Need help with my situation - would like to walk

[Scott]

First- Thank you to all who provide the knowledge and advice on this forum, it's a huge help.

I would really appreciate some help with my situation and suggestions on the options I have...

Here's the facts:
-CA primary residence
-80/20 loan - all purchase money, never touched the equity line
-Owe 505k on first to Aurora company (5.875 rate fixed for 30 yrs)
-Owe 105k on second to Chase (rate is prime rate)
-Purchased house for 630k in 2005 with zero down and stated "no doc" income
-House worth about 400k
-I'm married but my wife is not on any of the mortgage papers, but she is on the title

Here's the dilemma:
-we have no hardship, we have plenty of assets in the bank, but for personal reasons want to just walk away.

Here are the questions:
-If we foreclose/DIL/Short, can the 2nd loan company (Chase) come after us for a deficiency judgment? All the loan money was used for the original purchase of the house.
-Will my wife's credit be affected or just mine?
-Could my wife technically buy another house now or soon in just her name after I foreclose/DIL/short-sale this house?
-What would be our best option: walk away, DIL, short sale?

Keep in mind that we can't prove any hardship.

Thanks for your help-

Scott in CA

[The Professor]

Hi Scott. One quick question. Was your wife on title at the time the loan was made?

Daniel

[Scott]

No, she wasn't on title when I bought the house. I added her on through a "quit claim deed" (I think this is what it's called).

[cactus77727]

I would consider having a liability of $230,000 (AKA negative equity) on your personal balance sheet, to be severe. Eventually housing will recover. But will our homes be worth more than our mortgages within our lifetime? For some the answer is no.

One could argue it is a little more difficult for you to decide to walk because you have the income. I'm mean, you don't have to walk right now, compared to someone who does not have the income to make their payments.

If I were in your situation, I might still walk away for the sake of my long term future financial health. One thing Ive learned from this website, is you have to think of it as a long term business decision. Not emotional or moral.

[Scott]

Cactus- thank you...That is exactly how I'm looking at it. It's a business decision and I'm trying to make the most favorable decision for our financial future.

[The Professor]

Thanks for that clarification. First of all, placing your spouse on title doesn't result in her being responsible for the debt, but just to insure that some credit reporting agency doesn't make a mistake and believe she is liable because of her ownership interest in the home, I'd recommend that she quitclaim her interest in the home back to you and your record the quitclaim deed. That will vest the entire ownership back to you.

Next, at first blush, and in all probability, given the facts as presented, your lenders' sole recourse is to foreclose. That is because of the purchase money nature of the two loans, and the fact that the purchase was for your personal residence. The key law is California Code of Civil Procedure Section 580b. It defines the "non-recourse" nature of purchase money loans like yours.

But (and I hate that word "but") there is an outside potential of liability. The danger here relates to your second loan. Obviously, given the property value and the balance owed on the first loan, the second loan is secured by nothing but the fleeting memory of inflated values of days gone by. So what will happen is the first will foreclose, eliminating the second loan's secured interest in the home. Once that happens there is the potential that Chase (or some creative collection agency) that makes an attempt to collect on the debt, might try to argue through the filing of a lawsuit, that you obtained the loan through your overstating your income (a common story in what in the industry are called liar's loans (aka income stated loans).

My own sense of things is given at least one recent decision (actually a California bankruptcy court decision), a judge might likely conclude that reliance on income figures provided in a liar's loan isn't reasonable, and deny the lender's claim. But there is that chance you might be pursued based upon this sort of claim (assuming your income was overstated). So you need to look into what was actually stated as income in your loan application to determine if it was an accurate reflection.

By the way in these liar's loans it wasn't uncommon for borrowers to sign the application after it had been modified by the loan officer to reflect a higher income than the borrower represented they made to the loan officer. So just because it has a higher figure than what you actually earned doesn't mean that you made the misrepresentation. Isn't it funny what greed can cause a commission based loan officer to do.....

Assuming your wife qualifies from an income standpoint, I don't believe your foreclosure will impact her ability to qualify for a loan.

As you will learn from my other postings, where you have two loans like you have here, getting either lender to take a deed-in-lieu is next to impossible. Short sales where you have two lenders are next to impossible to conclude successfully (as the two lenders fight over who gets what). No doubt you are facing foreclosure as the only real option. My suggestion is you stay in the house as long as possible (even after foreclosure) and then exchange "keys for cash." If you are unfamiliar with that phrase search through my other postings today and it will be explained.

Take care,

Daniel

[Scott]

Prof Shays- thanks, your input is much appreciated. Two more questions: we are current right now with our payments, if I decide to stop paying, do I call the banks and let them know, or just stop paying...
Also, prop tax will be due in December, should I pay that?

[Ambling]

If you alert them of your intention to stop paying you will lose 30 days of time due to the new notification law in CA. Besides, what's in it for you to tell them what you're doing?

And property taxes attach to the home, so most people stop paying them if they think they might be foreclosed on.

[The Professor]

I concur with Ambling's responses.

Daniel

[Scott]

Thanks all, especially Professor Shays-

Looks like we will stop paying December 1st payment... will keep everyone posted on what happens going forward.

Hopefully our situation will be able to help others, just as others on this site have helped me with my situation.

Best to all-

Scott

[cdmosaic]

Scott,

Just FYI - my spouses names is on the deed of trust and quit claim deed, but not on the note. We are three months behind and checking credit today, the deliquncy is not on her credit report or the loan for that matter. Mine however, is a different story having taken a 250 point hit in three months. Ouch. Oh well, my credit will recover before the housing market.

We fully expect to buy another home using her credit and income at some point in the future, but not for a while. I think I'll wait and see how low the housing market will go first. Here in the SF Bay Area to qualify on one teacher's income it will need to go a little lower.....

[Scott]

cdmosaic-
is your situation similar to mine (see original post for my details)?
just curious to see if you had a hardship and if the banks are trying to negotiate with you?
-Scott

[cdmosaic]

We have similar situations, I'm also in Ca, 80/20 loan, way underwater, etc. I'm gainfully employeed and can afford the mortgage, but I also have a some big medical bills from this year. However, I don't really have a hardship or at least not like what many people on this board are experiencing. Nope, the banks so far are not negociating with me. They tell me there are no options for me. I guess they really want another house to add to thier books.

[HappyHome]

hi, was reading this thread and wanted to pop in here and ask more about info. on the neg. equity.. as I plan on seeking everything I can Possibly claim on my taxes this year.. I am hoping That there will be certain areas of relief perhaps from all this mess.. so many Americans have endured from Going on the Belief of The American Dream .. then it turning into The American Nightmare, I am turning 51 in March.. Pondering will I have to work Now until I am in my late 70's Just to be able to afford to live? Scary//Sad and makes me really mad.. any thoughts? thanks!

Originally Posted by cactus77727

I would consider having a liability of $230,000 (AKA negative equity) on your personal balance sheet, to be severe. Eventually housing will recover. But will our homes be worth more than our mortgages within our lifetime? For some the answer is no.

One could argue it is a little more difficult for you to decide to walk because you have the income. I'm mean, you don't have to walk right now, compared to someone who does not have the income to make their payments.

If I were in your situation, I might still walk away for the sake of my long term future financial health. One thing Ive learned from this website, is you have to think of it as a long term business decision. Not emotional or moral.

[cactus77727]

I am turning 51 in March.. Pondering will I have to work Now until I am in my late 70's Just to be able to afford to live? Scary//Sad and makes me really mad.. any thoughts? thanks!

I'm 40 years old and my opinion is, that I will definitely be working the rest of my life (if I could find a job that is).

What was in my 401k has disappeared, and won't be coming back in my lifetime.

All us suckers who bought a home in the last ten years... I admit that I was thinking that my home would be a source of retirement funds in 30 years. It certainly was for my parents, so that's what I thought. Oops, that plan is squashed.

Social Security is a joke.

The stock market and investment system is absolutely corrupt. It's nothing more than an eloborate Ponzi scheme to rake in everyone's money.

The banking system is a scam to collect all the working people's money whenever the banking puppet masters desire. Thanks King Paulson and Uncle Bernake!

Everytime you fill up yor car at the pump, you are funding some arabian prince's newest palace, and a new Bentley or two, or three, or four...

We are nothing more than career/debt slaves to the masters like the JP Morgan's, Rockefeller's, Goldman's, Sachs', etc... In the end, they take it all.

So we will work until we die. But look on the bright side, that's better than being forced by whip to build pyramids. So have a nice day!

[HappyHome]

hi Catus.. Yup so Sad ..but I do think we will see alot of change in our Lifetimes even. The New Job(energy programs) New Plans to make American more Independent of all others. etc., We Have No Choice but to not talk But actually Start on this Process. I am so sorry for yr troubles.. I , too lost my 401 K and alot more.. but I was Wise to Inverst in a small MH (trailer) in Florida near my work down there(i live in VA but travel..) which Needs rented out but I still have a Place to be Paid off within 2 years! That I bought last Spring w/o eating I had a Gutt feeling! ((still don't know how I did it..)) but it was a smart investment for only $3,500 which I pay a small amount to the Owner?broker each month (then My Montly Maintenance Fee..)..So, I do will have a Place for reitrement and/or "If" anything should happen.. I am so happy I went ahead and found this..! On ebay too! in excellent shape a doctor lived there took great care of it.. and at the time I bough t it I rememered "thinking" what the HE** am I doing??? I can't even afford my Mtg! but NOW so glad I went with my Gutt and Intution and Did it! funny how things turn around and turn out sometimes.. Since July I've had about 5 yard Sales maybe 6 I lost count and funded my Move .. But I am still looking forward to a Professional Audit wit hmy QWR papers..as There ARE errors //Mistakes//Lies//etc. so it can't Hurt! take care and hang in there.. Tracyann