Please help, have questions!

[AlanF]

We have a 1st and 2nd with different lenders. The home is in Arizona. We're currently trying to get the 1st mortgage modified to get our payment lowered to be more affordable. The 2nd mortgage was refinanced about 2 years ago into a HELOC. No funds were used, it was just a straight refinance from a heloan to a heloc to lower our payment.

If we do a short sale or foreclose, I believe the 1st mortgage holder has no recourse and only gets the property back. By recourse, I mean they can't come after us (go after 401K, other property we own, other assets, etc). Is this true?

Also, can the 2nd mortgage holder come after us for other assets (401k, bank accounts, garnish wages, other property we own) if we do a short sale or foreclosure? I believe they have no recourse in Arizona, but am not sure if that is still true since we did a refinance on the 2nd with another lender. Again, no funds were ever advanced on that heloc and it was a refinance that paid off the original 2nd mortgage to lower our payment.

Currently, we are about 70% underwater, the values where we are at have been hit the hardest in the country. I doubt we'll ever recoup the losses... Does a short sale or foreclosure make sense in our situation? Thanks for your help and guidance.

[The Professor]

Arizona probably has one of the most generous non-recourse statutes relating to owner occupied residences. Its "anti-deficiency" statutes prevent a lender from suing a person for any losses on a home after foreclosure. As outlined in Arizona Revised Statutes, Title 33, Chapter 6.1, a person may not be sued by his or her lender if the property is located on 2.5 acres or less and is a single family residence or duplex. This only applies if the decrease in value is not due to the home owner's neglect.

My recommendation, as always, is to seek the advice of an attorney in your state skilled in real estate law and debt collection practice before making a decision, but the bottom line is the law seems to favor your situation relative to both your first and your second loans.

Take care,

Daniel

[AlanF]

Thanks for the reply Daniel. I need some advice and opinions from others on our situation. This site is great and I really need to get some fresh perspectives on what we should do.

We've made the decision to leave our house sometime next year. We'd like to try a short sale, but our area is so full of empty homes for sale, it doesn't appear that is likely. Our others options after that are to foreclose on it. Where I'd really like to get other's opinions is what we should do as far as our living situation after letting go of this house. We are prequalified to purchase another residence as we have strong assets and great credit currently. We can either buy another house or go back to the rental property we have when the lease expires early next year. We'd be able to bank roll a lot of money by going back to the rental property as the payment is minimal and has a great fixed interest rate. The issue with that is, it's a a much smaller place than what we've been used to and I'm not thrilled with going back there for a couple other reasons as well. It's livable and in a good neighborhood and excellent location, but should we do this or buy another home somewhere else? If we buy another place, we wouldn't be able to save as much money every month, but we'd still come out of a short sale or foreclosure where our credit is going to be ruined with another asset. With interest rates low right now, we could get into a place hopefully at a great rate and could even afford to buy the rate down to make our payment more affordable.

Please offer some insight and advise on what you would do if faced with this similiar situation. Thank-you!

[The Professor]

I have been saying since the decline started in August of 2005 that the market won't bottom until 2011. That said, does it make sense to own two homes in a declining market rather than one? Logic seems to indicate that one home makes more sense.

Daniel