Walking Away in Oakland

[justlivejustbe]

Home Purchase price: 600K
Current Balance 720K
Current Est Value: Around 299K
1st Mortgage: 30 year ARM with Wells Fargo
Current Interest rate 2.875%
Original loan amount $480K
Current Balance: $470K

HELOC: Fixed Rate with Wells Fargo
***This matured on 4/20 and I was hit with a charge of $118K payment on top of my existing balance.
Credit line $120K
Current Balance $240K

I purchased my house in Oakland in July of 2006. At the top of the market with an 80/20 loan, $0 down, but I ended up spending about 13K to get in. The first loan was with Wells Fargo. The 2^nd was with some other company whose name I can't remember. I later refinanced the 2^nd. It’s also HELOC with Wells Fargo. I did, over time, pay down some of the principal and then used some of that value as credit. So I'm still unclear on the recourse/no-recourse with my 2nd.

The house is an older Victorian duplex. I live upstairs and have rented the downstairs unit. Very quickly after the dust had settled and the seller was long gone, I began to see the hidden problems with the house. Lots of leaks from the roof to interior walls, a basement that floods, floors that began to shift and that clearly now have wood slats that are separating from the base under the carpet (I haven't looked under there), serious plumbing problems. On top of that, the seller quickly built a new house about 4 feet away from the side of my house on the empty lot that was there. Many people have told me that I should have sued him for this, but I didn't have the energy or money for what I thought that would involve.

So in addition to having the value plummet to around 299K at this point, I'm also stuck with a lot of expensive repairs that I can't afford to fix, and an apartment that is difficult to rent out because of the blocked view and the next door house being so close to it. It has been empty since August 2011.

Watching some of my friends slowly give in to doing short-sales, I finally made the decision to walk away this year. I missed my first payment in May 2012. Unfortunately, I paid my very expensive property taxes in April before making the decision, but oh well.

I could state the issues above to the bank as my financial hardship.. I can't rent the unit and therefore my income is reduced. However, after reading a lot on these forums, I'm still on the fence about whether or not I will pursue a short-sale. There seem to be few benefits other than helping the bank get more money for the house.

I'd like to share my experience with others who might be going through the same type of situation, and to periodically update the latest posts in the thread with lessons learned.

Here are some of the steps that I have taken toward a strategic default:

• I banked with the same institution that held my loan, so I moved all of my money to a different account. Many posters have advised going to a credit union rather than an FDIC bank.
• Stop paying mortgage, 1^st and 2^nd, property taxes, homeowners insurance. Keep paying everything else to keep the rest of my credit looking good.
• Start cleaning and purging the house in preparation for the move.
• Start saving up for moving expenses, the bigger deposit you might have to pay to rent.
• Start paying off other debts.
• Wait.

I've read through the forums and I've been able to answer a lot of questions for myself I'll post some of those answers here, and hopefully others will reply if they have more input to offer:

• Do I keep paying property taxes? - No. Stop paying. I always paid mine separately instead of having them in escrow with the bank. That is why this was an issue for me.
• Do I keep paying for my homeowners insurance? - I think the answer to this is no. Stop paying homeowners also. However, watch out for the discounts that you may have gotten from your provider on having multiple insurance coverages (auto + home). You might want to see if your auto rate goes up and try to get a different insurance plan before your credit gets hit from not paying your mortgage.
• Do I keep paying garbage, water, utilities, etc. - Yes. Unless you plan on declaring bankruptcy, you probably want to make sure that after your credit gets hit, you can show that the ONLY thing you defaulted on was your mortgage. This is important if you'll have to rent after you let your house go. Less important if you won't need to be at the mercy of any credit checks at all.

I also have some remaining questions which I hope to have answered:

• What do I say to the bank when they call? I have just been dodging the calls entirely. I've only gotten 1 letter and just a few calls so far. I've only missed 2 payments.
• I'd like to extend the process for as long as possible so that I can stay in the house and save $$. What are some of the best ways to do that? Should I work with the bank on a loan modification again (I tried a few years ago and had a typical experience with it ending in decline). I'm sure I can search the forums for an answer to this, and I will, but if anyone can post a quick checklist, it would be appreciated.
• How do I handle my HELOC? Since I did use some of it for credit, does it change the recourse situation there? I got this information from TomEason so far:

If your refi loan (WF HELOC) were only for rate and term, i.e. no cash out, it's a non-recourse loan. So if it were me I'd immediately stop paying on that loan. When your 1st forecloses, that WF HELOC will become a non-recourse SOJL, and WF is legally barred from suing you.

• Will the bank ever come and put a big pad lock on my door and/or put up huge signs in front of my house? I've had nightmares about this. Honestly, I think I can stomach the signs, but I keep having this fear of coming home and not being able to get in. So far I haven't read anything that indicates that this will occur. But what about the signs?

[freedomwon]

Hi justlivejustbe - I will tackle one of your questions for now.

I'd like to extend the process for as long as possible so that I can stay in the house and save $$. What are some of the best ways to do that?

Go here & read post #5 http://www.loansafe.org/forum/chase-...heel-game.html You will certainly be entertained & will get lots of ideas to extend the process as long as possible.

I also agree with TomEason in seeking out the advice of a good real estate attorney about your 2nd.

[vato_loco]

justlivejustbe -- An acquaintance in Oakland hasn't paid his mortgage in over three years, and has yet to receive a NOD! He rents out a room and socks away all the cash. I don't know who services the loan(s) but the house isn't in the best neighborhood, which might explain why the bank hasn't begun the foreclosure process.

In contrast, my walk in San Mateo County proceeded according to normal timeframes and was compete in 1 year. Your results may vary but as mentioned above you should consider the HAMPster Wheel.

Phone calls from the bank are easy to handle. Answer the next call, explain that you're experiencing financial difficulties, request a loan mod, and ask that you no longer be contacted by phone and follow up a cease & desist letter.

Don't worry, the bank won't change the locks on the property but eventually you'll come home and find notices taped to your door (along with copies sent via USPS), which can be unnerving. Keep your cool. Towards the end of my walk I signed a cash for keys agreement but a few days before move out I found an Unlawful Detainer-Eviction notice on my door. Of course, I immediately filed an Answer with the County Court. After turning over the keys and receiving my C4K check, the real estate rep told me that the new owners of the property, in this case Freddie Mac, filed an eviction notice in case I reneged on the C4K agreement. In any case, a week or so after moving out I received a Dismissal notice for the Unlawful Detainer.

As I'm sure you've already discovered, this forum is invaluable. The process is stressful but keep focused and stay in control of the situation and you'll no doubt emerge in one piece. Good luck and keep us posted on your progress!

[justlivejustbe]

Thanks so much vato_loco for your chime in on my situation. I've already received a letter with the date that I need to pay up before they accelerate, so I'll be applying for my loan mod soon to beat that date. I don't know if I could take 3 years, but I definitely want to stretch until next spring or summer if I can. We'll see!

I really appreciate your reassurance and information about the final stages.

[justlivejustbe]

Do I keep paying for my homeowners insurance? - I think the answer to this is no. Stop paying homeowners also.

Correction. After discussing it with a few of my defaulting friends, I decided to pay my homeowners insurance. In case anything happens while the house is still in my possession, I don't want to be liable.