SF Bay Area Resident with Walk Away Questions

[CAHomer]

Hi, first I want to thank the admin/mods of this forum for such a valuable resource. Great site, and as depressing it is to hear about each story, there's a certain bit of comfort in knowing I'm not alone.

Here's the background:

• Resident of Antioch, CA
• Purchase price of home: $550k in Dec of 2005
• Current Home Value: $250k
• Current Loan amount: $419k (we originally put 20% down ($110k) from our savings)
• Type of loan: 30 year fixed; One loan through Chase
• Monthly mortgage: $2800/mo
• Never been late, never missed a payment
• Both of our names are on the loan
• Excellent credit score: 800+

My gf and I tried to do things "the right way" by saving 20% for the down and buying a place we could afford in 2005. However, due to overly inflated prices, that meant moving WAY out to East Contra Costa County instead of our desired location near our friends/family in Oakland. No problem, we thought at the time, as we could always move back closer as our home grew equity, etc. Well, you know the rest.

We've always paid our bills on time and never missed a payment. So I honestly never even thought that walking away would even be an option, but due to the plummeting home values, it's starting to look like we'd have to wait it out for nearly 10 years just to break even, and that's time we don't have in this area. Job requirements and aging parents have us needing to move, but we're stuck. Trapped. Locked in, even though we don't have a sub-prime loan. We both have good credit, and have a nice amount of savings still, but even 30-year fixed folks like us are considering walking away based on the cost/benefit of riding it out. We need to move but can't.

We have an upside down/underwater loan making our home worth approximately $170k LESS than our current loan. This area is getting hit hard, and I would not surprise me if we're underwater $200k in 6 months.

I'm new to all of this and I just had some questions based on the information I've read in various threads that I'd like some assistance with.

1. According to CA Code 580b, since we've never refinanced, and only have our original jumbo loan we made at the purchase, the lender cannot sue us if we walk away...is this correct?
   
2. If we try to work out a Loan Modification through our lender Chase, will that affect the protection we have under CA Code 580b?
   
3. If we default and let the home foreclose, if we have 800 credit scores now, any guess as to what our credit score will be when it's all said and done?
   
4. Will a foreclose cause our current credit cards to be cancelled or have their limits greatly reduced? (We always pay our credit card bills in full each month and don't carry a balance)
   
5. I'm self-employed and have a small business (sole-proprietor) merchant account that accepts credit card payments...any idea if this will be terminated, etc?
   
6. Is a short sale an option if we can't express a major financial hardship and have some savings in the bank?
   
7. Before walking away in 6 months/1 year, I may try to buy a small condo before starting the foreclosure process...if so, will that change any protections I have in CA or can my lender on the foreclosed home go after the condo purchase, etc?

Any help is greatly appreciated and hopefully any answers here can help others who may have come across this thread as well.

Thank you!

[mirkus35]

Question 4: My american express credit limit was reduced by roughly $32k, and I have never missed a payment. They reduced my limit as a result of my overall Fico faling from around 800 to 600 from my delinquent mortgages.

[CAHomer]

Thanks for the reply, mirkus35.
I know the credit card companies too will likely raise your interest rates too since you've changed your credit rating, but for my situation that shouldn't be too bad since I pay in full each month.

It's scary because from a business standpoint, at some point even people like me that never thought foreclosure was an option, we have to weight the cost/benefits of walking away. That's why I'm trying to get as much information as possible to see what the potential outcome would be. Thanks again.

[The Professor]

I'll try and answer what I feel comfortable with expressing a view to:


According to CA Code 580b, since we've never refinanced, and only have our original jumbo loan we made at the purchase, the lender cannot sue us if we walk away...is this correct?

Yes, assuming the home, at the time you acquired it, was going to be utilized as an owner occupied residence. Also, there is a potential of continuing responsibility if the loan was obtained by fraudulent means. As I always say, you should seek the advice of a lawyer skilled in real estate law and debt collection practices to provide a more complete answer given the facts of your specific situation.

If we try to work out a Loan Modification through our lender Chase, will that affect the protection we have under CA Code 580b?

No, as long as it is structured in the form of a modification of an existing loan and not the refinance of the existing loan through the creation of a new secured loan.

If we default and let the home foreclose, if we have 800 credit scores now, any guess as to what our credit score will be when it's all said and done?

Sorry, no guess.

Will a foreclose cause our current credit cards to be cancelled or have their limits greatly reduced? (We always pay our credit card bills in full each month and don't carry a balance)

The following information I found on the Internet may provide insight into your question:

Remember that parking ticket you forgot to pay? The overdue library books? What about that envelope with the installment payment for the patio furniture that sat forgotten and unpaid in your glove compartment for five weeks? If they have been reported to a credit bureau your wallet is in the crosshairs.

Each of those events, and a dozen others like them, is a perfectly legal reason for the credit card companies to raise the interest rate on your card balances even when you have paid the credit card companies on time, like clockwork, for as long as you have had the cards.

This predatory practice is called a "universal default" provision. Consumer groups that monitor credit card company practices reported that almost half of all domestic card issuers included universal default provisions in 2005, with the number of predatory issuers expected to again increase in 2006.

It is not just late or missed payments with other unrelated creditors that can trigger universal default. An unrelated but adverse change in your credit score can also trigger the credit card universal default provision.

I'm self-employed and have a small business (sole-proprietor) merchant account that accepts credit card payments...any idea if this will be terminated, etc?

I doubt that it would have this negative impact.

Is a short sale an option if we can't express a major financial hardship and have some savings in the bank?

Yes, and one you should look into. It will help in terms of not impacting your credit score as negatively as a foreclosure would.

Before walking away in 6 months/1 year, I may try to buy a small condo before starting the foreclosure process...if so, will that change any protections I have in CA or can my lender on the foreclosed home go after the condo purchase, etc?

The short answer is no, but there is a necessary warning here. Read the "buy and bail" thread that is near the top of this forum.

Take care,

Daniel

[CAHomer]

Professor Shays, I've lurked here for a bit and as always, I really want to thank you for your insightful and detailed posts all over this forum. You are great!

[The Professor]

Thanks for providing the primary motivator for my participating here. A secondary motivator is this forum is used as a teaching aid for my foreclosure cl**** giving students the opportunity to sense, in real and present terms, what is going on and the sort of paths people can follow in order to resolve their challenging circumstances.

Have a great Thanksgiving. You and all California borrowers who fit within the qualifying criteria for CCP Section 580b have a great deal to be thankful for.

Daniel

[925girl]

Another Antioch resident here saying hello. Our story is the house loan is $430 and rising, bank so far willing to tack on 9 mo. of non payment to back of loan, continue with the adjustable and maybe in a year we can get a fixed. What a load of crap! Willing to walk away, take the hit on FICO so we are waiting to see if better terms are offered. This area is just not worth investing years of income. Look around...see all the houses and non occupied commercial real estate? See the restaurants looking very slow...if the bank wants us to keep paying I hope they don't mind a reduced payment! Keep reading and learning the truth on this website. Losing our house has been an experience I could never have imagined happening only 3 years ago but here we are.

[CAHomer]

Hi, first I want to thank the admin/mods of this forum for such a valuable resource. Great site, and as depressing it is to hear about each story, there's a certain bit of comfort in knowing I'm not alone.

Here's the background:
Resident of Antioch, CA
Purchase price of home: $550k in Dec of 2005
Current Home Value: $250k
Current Loan amount: $419k (we originally put 20% down ($110k) from our savings)
Type of loan: 30 year fixed; One loan through Chase
Monthly mortgage: $2800/mo
Never been late, never missed a payment
Both of our names are on the loan
Excellent credit score: 800+


I have a 30 year fixed and can make my payments, but I need to move within 3-4 months.

I can't sell the home outright since home values have dropped so much. Renting out this home isn't an option unless I want to lose about $1700/mo (including property tax). I've looked into a short sale, but honestly, it sounds like the process could drag on for over a year and this area has been hit with sooooo many foreclosures, it seems nearly pointless to assume a buyer would take this over the countless others in the area.

So if I really do walk away from this home and move away, I wanted to know the process for my situation. Again, I need to move so I don't even want to say "rent free" here in the home.

1. Do I just lock the door and never look back?

2. Is there something I need to do or file if I really do walk away and let the home foreclose?

3. How do I even follow the foreclosure process if I'm gone?

I just need to know the process for my somewhat unique situation since I have no intention of living in the home.

Any info is appreciated, thanks.

[CAHomer]

...in addition to the 3 questions above, I'd also like to know if I'll be hit with a state tax bill if/when the home sells at auction for substantially less than what I paid for it.

I've read here that the CA Mortgage Cancellation Tax Relief Act of 2007 technically expired in Dec 31, 2008.

However, we used original purchase money for this home as our primary residence, didn't refi, put our own 20% down, etc.

Is there a risk of walking away now and getting hit with a large tax bill?