Trying to figure out the best way to walk away.

[Mwl40]

Hello everyone. I have read many of the posts on this board and I need some assistance. Here is the background.

-Purchase townhouse in So Cal in 3/2004 for $340K
-Refinanced in late 04 w/ 80/20. Currently my total debt is $390k.
-In 7/07, we put the townhome up for sale with no offers.
-In 8/07, I lost my job and ended up relocating to Colorado.
-I was able to rent the property out from 10/31/07 to 10/31/09 at a net loss of about $600/month.
-My tenant ended up filing for chapter 7 and vacated the house on 10/31/09.
-My tenant had missed about 2 payments and left me with only the security deposit.
-I visited the property this weekend and there are substantial repairs that would need to be made before being able to re-rent the property out. The estimated costs of these repairs is significantly higher than the deposit I have and I do not have the money to make these repairs.

The CA home was in my name and purchased before getting married. My wife is not on any of the documents.

In 5/09 my wife and I purchased a house out here in CO (at this time, there were no issues w/ my tenant and I did not know about the condition of the CA house).

As previously mentioned, I cant afford the repairs necessary to re-rent the CA house out and I can not afford to keep making two mortgage payments.

The CA house is a townhouse and the unit next door to me just sold at foreclosure for $275k.

I want to just rid myself of the CA house and move on with my life. The only reason i still have the CA house is cause I could not sell it at the time I relocated to Colorado.

I am not too concerned about the 1st mortgage (provident bank) doing a judicial sale, but I am concerned about what the 2nd mortgage (WAMU) will do when they get nothing. I want to protect my current house in CO as this is my primary residence.

Does anyone have any suggestions for my problem?

[Moe Bedard]

Hello and welcome to the community.

You could pursue a short sale with an experienced local Realtor there that can get it sold and the second signed off. Here is some info on the new short sale law.


California Senate Bill 306 was signed into law by Governator on August 5, 2009; California Civil Code section 2943 was revised (effective January 1, 2010).

This new law deals with escrow in short sales and inserts a short payoff amount request into the existing payoff demand, which generally requires a lender to respond to a request for a payoff demand statement within 21 days from when it is requested, typically by escrow.

This new law essentially requires, after a short pay off has already been approved in writing by lender, that lender must respond to a request for a short-pay demand statement within 21 days. The lender’s response to escrow can be a short-pay demand statement or even perhaps a written statement electing not to proceed with the proposed transaction.

In practice, a lender may approve a short sale subject to its review of a closing statement prepared by escrow, but the lender does not review that closing statement promptly. Under the new law, after lender approves owner’s short pay, and if a lender fails to approve the closing statement within four days, the closing statement shall be deemed approved. However, that deemed approval would be only if it is “not clearly contrary to the terms of the short-pay agreement or the short-pay demand statement provided to the escrow holder.”

The new law does not bind a lender to a short payoff amount in an offer where the lender has not approved in writing the owner’s short pay.

After lender has agreed in writing to the owner’s short pay request, and after owner/borrower submits to the lender a “short sale request,” the lender is required to accept or decline it within 21 days.

Trigger for lender’s duty to respond quickly is buyer’s written short sale request to include:

A. A copy of an existing contract to purchase the property for an amount certain;

B. A copy of the written short-pay agreement between owner and lender in the possession of the entitled person.

C. Information related to the release of any other liens on the property, if any.
“Short pay agreement” is between owner and lender and is further defined as an agreement in writing in which the beneficiary agrees to release its lien on a property in return for payment of an amount less than the secured obligation.

How does this work?

1. The prospective seller must first have in hand an written agreement with the lender agreeing, in advance, to a short sale.
But there is no deadline for the lender to provide the agreement. And there is no requirement for whether the agreement specifies how much the lender will accept. This allows the lender to provide the agreement. However, the lender is not obligated to accept a short sale if it is for less that one dollar below the total owed.

2. The owner/borrower gets a bona fide purchase offer and makes a short-pay request.

3. After lender has approved in writing the owner’s short pay request, and after lender receives bonafide purchase offer, it has 21 days to respond.
Lender’s response can set forth whether they accept existing offer, and/or specify price and terms lender would agree to a short sale.

Owner’s Challenge ~ Getting the agreement from lender in the first place that it agrees to the short-pay and sale. There is no time requirement for the lender to provide one.

Solution for the owner/borrower on proposed short sale ~ Start immediately, follow guidelines and ask your lender for a short-pay agreement.

See SB 306, new California law on short sales (click here for text of this law).

If it does not sale you could consider bankruptcy.

If you do that, I would be to seek a few attorneys who specialize in bankruptcy law and also mortgage cram downs. You would have to see if may be eligible to file or you could possibly settle the 2nd at 5-15 cents on the dollar. I have seen quite a few of those deals in the past couple years.

Chapter 13 of the federal bankruptcy code allows bankruptcy court judges to reorganize an individual’s debt, but it does not give them authority to fundamentally alter a person’s primary home mortgage.

Section 506 of the Bankruptcy Code acknowledges that a lien is only a secured claim to the extent there is value in the asset to which it attaches. To the extent that the claim exceeds the value of the collateral, that portion of the claim is unsecured. In Chapter 11 or Chapter 13, even voluntary liens, such as mortgages and security interests, can be stripped down to the value of the collateral, with the exception of voluntary liens secured only by the debtor’s residence.