Chances of HELOC Lienholder Coming After you Post-foreclosure

[omniskye]

Chances of HELOC Lienholder Coming After you Post-foreclosure

hi, i have an investment property in California that i used to live in and it's about to be foreclosed. (currently rental property)

the first mortgage is with Wells Fargo and after living there for 2 years, i also opened up a HELOC, also with Wells Fargo. based on my understanding, the HELOC would NOT be a purchase money loan since it was opened a couple of years later after the initial purchase, and i'm not sure i can prove that the money was used for that home's upgrades, etc. i called WF and the first mortgage has an investor behind it, and the HELOC is issued directly by WF.

i have 2 questions i was hoping somebody could help address or share their experiences: after the property forecloses, i'm sure that 1st mortgage would get most of the money back, but not all and therefore, the HELOC would get none. although the 1st lienholder can't come after me or force me to pay the lost difference, i understand that the HELOC lienholder can in California.

1. based on those folks here that have foreclosed, has the 2nd lienholder (heloc) try to come after you or if they sold the debt to a collection agency, has any agency come after you? in either case, what was your debt amount on your HELOC? mine is $97k and i don't know if that's enough for them to come after me.

2. if i eventually get a 1099 from WF, does that mean they have forgiven the debt? however, if they sold this to a collection agency AND issue a 1099, wouldn't i get double-dinged? (taxes, and then also have to pay collection agency.) OR can i assume that if i got a 1099, the debt was cancelled/written off and that the bank never sold it to a collection agency.

thanks for all of your help in advance. =)

[ProfessorShays]

The decision to go after you is primarily based upon an ability to pay. In simple terms the collection agency (undoubtedly WF will sell the promissory note that evidences your second loan), will run a credit report, do an asset search, and make a decision about the potentials of a successful collection effort.

As to the issue of being 1099'ed, don't look at it so much as "debt forgiveness," but as the lender's determination that the debt is uncollectible. If for example they issued a 1099, and subsequently you won the lottery and were able to pay the entire debt, the lender would accept that money and issue an amended 1099 reversing the effects of the 1099.

Daniel

[Ambling]

Professor... do you have any advice on how to legally shield assets from an asset search.

I would never encourage someone to lie to the court, but if there are places the search companies don't usually look then maybe it would never get to court.

[ProfessorShays]

The goal is to identify where assets can be converted into "exempt assets" and achieve the status of being exempt from execution. Any competent bankruptcy attorney can help identify how to accomplish this goal. In California for example, there is a fairly generous homestead exemption so it may make sense to pull that money out of your matress and buy a home that serves as your residence (see CCP Section 704.730).

Daniel

[omniskye]

thanks for the prompt response. so does that mean that the 1099 could be "reversed/amended", and thereby i may have to pay it later?

also, for HELOCs in CA, what is the statue of limitation for a judgment deficiency, and can collection agencies get a judgment defiency or just the original lender?

[ProfessorShays]

Yes as to a subsequent amendment to the 1099.

As to the statute of limitations question, my recollection is generally the time period for a written debt instrument is 4 years. That time would run from the date of the breach. Note that any payments made after the date of the breach could be construed as being a new start date for the 4 years.

Daniel

[omniskye]

hi, i currently have a 1st mortgage with Chase and a HELOC with Wells Fargo. if i apply for a loan mod, do i do this for Chase only OR also with Wells Fargo as well? in other words, do loan mods only modify the 1st mortgage or do folks actually attempt to get the 2nd mortgage forgiven or something?

my current mortgage rate with Chase is at 5.5% and i have never been late. however, i used to have 20% equity and now about 0 or -5% equity. any chance that they will reduce principal or reduce rate? i have a 10/1 Interest only.

thanks and any help is appreciated.

[Maurice Bedard]

you would need to contact wells and ask about modification on the heloc and see what options they have.

NowLine® Home Equity Accounts: Call 800-247-9215

[omniskye]

hi, i live in california and here is my situation. i'm hoping somebody can help me answer some questions regarding laws around the 2nd mortgage.

i currently owe $683k on my first mortgage with Chase, and $85k on a HELOC with Wells Fargo. the HELOC was opened about 6 months AFTER i bought my home, so i don't think i can claim that to be purchase money. the house is probably worth only $650k at this point.

my question is: i fully intend to keep my home and am fortunate that i can make the monthly payments. however, what are the consequences if i stop paying for the HELOC with WF? can they force a foreclosure, if i continue to pay the 1st mortgage with Chase?

in other words, if i intend to keep making payments on my 1st mortgage for say the next 9-10 years, and NOT make payments for my 2nd mortgage.....what would happen in the short run and in the long run?

i understand that my credit will be damaged, as it already has been due to a current short sale on an investment property - of which i have not been making payments for. but is there anything else i should be concerned about?

thanks so much and any help is appreciated.

[Dan Bailey]

"what are the consequences if i stop paying for the HELOC with WF? can they force a foreclosure, if i continue to pay the 1st mortgage "

Yes, they can. Why not try to modify the second?