Walking Away from a Bankrupt City

[underwater_vallejo]

Today's the day: April Fool's Day. This time, though, the joke's on CitiMortgage and Green Tree.

I bought my townhouse back in January 2005 for $400,000 in what seemed to be an up and coming community in Vallejo. In retrospect, I was dead wrong. At the time, however, it remained the most "affordable" place in the Bay Area. I was able to commute to San Francisco via Ferry. The weather's nice, and it's 25 minutes to the Napa Valley. It really seemed like an ideal purchase.

Now don't get me wrong. I was very nervous that clearly the market was seriously inflated. I had a good income and the only thing I could afford if I wanted to have my payments under 30% was a city mired in violence struggling to break out of its shell? For $400K, however, I couldn't get anything save a garage space if I looked in Oakland, Berkeley, or Emeryville. I didn't even bother looking in San Francisco. And here I got this beautiful 1800 square foot loft with a private backyard with somewhat of a view and a garage? Where do I sign up?

In hindsight, I'm glad I had no down payment. The bubble burst and it very quickly became apparent that a lot of my neighbors clearly were not able to afford their homes. Meanwhile, it came to light that the city was in serious deficit and they declared bankruptcy in 2008. Crime is up. Prostitution is rampant. The neighborhood's getting seriously dangerous. And last year, I became a parent.

Long story short: my neighbor just went through a Trustee Sale, another unit is sitting trying to short sale at $150,000. Meanwhile I still owe $345,000 on an Interest-Only first mortgage loan that resets at the end of 2012. I have a $65,000 second mortgage with a balloon payment scheduled for 2022. Sadly, I refinanced so both loans are now recourse. Still, having toyed with the idea of walking away for 12 months and made the decision 2 months ago, today's the day I miss my first mortgage payments. Oddly enough, it feels somewhat liberating.

Based on my research here on this wonderful site, I decided to do a preemptive strike and am sending both CitiMortgage and Green Tree cease & desist letters forcing them to communicate with me by postal mail only. We'll see if that works and keeps my phone from blowing up.

I'll keep you posted on this thread as my walk unfolds.

[underwater_vallejo]

I forgot to mention that I'm also sending Green Tree an ominous QWR that I found somewhere on this site. I figure it'll get them on the defensive since they're really the only ones I have to deal and settle with. With a foreclosure, they'll get absolutely nada so I'm hoping to negotiate a settlement of about $10,000 to get rid of them. CitiMortgage will eventually foreclose so they won't be able to follow me for deficiency under the one-action rule.

[Daisy Cutter]

Are you going to continue to live there rent free for a while? You can save a lot of money in the bay area if you are living somewhere for free.

I stopped paying everything in Feb, and didn't even bother with a cease and desist. All things considered there have not been that many phone calls. I think the banks are completely overloaded with all these defaults.

[underwater_vallejo]

Yes, we intend to stay there until after the Trustee Sale. After that, we'll see whether we opt for Cash for Keys or not.

We actually love our home itself. We put in a beautiful Mediterranean backyard and the weather is gorgeous, even if my commute is long (1.5 hours door-to-door) The problem is the neighborhood, rising violence, reduced police force and the fact that this place cost us almost 3 times what it is now worth.

[donita]

best of luck to you underwater_vallejo. I would love to continue getting updates regarding your plight. Like you, I also have a HELOC with GreenTree for about the same amount ($64k) and am also wondering how to approach the forthcoming settlement. MEanwhile, I anticipate an NOD coming up pretty soon...

[gz9gjg]

Best of luck to you . . .

At least your home isn't in Detroit!

http://www.wwj.com/Detroit-Begins-De...ursday/6701865

[happyeeyore]

Hi Underwater Vallejo

I am in the same shoe with your situation and i have decided my D-day would be May 1st 09. I have two loans and boths are purchase money.1st

[happyeeyore]

Ooops! something happened

let me write again

Hi Underwater Vallejo

I am in the same shoes with your situation and i have decided my D-day would be May 1st 10. I have two loans and boths are purchase money.1st mortgage is Green Tree and 2dn one is Citi mortgage. I am not sure how exactly i will navigate through this havoc but one thing for sure for me is i shouldn't waste my good money into bottomless pit and need to prepare my future as well.

i consulted with an attoney once for my plan "walking away from my loans" and followings are what he reviewed with me

1. short-sale : maybe i have chance to salvage my FICO a little better than other options but i don't count on it. I have looked into buying a short-sale property for a while and it takes a really good time to hear from the bank at all. i am sure, if i choose this route, it'll take a year or so to get it all over.

2. DIL of forecloser : l like the idea of DIL of forecloser. just hand over my key and clean my hands but since i have a second loan, the lawyer told me i have a little chance unless i negociate with 2nd loan well. i am not sure but i hear some people negociate with 2nd loan pennies on a dollor.

3. let it foreclose : all i need to do is absolutely nothing. just wait and let things happen.


what is your highest goal for your action. I really would like to salvage my FICO as much as possible and get it over as soon as possible. lets share information how things go

[underwater_vallejo]

Hi happyeeyore,

My FICO score is currently somewhere around 760 but I have no illusion that it's about to get decimated, so I've been preparing the last 2 months by purchasing a new minivan at a low interest rate and expediting decisions that would require a credit check. Still, I figure within the next 3 or 4 months I'll be down in the 500s as far as credit goes. That's life.

The goal for me is strategic default. There's no way that the bank would do any sort of principal reduction based on my financials and, quite frankly, the houses around me are going from anywhere between $100,000 to $150,000. There's a unit currently on the market for $150,000 which has identical layout and square footage as mine. It's been on the market for close to 6 months now.

The city I live in has, unfortunately, not lived up to its potential. In fact, there's much more crime, murder, drugs and prostitution now than there was when I purchased. With a newborn, safety is much higher on my list of priorities than it was back in 2005.

Luckily, my wife is not even on the mortgage. While her credit is currently only 670, most of her derogatory items should fall off this year or next, so that she should be in the 700s by then. We'll manage on her credit if we need some.

As far as my "walk" goes, the biggest (and only, really) concern is settling my 2nd mortgage with Green Tree. They will have the ability to come after me once Citi forecloses, so I'm hoping to nip it in the bud and settle for around 20% of what I owe them. We'll see if they agree or not... If not, then I'll just let it go to collection. The *good* thing about trashing your credit is that other creditors can no longer use fear against you. There's nothing to lose.

I'm not quite sure why anyone would bother doing a short sale or DIL. Ultimately, you're better off just staying in your house as long as you can and stash the cash you're not spending on a mortgage. Don't spend it... STASH IT! I see the credit bubble bursting as an evident sign that we *all* need to deleverage and pay off our debt (or walk away from them, as the case may be). That goes for us as individuals as well as banks, cities, and yes, even countries.

Best of luck on your upcoming walk!

Underwater

[underwater_vallejo]

Update: Both my QWR and my cease & desist letters for Greentree got sent and I received the postcards with signature from the recipient. I suppose that's a good thing as I haven' gotten a phone call yet, but then again I'm only 11 days late at this point. We'll see. I'll let you know if the phone calls and/or the letters start pouring in.

All the best,

[wlkinginwa]

Good luck, I get calls everyday from Wells Fargo (and some other numbers which I assume are collection agencies for my second). I just ignore them.

[ocdreamer]

goodluck to you, keep us updated!

you should be able to live rent free for a good while and not pay state/federal taxes on the discharged debt + cash for keys at the end = good financial position to start your family.

Also, too late for this, but I wouldn't have bothered w/ the cease/desist letters, that just puts you on their radar whereas if you just stopped paying, it would have taken a while for someone to notice. I could be wrong, who knows...we just got caller ID and never bothered picking up/returning calls.

Actually no...we did return a call, talked with a nice person at the bank...told them we were walking away rather nonchalantly. Nice young lad, probably just happy to have a job. Anyway, I digress... I know the area very well, if you need advice about moving or whatever, reply back here.

[underwater_vallejo]

ocdreamer,

Thanks! The reason I went on the offensive is actually to get on Green Tree's radar. I figure from what I've read here that they are slow enough as is. They got slammed with a Cease & Desist *and* a QWR both within 5 days of my first missed payment. I *hope* it gets somebody's attention and I figure I can drown out the noise by removing their ability to harass me via phone.

Anyway, it's a strategy... Will it work or fail, who knows? Worst case this thing goes to collection and I eventually settle there. It's not like they'll be able to leverage fear over my FICO score.

As far as how long we get to stay here, I figure that's still dictated by CitiMortgage and when they foreclose, so yeah, actually... Looking at it that way, it would have been wiser for me not to send my first mortgage lender a Cease & Desist and just attack the 2nd.

Oh well, what's done is done...

[ocdreamer]

ocdreamer,
As far as how long we get to stay here, I figure that's still dictated by CitiMortgage and when they foreclose, so yeah, actually... Looking at it that way, it would have been wiser for me not to send my first mortgage lender a Cease & Desist and just attack the 2nd.

I'm going to bet virtual money here....NOD by July, NTS by October, and and auction in November. Anyone else want to chime in?

Don't forget to skip paying property tax, those will come out of proceeds from the foreclosure auction.

[underwater_vallejo]

Wow, that's pretty fast... My neighbor got NOD filed in May of 2009 and just had Sale in mid-March of this year. They're still living there.

Yeah, we aren't paying the property taxes in April... Already paid half last December. Oh well...

[happyeeyore]

I'm going to bet virtual money here....NOD by July, NTS by October, and and auction in November. Anyone else want to chime in?

Don't forget to skip paying property tax, those will come out of proceeds from the foreclosure auction.

i love betting

what i have noticed is that if the area is full of foreclosures, banks let the properties alone for a longer time since they can't sell it on the market anyway. for example, a friend of mine bought a house in tracy in year 2006 and stopped paying mortgage about two years ago, moved to next door as a renter, and bank contacted him last year for loan modification but he wasn't interested in so let them sing whatever they would like to sing. he didn't get NOD yet till last time i spoke with him (dec 09)

So i would like to bet on this, hope Vallejo wouldn't mind.
NOD --> Dec 10
NTS --> not even think about it for a while
auction --> can't happen for a while

In Vallejo there are about 700 foreclosed properties in somewhere its process and since interest rate started to climb up, it won't be easy to sell anything there.

but there is a variation that Green Tree is a relatively small company so they might process it faster.

Sincerely, i wish your best and hope things move as you want, Vallejo.

[happyeeyore]

Hey everyone

I just found out an interersting thing. I live in two-story, 8 unit condo. My downstair unit has a good history to tell. Just before i bought my unit it was sold at 400K (June 06). it was abandoned next year and sold it at 250K in 2008. the owner of the unit just got a NOD (its a public record, i didn't ask him). Current value of the unit is about 190-200K.

i dont see where this housing mess heading.

[underwater_vallejo]

i love betting

what i have noticed is that if the area is full of foreclosures, banks let the properties alone for a longer time since they can't sell it on the market anyway. for example, a friend of mine bought a house in tracy in year 2006 and stopped paying mortgage about two years ago, moved to next door as a renter, and bank contacted him last year for loan modification but he wasn't interested in so let them sing whatever they would like to sing. he didn't get NOD yet till last time i spoke with him (dec 09)

So i would like to bet on this, hope Vallejo wouldn't mind.
NOD --> Dec 10
NTS --> not even think about it for a while
auction --> can't happen for a while

In Vallejo there are about 700 foreclosed properties in somewhere its process and since interest rate started to climb up, it won't be easy to sell anything there.

but there is a variation that Green Tree is a relatively small company so they might process it faster.

Sincerely, i wish your best and hope things move as you want, Vallejo.

Thanks Happyeeyore! Yeah, Vallejo has something like 1 in 110 foreclosures. Not as high as Vegas or Miami, but by far the highest in the San Francisco Bay Area that I'm aware.

Green Tree is actually my second mortgage. My first is CitiMortgage and they're the ones who will foreclose. I've been focusing my energy on Green Tree, though, since they're about to get wiped out and they're the ones I'll have to deal with after the foreclosure unless I can settle with them before it gets sold to collection.

Honestly I'd be happy with the timeline you suggested. From what I've researched, foreclosures are going to start picking up pace but I'd love to be here until next March or April if I can.

Today is 15 days late on both my first and second. Still no calls or letters other than my Green Tree bill for May which came in yesterday with Past due amount shown there.

[pookey]

You may need to wait for your Green Tree loan to be written off before they will negotiate. But they will want all of your financial info and hardship - without a hardship they are going to look for more...with a hardship you can get a 10% settlement.

But...there are a couple of new laws in Committee in the CA Senate that will be very helpful for anyone in CA. Word on the street is that they will pass and be law by the end of September. AB 931 and AB 1178.

AB 931 will amend 580(b) to require both the 1st and 2nd to release deficiency in either a short sale or foreclosure. That will get more short sales accomplished because the 2nd will no longer be able to go after you if the 1st forecloses!

AB 1178 will not change refinanced debt into recourse debt just because it was refinanced for a lower interest rate.

Pass the word for anyone in CA to get behind these two bills - no one seems to be aware of them yet.

AB 931 link: SB 931 (Ducheny): Mortgages: deficiency judgments.

AB 1178 link: SB 1178 Senate Bill - Bill Analysis

[underwater_vallejo]

UPDATE: Just got my first piece of mail from CitiMortgage.... It would appear I didn't need to send them a cease & desist letter after all as they don't have my phone number.

The letter reads:

"So that we may better service your account, please confirm that the following information, which has been recently updated on our account, is correct."

Then it reads my phone number as (999) 999-9999.

Works for me... Information is indeed correct.

[pookey]

Sorry - I misspoke about "AB 931 will amend 580(b) to require both the 1st and 2nd to release deficiency in either a short sale or foreclosure."

It pertains ONLY to the 1st - leaving the 2nd to keep the short sale from happening due to unrealistic demands of $'s. Drat...and I was so hopeful something really, really good was going to happen!

[underwater_vallejo]

I'm actually much more interested in SB 1178. If that passes, I'm free and clear once Citi forecloses on my property. That'd be nice!

[Daisy Cutter]

is AB1178 retroactive though? Assuming it passes.

AB1178 has a lot of implications, I know lots of people who had purchase money helocs, paid half of them down, then lost their job and pulled the money out for a rainy day, then defaulted. They think they are recourse now.... maybe not if AB 1178 passes.

[donita]

You may need to wait for your Green Tree loan to be written off before they will negotiate. But they will want all of your financial info and hardship - without a hardship they are going to look for more...with a hardship you can get a 10% settlement.

What if the loan has been transferred to a debt collector and you wish to settle? Does settlement with a debt collector require submitting financials also? (Hate to do this). As for the lender - does anyone know what the settlement range is usually if you don't provide financials/hardship? Or will they not settle at all?

Thank you so much.

[pookey]

is AB1178 retroactive though? Assuming it passes.

AB1178 has a lot of implications, I know lots of people who had purchase money helocs, paid half of them down, then lost their job and pulled the money out for a rainy day, then defaulted. They think they are recourse now.... maybe not if AB 1178 passes.

No, it will not be retroactive, only will help those after the law is enacted, unfortunately.

[pookey]

I'm actually much more interested in SB 1178. If that passes, I'm free and clear once Citi forecloses on my property. That'd be nice!

Your tag line says your loans are recourse - this law will only affect purchase money, non-recourse loans.

[pookey]

is AB1178 retroactive though? Assuming it passes.

AB1178 has a lot of implications, I know lots of people who had purchase money helocs, paid half of them down, then lost their job and pulled the money out for a rainy day, then defaulted. They think they are recourse now.... maybe not if AB 1178 passes.

Hmm, I'd have to say that money taken out for other than the purchase of the home would change it to recourse even with AB 1178. They are only looking to keep a basic re-fi from changing the nature of the loan. Once money is used for other than the purchase or improvement of the home it becomes recourse...but they should check with an attorney if the law passes, just in case.

[underwater_vallejo]

Your tag line says your loans are recourse - this law will only affect purchase money, non-recourse loans.

I may be reading this wrong, but from my understanding, if I refinanced for a lower rate but did not get any cash, then SB 1178 would in fact make my loan non-recourse. It currently is recourse.

This bill would provide that a loan used to pay all or part of the
purchase price of real property or an estate for years includes
subsequent loans, mortgages, or deeds of trust that refinance or
modify the original loan, but only to the extent that the subsequent
loan was used to pay debt incurred to acquire, construct, or
substantially improve the real property.

SB 1178 (Corbett): Real property: deficiency judgments.

[pookey]

I may be reading this wrong, but from my understanding, if I refinanced for a lower rate but did not get any cash, then SB 1178 would in fact make my loan non-recourse. It currently is recourse.

This bill would provide that a loan used to pay all or part of the
purchase price of real property or an estate for years includes
subsequent loans, mortgages, or deeds of trust that refinance or
modify the original loan, but only to the extent that the subsequent
loan was used to pay debt incurred to acquire, construct, or
substantially improve the real property.

SB 1178 (Corbett): Real property: deficiency judgments.

Yes! I was just going by what your tag line said, but you are exactly right! This bill will put people like you who had non-recourse, purchase money loans but re-financed for a better rate right back where you should be with non-recourse debt!

I think everyone in CA should contact their State Senators (not DC Senators, CA State Senators) and the Governor by both e-mail and phone and make sure they know Californians want these bills passed! To get information on the CA State Senators go here Senators and the Governor's contact info is at Governor Arnold Schwarzenegger - Interact

Please pass the word, even to people who might not be in trouble now...almost everyone re-financed when rates went down and they all have a vested interest in these bills. No one knows what the future may bring...illness, job loss, etc. Both of these bills are critical and although expected to pass if you look at the list of lobbying groups against them you'll know the people need to be heard from!

[spacecowboy]

But, will they make any additional changes this year since they got 401 signed?
From the FTB site
Mortgage Forgiveness Debt Relief Extended
On April 12, 2010, SB 401, the Conformity Act of 2010 was enacted. It allows taxpayers who had all or part of the loan balance on their principal residence forgiven by their lender to exclude the forgiven debt from California gross income. The new law applies to discharges of qualified principal residence indebtedness on or after January 1, 2009, and before January 1, 2013.

So while deficiency is a different animal, as not that many judgements are sought, will the legislature call it a day on 1178? Third reading was to be today.....

Earlier question on DIL - my lender said they would CONSIDER (key word) if I provided all financials including my retirement accounts. I provided all but my retirement data and they said no way. So I say no thank you, come get the keys.

[underwater_vallejo]

After some research on Google, I found the following regarding SB 1178:

SB 1178 is still in the early stages of consideration. It must clear both houses of the Legislature and be signed by Gov. Arnold Schwarzenegger by Sept. 30 in order to take effect.

I guess I'll personally keep my fingers crossed. If 1178 is signed into law, I don't even need to talk to Green Tree since, although I refinanced, I never actually took any money out and it was all to get a lower interest rate.

[underwater_vallejo]

UPDATE: I just got a response from Green Tree for my QWR request. Basically, they went through the blah-blah how 12 U.S.C. 2605 only applies to first liens and not to junior liens. Nevertheless, they included enough documentation to prove that they have a copy of the Trust Deed... It's all good. I never really doubted them but figured I'd put them on the defensive.

Apparently, it worked... Together with my cease & desist letter, they said in closing:

"Pursuant to your request, Green Tree has ceased phone communication at this time; however, for your convenience we will continue sending billing statements and other correspondence as required."

NICE!!!

So apparently I may not be getting all the phone calls everybody else has been getting... Works for me! In any case, I'm walking so there's nothing to discuss. If they eventually approach me with a settlement offer that I can afford, I'll take it. With a bit of luck SB 1178 will come into law before then.

I'll keep you posted.

[underwater_vallejo]

UPDATE: CitiMortgage has just acknowledged my cease & desist letter as well. Here's the letter I got in the mail today:

Dear CitiMortgage Client:

Thank you for your recent inquiry regarding your mortgage account.

We have requested that our Collections Department remove your account from any future call out programs.

To contact us you may visit our website at ...

We value your business and look forward to servicing you in the future.

Sincerely,

Customer Service

I must say that some 23 days in, my walk has thus far been pretty painless. Since I have no desire to remain in the house, it's a lot easier to just send cease & desist letters and cut out the phone calls altogether.

[pookey]

After some research on Google, I found the following regarding SB 1178:



I guess I'll personally keep my fingers crossed. If 1178 is signed into law, I don't even need to talk to Green Tree since, although I refinanced, I never actually took any money out and it was all to get a lower interest rate.

Yes, hang tight and you may very well be in the "perfect place" after September. You are very early in the process, so it looks really good for you!

[Daisy Cutter]

whats amazing is that all these new home developments are still going up in Vallejo. Heres one I got in the mail today.
Vallejo New Homes - Reflections at Waterstone - Braddock & Logan

You would think the building there would stop given the crisis but no such luck. There is too much excess inventory.

[DesertMe]

What's amazing to me is that here in the High Desert of SoCal, where we were just on the national news for BULLDOZING an entire new tract of homes, is in today's paper how "builders are flocking to the High Desert to build MORE new homes for anxious buyers"...Oh really ? WHERE ? Our newspapers are packed with page after page of legal notices of foreclosures. BLOCKS of homes sit vacant, people are leaving in droves and yet the illustrious leaders and news media would have us believe that everything will be just wonderful if we can just go back to building McMansions and a few more WalMarts...Somehow, I don;t think so..

[underwater_vallejo]

So I'm officially 30 days late and I still haven't gotten a single phone call, which is very nice. Granted, that's what I was hoping for when I sent them the cease & desist, but I was skeptical they would actually comply with it. Apparently both CitiMortgage and Green Tree have complied since I haven't heard anything from them.

Citi did send me some letter last week suggesting I could be in a good position to modify my mortgage, but I'm not going to waste my time with them. I'm curious to see if and when Green Tree starts sweating and tries to contact me for settlement.

[monty15]

I really need to follow your lead and send the cease and desist letters to my lender. At over 45 days late on the first and second, I'm getting four phone calls a day -- 2 in the morning, 2 in the evening...

I'm in the process of trying to do a short sale, but I'm at a stopping point. I have an offer on the house, but can't bring myself to send in the necessary paperwork to the bank (2 months bank statements, last 2 years tax returns, 2 months worth of pay stubs, a hardship letter, and a P&L type statement of monthly income vs. expenditures, plus total savings, checkings, investments, etc). I don't want to give them any personal financial information, even if that means my only real option is to pay the mortgage or go into foreclosure.

If I had more of a solid hardship, I'd go ahead and submit the paperwork and try for the short sale. At this point, looks like I'm going to join the foreclosure party in Northern CA.

[underwater_vallejo]

From all I've read, the incentive to do a short sale is actually pretty minimal. Yeah, so you can buy again in 2 years instead of 5. Really? Do I want to buy again in 2 years? Quite frankly, I'm not even sure I'll want to buy again in 5 years unless house prices drop another 20% or income rises the same amount.

You're much more likely to be on the hook for some deficiency if you go with a short sale. Of course I don't know your details. I deliberated hard on whether or not to stay or let the home go. I don't really get the whole case for short sale versus foreclosure, quite honestly. Why do all the work on behalf of the banks? They want to get better price for your home? They should either do a principal reduction or go through the trouble of selling your... scratch that.... THEIR home.

Best of luck in your journey!

[underwater_vallejo]

UPDATE: At last, I finally got a "threatening" letter from CitiMortage that starts: "You are in default." No. Really? I wasn't aware of that! Anyway, I talked this over with my wife and we decided we wouldn't even bother communicating with them. Theoretically, we might be able to buy a few extra months by pretending to be interested in a mortgage modification. Frankly, though, I'd just rather we ride this thing out and get out of the city. Anyway, that was the first collection letter we got... 35 days late. No phone calls. Then again, we sent a cease & desist so I guess they're outta luck there!