CO House Forclosed 2nd Mortgage Coming After US

[Jaw969]

I will try to make this short and sweet. We live in Colorado. We purchased a house years back . We had an adjustable rate first mortgage (80%) and a 2nd (Litton/ 20%). I payments started to escalate but we could not refinance as our house was not worth that much any more. We tried to do a short sale, we had a buyer, the first said yes the second never responded. Our house sold in Dec. 2007 through forclosure. About a month ago we started receiving phone calls and bills from a company (who supposedly bought the 2nd ?) They say we owe $40,000 (which is approx. what our second was). I am unsure what we can do and how to fight it, or if we can??? Can someone guide us in the right direction. I am at a loss.

[Moe Bedard]

Hi Jaw969,


Welcome to the forum and thank you for joining..............

Unfortunately in Colorado collection on a deficiency is allowed............

DEFICIENCY JUDGMENT IN COLORADO:
If the debt on the home exceeds what the lender thinks the home is worth, a homeowner could still owe the lender money even after the loss of the home. If a court can be convinced that the lender bid less than a good faith estimate of the property's value (minus holding expenses) at the public auction, then a Deficiency Judgement for additional debt may be avoided. Otherwise the owner of the property will be held responsible for the deficient amount.


The company is most likely a collection company and the second might have been charged off in the amount of the deficiency......they should be sending you something in writing very soon...........at this point you can offer to settle and see what they say or workout some sort of arrangement............but do talk to them because they can pursue a judgement and garnish wages in order to collect the deficiency if you don't.

[The Professor]

In the previous thread I commented on before this thread, titled "Decide to Walk Away Next," a California borrower who is facing the prospect of foreclosure asked about what they can expect from their lender on a recourse second loan once the first loan's lender forecloses. My response was basically what you are experiencing. I said:

As to the second loan, expect J.P. Morgan to sell it to an aggressive debt collection organization. That entity will know your current economic condition (through doing both a credit analysis and asset search). They will demand of you information relating to your ability to pay. They will make an informed decision about what you can pay and based upon that you can expect the amount you will pay to range from a few cents on the dollar to the total amount of the debt. Fortunately $16K isn't all that much money.

The key here is that you are likely dealing with knowledgeable collectors who are skilled at making determinations as to the ability to collect on the debt. They will seek information from you about income, expenses, assets, and liabilities. No reason to not be truthful because they have at their fingertips data sources where they can verify what you are telling them. The person you will be dealing with will likely be commission driven and that effectively means the more you pay the more that person makes.

This of course puts your negotiation skills to the test. It is much easier to negotiate for a lower amount if your situation has you on the edge of filing a Chapter 7 bankruptcy. It is more difficult to do that if you've got $100K sitting in a savings account at your local bank.

Good luck,

Daniel

[avwill]

Professor Shays,

My HELOC was just sold off to a collection agency. They are telling me I owe the full amount (26K). Currently I am just living on my unemployment insurance (which is paying for my apartment rent and auto loan). I do have around 4k in a savings account. Should I take all of that out of the bank before trying to negotiate since they can do an asset search? If I were to negotiate payments with them, could they be defaulted until I found employment again? When is it better to file bankruptcy than to try and pay this back? I live in NC, though my home was in Florida (the first loan is currently going through foreclosure)

Thanks,

Audrey

[The Professor]

Audrey:

First of all, I'm sorry to see this happening, but those who have been around here know that I've often written about the eventual path these foreclosed out seconds would take (being either sold at a discount to collection companies or the development of lender/collection company partnerships where the lender's reputation would not be hurt (as though that's possible) by having outside collectors take on this effort.

First of all there is no need to immediately do anything. They will have to file a lawsuit and obtain a judgment before they can take any legal collection action. At this point it might be a good idea for you to confirm with them that you are on unemployment, trying to get by, and could pay a nominal sum (say 1% [$260]) towards fully settling this by borrowing that amount from a family member. What you want to do is pay as little as possible. While they will likely reject this small amount, it is a starting point that is designed to avoid having to file bankruptcy and they need to be told that if they push at all you will file and they will get nothing.

Daniel