Who has walked away and had a 2nd that was recourse?

[KT in CA]

Hello everyone!

I've been reading this site all day, and I can't believe the wealth of info available here. It's so helpful. Anyway here's my question.

I'm in Vacaville, CA and have the following:

Both loans with Amtrust
452k first 3/1 LIBOR ARM - adjusts August 1, 2009 (principal balance at approximately $432k)
56,500 second 30 due in 15 (done to pay closing costs and prepaid items on first) (balance about $55k)
Home purchased in 2000 for $229k. Have refinanced several times.
Home value now is approximately $350k. Appraised at time of loan for $570k

Now I have been looking at the loan paperwork and I don't see anything about it being recourse or non-recourse. I also don't know if it is deficient or non-deficient. And will the foreclosure be judicial or not? I have a feeling we are screwed and will have to pay income tax plus will end up having the second sold and those people will come after us. It seems there are so many stipulations on the loans and how/if we are protected from IRS tax liability and whether or not it will be a judicial foreclosure. It seems once they put the house in foreclosure that would be that.

Our current mortgage payment for both first and second is $3400.00, and it will probably rise to at least $7000 after it adjusts. Due to having to use credit cards to make ends meet, we barely make it paying what we have. We have no interest in a modification and ideally would rather proceed with a foreclosure sooner rather than later.

I'm planning on meeting with a real estate attorney, but I wanted to get some general input from the people here. My biggest concerns are these:

1. Is it most likely they will pursue a non-judicial foreclosure (can't find anything about that in the loan papers).
2. Since the second is also paid to Amtrust what are the odds they will come after us after the foreclosure for the balance due.
3. Are we eligible for protection from the IRS as far as paying income taxes on any 1099 amount? (I think not.) And if we aren't, does anyone have knowledge if the IRS allows payment plans for the tax ramifications?

I really want to call Amtrust and tell them that there is no way we can make those payments starting in August, and they just need to start foreclosure proceedings. I've spoken to a property management company here in town and it seems with good credit (which we have) aside from the mortgage issues, we should be able to rent a home with no problem. I am anxious to start over and put this behind us. Not interested in a short sale or anything else. It's sad, but my own fault. Anyway, any advice would be greatly appreciated. We are ready to start all over.

Thank you!
KT

[The Professor]

Recourse vs. non-recourse, is a product of California Code of Civil Procedure Section 580b and has nothing to do with your loan documentation. Basically, because of the refinances, your loans are recourse in nature. From a practical standpoint, given your situation the first lender will likely resort to a non-judicial foreclosure under Civil Code Section 2924b, effectively making the debt non-recourse once they complete the non-judicial foreclosure.

Your problem is with that second loan. Once the first loan completes its foreclosure, the second loan becomes an unsecured debt and the lender can (and likely will) pursue collection actions that could include wage garnishments, attachments, and other nasty collection tools.

I'm uncomfortable making any suggestions about your tax liability. Good luck.

Daniel

[KT in CA]

Thank you. I looked over our loan documents last night and I see that they have power of sale language, which leads me to believe they would do a non-judicial foreclosure. I read something online somewhere last night that most of the time when a judicial foreclosure is pursed it is due to no power of sale language in the loan docs or they borrower has wealth to go after (we definitely don't!).

Hopefully we can save up some money and will be able to work out a settlement to pay the second. It's a lot, but it's not as much as some people's that I have seen. Do you know the likelihood that they would settle for less than we owe?

I have a friend who works at a law firm and will be meeting with one of the attorneys soon to get some legal advice on how to proceed from here.

Thanks so much for the info.

[The Professor]

Good. If you've read my frequent posts you know that I suggest meeting with a lawyer familiar with real estate law and debt collection practices.

Take care,

Daniel

[KT in CA]

I've already received advice from Professor Shays on a previous post, but I wanted to pose a question to those of you who may be in somewhat of the same situation we are.

I'm in CA. We have a morgage that will adjust in August to way more that we can afford. It was a refi so it's all recourse. I think most likely the foreclosure will be non-judicial. The first and second are with the same company, Amtrust.

From what I've read on these forums, it appears that it's highly likely that Amtrust will sell the second to some debt colletion place and they will come after us for that. I'm wondering if any of you have had that happen, and if so were you able to settle at all for an amount lower than you owed. If you were, were you able to work out payments or do they just garnish your wages. I understand a lot depends on which company has the debt, etc, but I just wanted to get a general idea.

I will have to get advice from a tax attorney on my next question, but if we end up owing on any 1099 amounts, how is the IRS about working out payment plans for the taxes owed? Do any of you have experience with that? I don't want tax advice, I'm just wondering if anyone knows from personal experience.

Thanks,
KT

[KT in CA]

That's weird. I thought I did a seperate thread for this...

[Moe Bedard]

This way we don't have to look elsewhere in the same forum..........it makes it alot easier to read and answer questions that are in one place under one thread and to follow your story that way just in case someone is in a similar situation rather than starting a thread for each and every question.

[KT in CA]

Got it. I figured it was the Forum Gods at work.

[homerunkevin]

KT,
I'm in the same boat as you.
Condo in San Ramon. Refinance my 80/20 loan for lower rate into one loan. Loan is now adjustable every year. My last payment was in October, and working with Realtor for short sale. Bought condo for 385k now worth 200k or so. Like you, I wanted to walk away, but afraid of the deficiency and tax. Hopefully today, I will get a call from tax accountant on the aftermath on a short sale or foreclosure. I keep you posted on my situation too.

[KT in CA]

Hey Kev,
I am meeting with an attorney on Friday who will be able to advise me on tax and foreclosure issues. I believe because I have power of sale language in my deed, and it does specifally say they will take my house and sell it, that I am protected from deficiency on the first and it will end up a non-judicial foreclosure. I will have that comfirmed on Friday. As far as the second goes, I believe they will come after me for that. It is only about $55k. A lot, but not a lot compared to some I've seen. I bought my house in 2000 and have refinanced several times so I was screwed out of protection for that a long time ago. I believe the deficiency on the first may not be taxable because we are definitely insolvent. Our house is worth about $100k less that our mortgage is for, and we have credit card debt and no other assets, but I will also get some guidance on that as well. The way I look at is this. It is what it is. The loan mods Amtrust is doing are only 1-3 years mods from what I've seen, and we will back in the same boat at that time. I like my house, but it's only a house, and definitely not worth what we are paying for it. We have NO money, nothing to spend on Xmas, have to charge everything. We have drained retirement money in the last two years to the tune of $50k. I know we made our own bed, and now we will accept responsibility and lie in it. We will try to work with the eventual creditor that gets our second, and hopefully we can negotiate the amount down and work out a payment plan. Or maybe I will have some cash saved up that I can offer them. If they have to garnish, well then let them. And I think the IRS is pretty good about setting up payment plans for people. I mean, come on, there are MILLIONS of us in this situation, who if we had the money to pay our house payments we would not be here. And if we can't make our house payment, we sure can't pay a tax bill all at once. We are happy to take responsibility for all of that, will work down what amounts we can, see what we have to pay to the IRS, take the credit hit, and move on. My family is miserable. I am miserable. I'm sick of my house and the money it is sucking out of me. Life is more important than a house. Doing things for my girls and my husband is more important than a house. It will get settled one way or another and we will move forward. May never buy another house again and just sock the money away. I know one thing. From now on we pay cash or we don't buy it. We have cars, they aren't new, but they work. We have nice things. We don't need credit. So if they want to take all our credit cards away, let them. They'd be doing us a favor. I'm going to start paying some of those off anyway when I stop paying my mortgage.

My mortage doesn't adjust until August. Now we are just trying to figure out when to stop paying the payments. I will pay December most likely, but after that may stop. I'll see what my attorney advises. I'd like to stay without paying for a couple month to pay a couple credit card bills off and save money for a security deposit on a rental, but I'm not sure about timing. The property management company I've been in contact with said that they are aware of this situation a lot of homeowners are in, and if the bad marks on credit are just related to the mortgage, most of the time there won't be any special conditions. In our case, we have good credit and pay our bills on time, even thought balances are high. So if we have to get a co-signer or an extra month's rent, so be it.

I don't want a short-sale, I don't want a loan mod, I just want to get it over with, give it back to them, and move on. I will update after I meet with the attorney on Friday.

[The Professor]

Don't lose sight of the fact that the foreclosure process here in California runs a minimum of approximately 4 months (actually 3 months, 21 days) from the recordation of the notice of default. Lenders are slow to proceed to begin the foreclosure process, particularly if they sense you are trying to solve the problem.

So it may be to your benefit to prolong the process as long as possible so you might play a bit of a game, indicating initially that you are seeking a funding source for the arrearage and thereafter attempting to sell the home via a short sale. This all just buys you time while you occupy the home without paying rent (although if you have a homeowners association you should continue to pay the monthly dues because of personal liability for those dues).

I've witnessed people on this forum managing to prolong the foreclosure sale for a year following this approach. Also after the lender forecloses, you may get "keys for cash," a monetary exchange where the lender gives you move out money (a couple of thousand dollars) in exchange for leaving the home in good condition and allowing the lender to avoid filing an eviction action.

Good luck,

Daniel

[KT in CA]

Thanks for the info. I'm anxious to talk to the attorney, armed with all the info I have gathered, and get his feedback. This particular attorney also owns a few homes, so he can give me the landlord side of it as well. I don't want to stretch it out too long and would like to gather as much cash as I can and pay off some of our credit cards, but on the other hand I don't want to get a notice one day that we need to be out the next. That would not be good.

I appreciate the advice and I will post a follow up after my meeting.

[KT in CA]

Met with the attorney. First of all, he said that he has never seen a judicial foreclosure. Nor has seen banks come after anyone yet for firsts or seconds, and that the second only has 3 or 4 months (I can't remember which he said) to do so. He doesn't seem to think the second will, more so because its the same company. I think they will, so we'll see. He also mentioned that they are expecting the next big wave of foreclosures to hit summer of 2009.

He said the deficiency will fall under the IRS Debt Forgiveness act for us for Federal. His concern is state implications. Hopefully we can work with the Franchise Tax Board when the time comes to make an payment affordable. He said not to worry about the credit score too much. That even just 5 years ago, if you had a foreclosure on your report people would be mortified. Now, not so much.

He is also a landlord and just rented to a woman from Santa Rosa who is in foreclosure. He, and other landlords he knows, prefer to rent to previous homeowners because we have pride of ownership and know what it takes to keep up a home. He said with a steady income, job stability, and by paying down some of those bills we have, that we should be okay to find a place to rent. That was one of my biggest concerns.

He confirmed what others have said here that in CA it's at least 4 months before the ball gets rolling on foreclosures. Thinks we probably can stay here until June or July, but to leave before we are evicted. He won't rent to people who have been evicted and that's just all kinds of bad.

Also he said to try to put the emotions of the whole experience aside. It really is a business decision. We can celebrate Christmas in another house. We can celebrate birthdays in another house. It's just 4 walls and a roof, and if it means sacrificing the well-being of your family for it, then it's time to cut your losses and let it go.

I feel better now. So we will make our last payment on 12/16 and then that's it. I was re-doing our budget to project our income and expenses without making the house payment. Out of our approx $40k cc debt, I will be able to get rid of half of it by June. The remaining 2 cards I will keep paying each month, and it's possible I may be able to pay one of those off next December. So by this time next year I could have eliminated $30k cc debt! And that includes factoring in rent from July forward and a security deposit. Then I can easily pay off the remaining balance the following year.

[homerunkevin]

KT thanks for the update. Hope you may help me on this. Did your attorney touch base on asset and finance? such as if me and both wife have $$ in our account, and both of us are working so we can paid mortgage but don't want to. Did he mention they will look into if you have money,they can sue you?

Thanks and take care.

[KT in CA]

Hey Kev,

All he said was to "pay ourselves". Others in our situation have quite large amounts of cash sitting in their homes after they have paid off their bills and gone back to renting. They have advised us to do the same. So I think that's what the attorney meant, but he didn't come right out and say it. We will be investing in a small safe...

[The Professor]

I'm a fan of precious metals in the form of gold or silver bullion. In California, no sales tax is collected if the amount purchased is more than $1,000. Storage size, particularly for gold, isn't a problem. It is easily converted into cash if necessary. Gold has lost 1.61% in value in the past year. While not a gain, it certainly has done much better than other investments like real estate or the stock market, in terms of investment loss.

Once we wake up to the fact that bailouts are not free, I'm expecting the value of the dollar to decline and if that happens, precious metals will be a safe bet.

Daniel