My Walk Documented in California (non-recourse)

[5284CA]

Figured I would post this so people could follow my walk, I will update it to and through completion and try to answer any questions throughout the process.

I live in CA.

The property is our primary residence.

We bought in May of 2007, into what we thought was going to be a starter home hoping to be there anywhere from 7-10 years build equity and move on to bigger house for a family we (my wife and I) were planning to expand.

First missed payment: February 1, 2010

Purchase price in 2007: $494,000; 1058 sq. ft. 3 bed/2 bath duplex (no hoa), house now as of March 2010 worth about $300k which puts us underwater by about $150k-$160 value has dropped about 40% since we have owned it…

Down payment paid at closing of $30,000 (some went to closing costs, buying points)

We had 3 loans (all purchase money):

1^st - CalHFA conventional 30 year fixed at 5.125% (still owe about $430k/$444K)
2^nd – CalHFA Silent Down payment Assistance at 6.50% (still owe full amount of $12.5k)
3^rd – CalHFA Silent Extra Credit School Program at 0% (still owe full amount of $15k)

We also have PMI, of which we are about 4% away from being 80% Loan to Value and getting rid of…

In addition, and perhaps the straw that broke the camel’s back, the flood maps that FEMA put out changed as of January 2010 and we now owed $300 this year, $900 next year, $1500 the year after, and up to $3000 required by our lender because we were located in a 100 year flood plain that did not exist when we bought. Additionally when the city builds the necessary fix to channel water in another direction I would be assessed an additional $1200 per year until its completion. I imagine the value of the property will take a more significant hit because most people who buy a starter home are looking more to pay as little as possible while building equity…currently a monthly payment for someone buying now would be around $1,500 per month, adding $4,200 per year for the lender required flood insurance and repair assessment would essentially cost a new buyer to pay an additional 2 ½ monthly payments, they would most likely just buy another place with those requirements.

Last year my wife lost her job (about $50k per year) and we had a baby

We never talked with an attorney, there was such great information on here that we did not feel the need to do that…I did verify information found with legal or institutional websites

Special thanks to Knownick, The Professor (Daniel Shays [which is funny on many levels]), and Outta Here for their insightful and informative posts that helped me through my decision making process…and to Moe and Evan for hosting this site and the support it provides so many with the huge decision that lies in front of many of us.

Some issues I wrestled with along the way and the solutions I found:

1. Morality- which I quickly got over after seeing Brent White’s article explaining that economist are actually recommending this as a sound financial decision. The bank wrote a contract that said if I do not pay they take the house as penalty, I am taking the penalty of losing the house.

2. Retribution- Can the bank take anything else from us? That was our big question…Thanks to CA Civil Code 580 (b), there is nothing more the bank can take other than the house, same with the 2^nd, 3^rd, and PMI (which have no greater rights or remedies that the 1^st)…so once the foreclosure goes though we will give the house back and owe nothing to anyone and be done with this mess. Also, since all loans were owned by the same bank, the one-action rule could be applied if it was needed (but it will not be) to be and would save us as the bank would foreclose on itself thus bolstering our decision to walk and our knowledge that they really could not do anything to us but take the home.

3. Credit- We have excellent credit, never missed a payment on anything but a hit of 200 points to a 825 credit score is something we will deal with, and hopefully rebuild quickly

4. Taxes- Because of our non-recourse loan status, we will not have debt cancelled as the house is the security the bank will be taking back and therefore we have no income that is being cancelled in terms of taxable income…also the house will go back to the bank as a sale of property that we will have a loss on the sale of property and be responsible for no taxes as well

5. Recovery- I thought maybe, just maybe, we can eek out an existence on a super strict budget and just barely make it and stick out long enough for this thing to recover…it’s not coming back though, at least not any time soon…the economy is still terrible, a bunch of loans are still going to need to reset to get the housing market corrected, and too many foreclosures will continue to come up over the next 3-4 years for any recovery or significance to occur

6. Buying again- Perhaps we will not be able to buy again for 3-7 years, but in this market I think that is ok, as noted above I do not think it is going anywhere fast, especially not up. And when we do we will be sure to get something that fits us better and is much more manageable payment wise.

7. Property Taxes? Not worried about the property taxes as those will stay with the property and I am not personally liable for them.

So, after thinking long and hard about the right decision to make for my family and me, and reading a lot of information here and articles on the internet about strategic default, we decided walking away and allowing foreclosure was the soundest financial decision we could make at this point, by cutting our losses and renting a place of equivalent size for about 55%-60% of our mortgage, insurance, and taxes.

Timeline:

2/1/10- First missed payment

2/15/10- Technically late on first payment

2/19/10- First contact made by lender (CalHFA) phone call that went to voicemail, left a message asking me to call back…

2/21/10- Letter from lender stating we were delinquent

3/1/10- After calling the lender back about 10 times finally got a hold of the person handling the account, they asked when we could make payment told her I was not sure if we would be able to…no money, told of wife losing job, asked her to send modification packet…I am not actually interested in a mod but do want to stay in the house as long as I can. I called back to let them know I was still around and living in the home, and am hoping if I just talk to them when they call I can avoid incessant calls, so far I have only gotten the one call

3/5/10- another letter from the lender stating our account is in default by 30 days and to pay $XXX by 4/1/10 to be current on the loan or they will accelerate foreclosure process with us being 60 days late.

I was surprised that they were already sending us these notices, I thought we might get up to a year before the foreclosure but with CalHFA as our lender, perhaps they do not have many foreclosures on their hands like Wells Fargo and BofA , and since they are government lending institutions and not banks do not have to worry about having a large supply of foreclosed homes on their books

I will continue to update…

[queenmary1974]

5284CA, thank you for sharing your story. My husband and I are in a very similar situation - we bought our house at the exact same time as you did, only to see the market tank soon after. We are also on the same default timeline - our first missed payment was also 2/1/10. Our lender is IndyMac/OneWest for both 1st and 2nd.

We struggled with the exact same issues and came to the same conclusion: that this it the best option. The only thing that is hard is not wanting to move out of our beautiful home. But we'll find another in the future at some point when our credit has recovered and we are ready to buy again.

We haven't received anything from the bank yet and have only gotten a few phone calls so far. We are trying to short sell the house first, but if that doesn't work out, we are definitely taking the strategic default route.

One of the most comforting things for me has been people like you on this website, who are sharing their stories. It makes me feel like we are all in the same boat.

Thank you!

[misscal]

5824CA- Where did you find the info regarding the 'One Action Rule' if your loans are held by the same lender? We have a 1st and 2nd both owned by Citi, but refinanced the second in 2005 to get a fixed rate. We DID NOT take any $$ out. Most everything I have read says that if you refi'd the second, no matter if you take money or not, it becomes a recourse loan. Thank you in advance, and best of luck to you!

[DesertMe]

Don't feel bad..It's just "business"...I have been on this forum for a bit detailing my own personal financial collapse and giving my home of 26 years back to Bank of America (Southern California). My trust sale is this week. In today's economic climate, the old "morality" just doesn't hold water. We all have to do what we must do to survive. And interestingly enough, I found a home in my old neighborhood that is affordable and I can purchase directly from the homeowner on a lease/purchase as she owns it free and clear. I explained upfront about my BK and foreclosure and they just didn't care. So, there is life after foreclosure...

[pookey]

5824CA- Where did you find the info regarding the 'One Action Rule' if your loans are held by the same lender? We have a 1st and 2nd both owned by Citi, but refinanced the second in 2005 to get a fixed rate. We DID NOT take any $$ out. Most everything I have read says that if you refi'd the second, no matter if you take money or not, it becomes a recourse loan. Thank you in advance, and best of luck to you!

Unfortunately you did turn it into recourse loans when you refinanced. Non-recourse is only the original purchase money loan. But you may still be OK because of the One Action Rule - if they choose to foreclose non-judicially (almost always) they can only take the house and can't pursue the deficiency. In most cases that leaves the 2nd lien holder in a non-secured position and they can go after you...but if the first also owns the second I think they're bound by the One Action Rule. You should check with an attorney.

BTW, the One Action Rule is unique to California law.

[5284CA]

I know I read it on here, either do a search or create a new thread about the one action rule with the specific question about the lender that owns all loans forclosing on themselves...

The way I read it on this site was bsaically someone that had 2 or 3 loans but since all loans were owned by the same bank, the one-action rule could be applied in a forclosure because the bank would foreclose on its own 2nd and 3rd...this is particularly important to those that have recourse loans because it appears this saves you from any deficiency because as a company, they can only take one action against you...meaning when they forclose on the first, if they own the any other loans they are in esscence giving up their right to collect because the action they decided to take was reposession...this is a CA law that applies beause of the ant-deficiency status we have in CA. The lender can either sue or non-judicially forclose, I have only heard of non-judicial forclosure occuring.

[5284CA]

UPDATE 3/29:

I have gotten a total of 4 phone calls 3 from 1 person, 1 from another...the most recent call was from someone who said they were in the collections department...the first person was calling just to inquire when I will be paying.

I never answer but always call them back, maybe that is why I am not getting that many phone calls.

someone came by the house today, took a picture and came to the door to verify occupancy...

[4closencali]

Hey 5284CA,

We are in very similar situation. We bought and stopped paying about the same time and we have 1 servicer for our loans.

I've only talked w/Greentree 2x. In the beginning and a few days ago, They seem a little more frantic. I've gotten the delinquent letters and a pseudo Notice of Default.

My first was removed from my online account, but the 2nd is there...not sure why.

I don't have a hardship, so I don't really know what to say to them, but I think I'm just going to tell them I can't pay....and leave it at that. I'm trying to stay as long as I can, but don't really want to lie or send them any financial.

btw....I've gotten about 20 calls in the last 2 days from different numbers....I think they really want me to make a payment on 4/1....dunno why the urgency for being 60days late.

Good luck with your walk....I'll be following it and post my milestones too.

[5284CA]

*****UPDATE*****

I have now missed 3 payments in my pre-emptive strategic default...

I got a call yesterday from CalHFA, I decided to pick up the phone instead of having them leave a message...

They again asked when I would be able to pay, I told them I did not know but I did not think I would be able to...

They said they noted I was trying for a loan mod...which I am not but I told them I had sent in paperwork and was waiting to hear from them because I am trying to delay this forclosure for as long as possible.

She asked if I had any 401k or family that I could borrow money from, I said "no"

She then asked me what was my back-up plan if the loan mod did not go through, if I was just going to let the house go to forclosure...I said, well since I cannot pay, and do not have anymore money to give what other choice do I have than to let it go to foreclosure...she said well you could short sell it, would that be of any interest to you...I said yeah i guess I could try that.

BTW, I will not be doing anything like a loan mod, short sale, or borrowing from family or giving any more money to the bank for this depreciating property or any financial information...but if putting down that i am trying a loan mod and/or a short sale delays the foreclosure I am super excited about that.

She did tell me at the end of the call that they would be calling me about every 10 business days to check on my progress or if anything has changed...

[203000]

5284CA,
I'm following your walk closely. I have a CalHFA loan too and stopped payment 4/1/10. I spoke with 3 lawyers and they all said the banks can't do anything but foreclose on the house. None of the lawyers had any experience with CalHFA and the only question I have is if they can come after me for the recapture fees after foreclosure. Have you asked anyone about this?

Thanks.

My walk:
Financed a condo for $203,000 in December 2005, 30 yr. @ 5.5% no refi or 2nd's.
Value now about $90,000
Waiting for the first phone call around the 15th.

[203000]

And... is CalHFA exempt from any laws that regular banks have to follow?

[5284CA]

None of the lawyers had any experience with CalHFA and the only question I have is if they can come after me for the recapture fees after foreclosure. Have you asked anyone about this?

I am not totally sure what you mean by recapture fees, I never talked with a lawyer, but from what I read and researched on my own, given that the loans are non-recourse there really is nothing they can do...the contract that is signed states that if you dont pay they will take the house, that is supposed to be a penalty to you the homeowner, it just so happens that the penalty is worth it right now because you are getting out from under the loan because of the housing market

And... is CalHFA exempt from any laws that regular banks have to follow?

I initially had this question because I thought it is a government agency, but ultimately I researched on here to find my answers...Again, I never talked with a lawyer...but from my research no agency or lender can create their own rules that would supercede the state law that makes all loans create in CA non-recourse so long as the monies are used for purchasing the home under CA CCP 580b, so I think it is pretty clear and straight forward that I will lose the house, my credit will take a hit, but they cannot collect further from me, so I will take the penalty...and let them foreclose.

[Underwater in CA]

Thank you all for the due dilligence you've done preparing for your strategic foreclosure. My husband and I are in an almost identical situation...

purchased Aug 2007 $490,000
Chase Home Finance (then WAMU) 80/15 with 5% ($25,000) down
Current Value = approx. $360,000
Stopped paying 1st 2/1/2010
Stopped paying 2nd 3/1/2010 (this was an accident due to auto-withdrawl)

My husband and I had a baby, so I quit my job on Feb 12th and submitted a mod request based on our new adjusted gross income. We realize it is a long shot, but what the heck...worth a try, especially if it allows us to stay longer in this house. So far, we have been hit with a flood of calls regarding our 2nd and did receive the modification "trial offer" packet which is a total joke. First of all, the offer is on the first mortgage only and strictly based on 31% of our income - no mention of anything else. It's basically a boiler plate document with a few mail merge fill-ins. We faxed a letter wanting clarification regarding the 2nd in this negotiation because if their motive is to keep borrowers at no more than 31% of their income, then how do they think we're going to come up with the additional $577 a month for our 2nd??? Don't insult our intelligence....we know this offer is completely bogus. Nonetheless, we called to follow up on the fax and the servicer said that we will not get a call or an answer to that question. They instructed us to either accept the trial offer or not. So much for conversation. Oh well.

I decided to go back and read through both promissory notes today just to make sure we have covered our bases. I was blind sided with some wording on my 2nd regarding Governing Law. It reads:

...This Note will be governed by and interpreted in accordance with the laws of the United States of America and, to the extent that such laws are not acceptable, with the internal laws of the State of Nevada...

What??? Our property is in California. Have I mentioned that Nevada IS a recourse state. Is this legally binding? Our property falls into the no recourse category for California, so my question is:

Could this contract supercede CA state law, or does CA law 580(b) or the one-action rule protect us in this case?

Has anyone heard of this scenario?

Thanks everyone for your stories....glad to know we are not alone.

[happy916]

5284CA....From what I've read any loans used for "purchasing" the house is non-recourse so I think you're find. And like you said you're covered by the one action rule if loans are own by the same bank.

I stopped paying CalHFA around July 2009. I received my NOD 1st week of April which was dated or filed around April 1. I have at least 4 months (at least) until aution (we'll see). I'm going to try a loan mod and see what they offer. I'm going through a HUD approved agency.

I haven't decided if its time to go or not. I'm under water at least $125K but the benefits of staying are

1. I don't have to move
2. I'm the owner
3. And current rentals in my area ****

We'll see what happens next

[5284CA]

happy,

Nice to hear from a fellow CalHFAer

It sounds like you got about 9 months of no payments before your NOD, is that about right?

What did you tell them to get them to take so long in their foreclose?

In my most recent letter it says that my case will be refered to the foreclosure review board on May 15 if I do not pay in full by that date...did they send you simlar documentation about that same kind of stuff?

thanks for letting me know...I felt iniitially like the process was going very fast for me I am really hoping they slow down and take their time in foreclosing.

[happy916]

Well I actually got about 3 months free since we were in Chapter 7 proceedings (automatic stay). In December they called me and told me I was going to the Foreclosure review board but didn't here anything till February 2010. They called and offered me a loan mod. Before they said they didn't have that type of program but now they do. Anyways, they sent paperwork which I haven't completed yet.

During Sept and December I worked out 2 payments plans but never followed through so maybe that help prolong it, I don't know. I think if you are "inactive" then they proceed with foreclosure. They're not like BofA or a large bank.

[5284CA]

Well I actually got about 3 months free since we were in Chapter 7 proceedings (automatic stay). In December they called me and told me I was going to the Foreclosure review board but didn't here anything till February 2010. They called and offered me a loan mod. Before they said they didn't have that type of program but now they do. Anyways, they sent paperwork which I haven't completed yet.

During Sept and December I worked out 2 payments plans but never followed through so maybe that help prolong it, I don't know. I think if you are "inactive" then they proceed with foreclosure. They're not like BofA or a large bank.

Yeah, that is what I am worried about, I have not made a payment and will not make one...I keep telling them I am doing a loan mod and if that does not work a short sale, but I do not want to send any loan mod paperwork because I know I will not qualify when they see the money in the bank and I do not want a loan mod. I am not going to do a short sale but I am telling them I would if the loan mod (that I am not applying for) does not work. Trying to stall as long as possible to recoup some of the money I have lost on this house. Hopefully they will give me a little extra time if they think I am trying to help them out, but who knows...

[KFish]

To happy916
Does the one action rule apply in all states..or is it a case by case basis? Our 2nds (Heloc's) were PM and they are with the same bank as the firsts. I havent been able to get a lot of information on this scenario..."one action rule"

The issue with ours is that we paid them down some and then charged back up. The balances are well below the starting amount used for PM though...

[5284CA]

I think one-action rule is unique to CA, but I could be wrong...I thought I remember reading that somewhere.

[pookey]

The "one action rule" is a CA law. There may be other states with something similar, but I'm not aware of any being talked about.

[sonsnvr4gt]

Hey 5248CA,..looks like I am a little ahead of you with CalHFA. Take a look at my story it may provide some guidance with their methods - CalHFA and a Pound of Flesh

Best of luck!

[sonsnvr4gt]

Hey 5284CA,...looks like I am further along with CalHFA than you,...take a look at my post as it may inform you decisions going forward - CalHFA and a Pound of Flesh

Good Luck!

[jrich1]

I've been following your walk. I also bought a house in April 2007 for $417,000. It's now worth $258,000. I have a Cal HFA loan and this will be our first month missing our payment. You haven't updated your walk in a while, so I was curious what was going on right now...

We also have no intention of modifying, short selling...we are strategically defaulting and will be saving every penny for when we are booted out!

Any advice? What have you been telling them? Have they been calling every day??

Thanks!

[5284CA]

*****UPDATE*****

We are now 3 months late officially, last payment was made January 1, 2010...

We recently got a letter explaining that we owe $XXX and need to cure the debt by ?, 2010. (Still no notice of default only language that discusses their intent to accelerate) The letter did state that our case waould go to their foreclosure review team on May 20, 2010 if we did not cure the loan by then.

I am assuming at some point after may 20 I will hear more from them...

I also get a call like every 10 days or so, they just ask if anything has changed I tell them "no" ask if they got my loan mod paperwork yet (which I never sent in) let them know I would like to do a shortsale if the loan mod does not work (even though I do not)...next time I think I might ask them if making partial payments might help (even though I do not plan make any more payments)

good luck to you...

[sonsnvr4gt]

If they gave you a short sale option why would you not take it? I am curious because all I can hope for at this point is a short sale option, however they seem intent on trustee sale. Any guidance is helpful.