is explained below.

We have a HELOC, which was used to purchase our car. The loan is thru a credit union and is completely separate from our mortgage corp. I'm going to be calling them tomorrow to see what would happen with that loan if the house foreclosed.

[dogatemy]

Originally Posted by kcbmj8

Our house is a standard single family home and is our primary residence. We have not refinanced since we've moved in. We have only 1 mortgage and it's with HSBC. No - we haven't taken any money out on the house thru our mortgage company. In fact, one of the few things we have going for us right now is that we have NO DEBT other than the house and our car loan, which is explained below.

We have a HELOC, which was used to purchase our car. The loan is thru a credit union and is completely separate from our mortgage corp. I'm going to be calling them tomorrow to see what would happen with that loan if the house foreclosed.

You are in a good position. Little assets, little equity in a non-recourse home. If you have income then you should begin the process of petitioning for a modification but I don't see, without a principal reduction, that you will ever get your payments low enough that the house will be worth saving. The only thing I would suggest is making sure any documentation is reviewed in detail by a good attorney. It is not beyond the banks to slip in some language that will refinance out $2 causing your non recourse loan to convert into a recourse loan.

If you do decide to walk away then simply stop sending your payments. The banks will get you a Notice of Default in about 90 days. The Trustee sale will be scheduled about 90 days later. The banks may foreclose, or not, on the scheduled date or they may delay it as long as 6 more months. After the Trustee Sale you'll be contacted by the bank to schedule a Cash for Keys.

Now.. The next couple of 'thoughts' have been debated thoroughly throughout the forums.

If you have enough money in savings then you should begin looking at buying another house, probably another foreclosure, using any savings you have. My lending institution was willing to write a loan as long as the combined mortgage payments of my previous house and my current house did not exceed 50% of my income after down payments. I'm sure there are other banks willing to waive the limit for a higher interest rate. For example.. if you buy a $100,000 foreclosure and you can manage $20k from family, friends, 401k and savings then you can manage a monthly payment around $550 plus taxes at 7% interest rate. My suggestion would be to answer all of the questions on the mortgage application accurately. You'll be asked alot of questions about your "intentions" but as my attorney said.. "The road to h*ll is paid with good intentions." If you do decide to go forward with this plan then do not miss a single payment on anything until 3 days after you've moved into the house.

The only other thing to consider at this point is if you are going to take the credit damage from a mortgage default then you may want to consider ceasing payments on all your unsecured debt. You will need that money to get your finances in order and help you move into a new place. You are going to hear people say that you should keep paying your cards so you can rebuild your credit. The fact of the matter is that you can settle most of your existing debt for pennies on the dollar (20-45% of the balance). If you don't have much income or assets then you may be able to settle for a much lower amount (8-12% of the balance). The less you have, the lower the settlement because court costs, lawsuits and wage garnishment is expensive.

This is a series of tough decisions but if you're strong then you can come out of this better than you went in. Please let me know if you have any questions. I would be happy to help!

[knownick]

Originally Posted by kcbmj8

We have a HELOC, which was used to purchase our car. The loan is thru a credit union and is completely separate from our mortgage corp. I'm going to be calling them tomorrow to see what would happen with that loan if the house foreclosed.

Since it was not purchase money and was taken out after you bought the home, you will be liable for any deficiency not satisfied by the foreclosure sale. They will just become an unsecured creditor.

[dogatemy]

Originally Posted by knownick

Since it was not purchase money and was taken out after you bought the home, you will be liable for any deficiency not satisfied by the foreclosure sale. They will just become an unsecured creditor.

Thank you for clarifying that. It is a good point and something to consider.

[kcbmj8]

Originally Posted by dogatemy

It is not beyond the banks to slip in some language that will refinance out $2 causing your non recourse loan to convert into a recourse loan.

If you do decide to walk away then simply stop sending your payments. The banks will get you a Notice of Default in about 90 days. The Trustee sale will be scheduled about 90 days later. The banks may foreclose, or not, on the scheduled date or they may delay it as long as 6 more months. After the Trustee Sale you'll be contacted by the bank to schedule a Cash for Keys.

Now.. The next couple of 'thoughts' have been debated thoroughly throughout the forums.

If you have enough money in savings then you should begin looking at buying another house, probably another foreclosure, using any savings you have. My lending institution was willing to write a loan as long as the combined mortgage payments of my previous house and my current house did not exceed 50% of my income after down payments. I'm sure there are other banks willing to waive the limit for a higher interest rate. For example.. if you buy a $100,000 foreclosure and you can manage $20k from family, friends, 401k and savings then you can manage a monthly payment around $550 plus taxes at 7% interest rate. My suggestion would be to answer all of the questions on the mortgage application accurately. You'll be asked alot of questions about your "intentions" but as my attorney said.. "The road to h*ll is paid with good intentions." If you do decide to go forward with this plan then do not miss a single payment on anything until 3 days after you've moved into the house.

The only other thing to consider at this point is if you are going to take the credit damage from a mortgage default then you may want to consider ceasing payments on all your unsecured debt. You will need that money to get your finances in order and help you move into a new place. You are going to hear people say that you should keep paying your cards so you can rebuild your credit. The fact of the matter is that you can settle most of your existing debt for pennies on the dollar (20-45% of the balance). If you don't have much income or assets then you may be able to settle for a much lower amount (8-12% of the balance). The less you have, the lower the settlement because court costs, lawsuits and wage garnishment is expensive.

This is a series of tough decisions but if you're strong then you can come out of this better than you went in. Please let me know if you have any questions. I would be happy to help!

What do you mean by the banks "refinancing out $2 to convert the loan"? They can't refinance without our signatures, right?

I think we're past buying the 2nd house and letting the first house go. We are already 60 days past due and our credit has dropped by over 200 points, which is probably why the bank has sent us a forbearance offer. I will say that this was one of the things we considered, but I've heard that if you are upside down by a certain %, the banks won't loan to you, knowing that that is probably what you are trying to do.

The only debt we have is the house and the car. We don't have any other debt to "stop paying."

So, what do you think about forbearance agreements? I'm worried that if we use some of our savings to help pay the forbearance agreement they've offered us, after 3 months, we'll end up getting a loan mod that we can't afford or that we'll end up losing the house anyway. And, in the meantime, we've wasted our savings in doing that. If we don't accept the forbearance agreement, we keep our savings, but they'll start the foreclosing process within the next 30 days. Also - would the bank consider a forbearance agreement a form of refinancing and then screw up our "non-recourse" status?