Walking Away Finally....

[Bye Maricopa, AZ]

After months and months of debating with myself, and calling Countrywide for help to no avail, I have made the decision to walk. This month will be my first missed payment. I plan on using the next few months to escape the credit card hell that I have found myself in as a result of this house, and then I will walk. I already have a rental plan in place. I never wanted this to happen, but all things considered I thing that in the end, this will be the best move for my family. Any advice for someone ready to walk in AZ?

[925girl]

Just remember, you are not alone. You are probably saving yourself from more misery. We who are impacted at this point have gone through the same hell. We have come from honest places to obtain the American Dream and find it's been ripped from us by many factors not ALL by our own hands. I hope for you that you find a decent rental and remember at this time it is survival mode. Make your list. Check it and re-evaluate it daily. You sound logical in your conclusion as difficult as it is. You have time before they lock you out, use it to your advantage.

[Bye Maricopa, AZ]

Thanks 925. I have a plan in place. The only semi-scary thing is the fear of the unknown, but all I know is that my situation has to change and it has to start now. Luckily here in AZ it isn't hard to fond someone to ask for advice since a lot of people are going through this. I am hoping that I get 6 months. This is the first month that I will have missed. That timeline seems about right? I want to leave between April and June.

[cactus77727]

You will quickly realize you made the right decision. Missing that first payment was tough for me too, because I viewed it as the point of no return. But every bit of research I've done since then confirms I made the right decision.

I missed my first payment on October 1st. It looks like I'm going to get notice of trustee sale filed just after January 1st, then I'll have the 90 days minimum for AZ. So I think 5-6 months estimate is very reasonable for your plans. It could be longer though. Good luck to you, and enjoy your 'rent free' living.

[Walking Away]

If you got an interst rate modification; would you stay or is it a case of needing a principle reduction? I don't know anything about Arizona; is it a case of plummetting home values? Where I live; I'm deciding to walk because I was rejected for an interest modification; but home prices are fairly stable; so all I was looking for was a lower interest rate and I don't know if walking away is the smart thing to do. I'm curious if other people walking; wanted an interest rate reduction or a principle reduction; or both and to Bye Manicopa. AZ; I'm just wondering if you were trying for interest raecut or principal reduction. How off are your numbers? Is it worth walking if you haven't missed a payment or just 1?

[The Professor]

The article below appeared in today's New York Post, and reflects a real sense of why, without principal reductions, there isn't sufficient reason for borrowers to agree to modification agreements. The rub in this is that with principal reductions comes lender recognition and a mandatory adjustment to their financial statement. That of course is a quick path to insolvency and serves as a basis for lenders not following this path.

Daniel

REWORKED LOANS AREN'T WORKING AT INDYMAC BANK
By TERI BUHL

Last updated: 2:08 am
December 14, 2008
Posted: 1:32 am
December 14, 2008

The mortgage-modification program of IndyMac Federal Bank, hailed by many as a template for allowing delinquent homeowners keep their houses, is an outright failure, an eye-opening report by a mortgage analyst reports.

After a two-month state moratorium on foreclosures pending the intensive modification program, IndyMac's foreclosures in November skyrocketed 242 percent from October, according to the report by Mark Hanson, of the Field Check Group.

The Federal Deposit Insurance Corp., headed by Sheila Bair, which pressed for the modification program, comes under particular pressure from Hanson, who asserts the plan turns thousands of homeowners into renters - forking over a monthly payment with no equity in the home now or in the near future.

"Homeowners - SMARTEN UP!" Hanson wrote in the report. "The FDIC program keeps you fully in debt, you're basically renting your home without a chance to pay it off for the rest of your life."

Hanson, echoing many federal lawmakers, said that as long as a modification program tinkers only with the interest payments and not a reduction in principal, it will never work.

In an interview, Hanson told The Post "That program is just bailing out the banks and anyone who owns the whole loan. I hate to say it, but the homeowner is better off walking away."

While the current mortgage-modification program doesn't benefit homeowners, it doesn't favor mortgage-securities investors either, according to Hanson.

This is because deferring interest, pushing loans out to 40-year terms and creating interest-only teaser periods greatly reduces the cash flows and lengthens the duration of the security, he said. For many securities owners, it's better to have the home sold in foreclosure so they can recoup at least part of their investment, Hanson maintains.

Hanson, a 20-year mortgage veteran who began his career as a mortgage broker, has an alternative plan. Re-underwrite every toxic loan originated between 2003 and 2007 using prudent underwriting guidelines. Then, there must be a reduction in the principal balance to what the borrower really earns using a 28 percent housing ratio and a 36 percent total debt-to-income ratio at a market-rate 30-year fixed loan.

Andrew Gray, FDIC Spokesperson, defends IndyMac's loan-modification program, saying "it's too early to judge, and the borrowers' income-earning ability to pay is being taken into consideration."

[KT in CA]

Maricopa,

We will miss our first payment in January. We are making the last one tomorrow due to being upside down about $150k and an ARM that resets in August to a $5000/mo house payment. We also have refinanced so a lot of the protections that other will have we will not. Most likely we will have tax ramifications, both federal and state. I don't believe we will have to pay taxes on all of the 1099-C amount, either due to the Mortgage Debt Relief act (to some extent because we re-financed) or most likely insolvency (I am not paying our credit card debt down right away because the IRS looks at your level of insolvency up to the date before the foreclosure from what I understand - we need to be as insolvent as we can be!!!) And ontop of the tax ramifications, our $55k second will likely come after us.

I am pretty sure we can make payments to federal and state for taxes. Hopefully we can negotiate the second to a smaller amount. These things can be worked with. But living with our house payment any longer is killing us. And the couple of years it will take to pay our tax liability and pay our second back is worth it to be out from under this house.

We should be able to stay in our house until June. I'm hoping finding a rental won't be a problem because we have 2 kids. We have jobs and cash, so that is my main concern. But I think the trade off of a few years of payments for taxes is worth 30 more years of paying for a house that is worth nothing.

[Walking Away]

Hi Professor Shays; that's a good article, but I still think some of these articles tend to lump too many people in the same boat. For people in the worst hit areas that have seen prices drop the most; they definitely have little incentive to stay if they don't get their principle reduced. But what if millions of loan mods were done in advance of these areas losing assessed values; like a year ago when people like Moe were warning us? That would have kept millions of people in their homes and values would have held up better. So doesn't it make sense now to aggressively modify rates lower for people in areas of the country that have only dropped 5-10%? Where I live is very stable and values are only down about 5-10%, which is why people like me and others I know in similiar situations as me where I live; would keep our home if we were modified with a lower interest rate. We don't need a principle reduction because values have held up okay. But why kill yourself with a 9% loan if the banks continue to play hardball? If the banks don't modify; why not rent and pay $800 less per month and tuck away $10,000/year; all the while not having to maintain a home?

[Bye Maricopa, AZ]

A priciple reduction would be the only way I wouldn't walk. My interest rate is 7%. The main factor in my decision is the value of my hoem has gone down 50% in one year and my neighborhood has gone down as well. My wife's income was significantly reduced which has made for tough times. Without the home, we would be fine though. I have no emotional attachment to it really. I rented for years and life was good. Life since I bought this home has been a struggle for many reasons. Maricopa is isolated from Phoenix and the values here have taken a beating and they will be the last to recover. I won't be shedding a tear like some people. I made a mistake but it isn't the end of the world by any means.

[The Professor]

Bye Maricopa (formerly Buy Maricopa):

Congrats on adopting your position. Acceptance is in my humble opinion, a real key to happiness.

Take care,

Daniel

[Bye Maricopa, AZ]

I first started reading this forum back in July. Back then I knew what I had to do but I held off. At some point the numbers are what they are and they just don't add up. As the days go by and more middle America gets laid off and CEOs get golden parachutes while more homes decline in value and foreclosures rise, I become even more desensitized to the whole situation. Chalk me up as the mortgage indistry's greatest fear. I am the guy that can afford my mortgage but is willing to walk. And with the tax law in effect for 2009 set to expire in 2010, now is the time. It just isn't worth the burden. Life is too short. Question for anyone in the process....my loan is a single, purchase money loan on a single family home in AZ. I put zero down and I pay a 10 year interest only option on a 30 year fixed. Is there any possible scenario that could creep up and bite me in the ass? Do I need to get an attorney or will that be a waste of money and more for my piece of mind? I've read over the docs and I don't see anything that should come back to haunt me. If so, does anyone have a good recommendation for a lawyer that can do a quick consultation?

[AZ Meltdown]

I believe you have made the right decision Bye Maricopa. I made that same decision 8 months ago in Phoenix.

The departure date is approaching and I will be glad to have this rotting albatross off my neck!

Everyday the financial news further supports my belief that it is the time to slash expenses and hoard cash. This house is the biggest unneeded expense.

I believe my credit will recover long before the Phoenix housing market.

Good luck!!

[The Professor]

Bye:

As you know I always recommend contacting an attorney to gain their opinion. What I would do is to pay for a short consultation. Find one who already has the answers you need and won't be charging you to research the issue. Be prepared in meeting with them. That means having a list of questions that you, having participated in these forums, already know the answers to. Of course the key questions relate to your liability after the foreclosure. You might find that a short opinion letter from the attorney indicating the nature of the anti-deficiency protection you have under Arizona law quite helpful and a useful tool to stop the lender from threatening collection action once you lose the house (Note: I'm assuming that to be the case although you have not provided facts that indicate you are entitled to the anti-deficiency protection available).

Take care,

Daniel

[Bye Maricopa, AZ]

Prof. Shays,

What are the facts that are needed for anti-deficiency protection other than the fact that it needs to be a certain size and purchase money loan? If that is all that is needed I am gold. I'll have an attorney look over my docs just in case.

[The Professor]

How about answering a couple of questions and I'll see if I can help you gain an understanding about whether Arizona anti-deficiency statutes provide some protection based upon your circumstances.

1. Was the subject property purchased as your Arizona primary residence?
2. Who are your lenders, what is the current balance on each loan, and were the loans created at the time you purchased the property?
3. What is your estimate of the fair market value of the property?
4. What is the size of your lot (in acres)?

Daniel

[Bye Maricopa, AZ]

1. Yes. I only own one home and I'm living in it. I rented before this baffling mistake of a purchase.
2. One loan from Countrywide, created at the time of purchase for full amount of $170,000. I have no seconds or HELOCS.
3. Fair market value is between $79-$110k. Countrywide will say $110k but the comps say about $80k.
4. Lot is 5175 Square Feet

This qualifies I believe.

[The Professor]

You appear to be the poster child for borrowers qualifying for relief from the potential of a deficiency judgment provided under Arizona law. Assuming the home is a single family home on 2.5 acres or less and is used for residential purposes, and provided that the loan in question is a purchase money mortgage/loan, the anti-deficiency statute should apply in all circumstances (either a judicial foreclosure or non-judicial foreclosure known as a trustees sale) and you will not be subject to any defiency after the foreclosure. For more specifics, the following quote I found on the Internet should be helpful:

If the proceeds of the foreclosure sale of the property secured by a mortgage or by a deed of trust are insufficient to pay the full loan bal ance, the mortgagee or the beneficiary may be entitled to a judgment against the debtor known as a ‘deficiency.’ Under Arizona law, a deficiency is equal to the amount of the debt minus the greater of the bid at the foreclosure sale or the fair market value of the property. A deficiency judgment is authorized under A.R.S. § 33-725 (mortgages) and A.R.S. § 33-814 (deeds of trust). However, in 1971 the Arizona Legislature enacted two anti-deficiency statutes barring the right of certain beneficiaries and certain “purchase money” mortgagees from seeking a deficiency judgment for certain types of residential loans. These anti-deficiencies statutes apply when the security does not exceed 2.5 acres and is utilized as and limited to either a single one-family or single two-family dwelling. The result of the anti-deficien cy statutes is that a lender who is foreclosing on a single one-family or two-family residence on less than 2.5 acres may receive less than the debt but still not be able to collect the difference, whereas a lender who instead sues on the note could potentially obtain a judgment for the full amount of the debt owed. If the lender is significantly under-secured and believes the debtor has sufficient assets to enable the lender to collect on a judgment, the lender may want to waive the security and sue directly on the note, as long as the law allows such action (as explained below).

The anti-deficiency statute for mortgages applies only to “purchase money” mortgages, Accordingly, if a mortgage is not “purchase money”, the mortgagee can seek a deficiency and may be better suited to foreclose since the lender can obtain a deficiency after the foreclosure is completed.

The deed of trust anti-deficiency statute, however, applies to all such residential deeds of trust, not just to ‘purchase money” deeds of trust. Thus, for the vast majority of residential properties secured by a deed of trust, the lender cannot seek a deficiency if it performed a trustee’s sale, but can seek a deficiency if it performed a judicial foreclosure (although the judicial method is a long and expensive process). In light of this anti-deficiency statute, a deed of trust lender is often wise to sue directly on the note if the property lacks sufficient equity, whereas a mortgagee would usually choose to judicially foreclose and pursue a deficiency instead of suing on the note.

Neither of these statutes expressly prohibits a lender from electing to waive the security of the mortgage or the deed of trust and sue the homeowner directly on the debt. However, in a landmark decision entitled Baker v. Gardner, decided in 1988, the Arizona Supreme Court held that Arizona’s anti-deficiency statutes prohibit a secured lender from suing a homeowner who borrowed money on those types of loans protected by the anti-deficiency statutes. The court stated the allowance of a lawsuit on the promissory note is such instances would circumvent the legislature’s objective in enacting the anti-deficiency statutes. The end result of Baker is that a lender who takes a mortgage or deed of trust to secure all or part of the purchase price of the home may only foreclose. Therefore, if the residential loan is a “purchase money” mortgage or deed of trust, the lender must foreclose, either by judicial fore closure (mortgage or deed of trust) or sale (deed of trust only). In other words, for such residential properties, the only time a lender can sue directly on the note is if the loan is not “purchase money”, such as a home equity loan. In the case of non-purchase money loans, the lender may consider the option of suing on the note.

I always suggest that you retain the services of a lawyer skilled in real property law and debt collection practices to review your purchase and loan documents and seek their confirmation of the non-recourse nature of your lender's debt.

Take care,

Daniel

[knabrusc]

Bye Maricopa~

We missed payments Sep, Oct, Nov & Dec. We just received a Notice of Trustee Sale and our house is set to be auctioned March 6th, 2009. Walking away was the best thing we ever could have done. Our mortgage was set to go up $600 when it adjusted Nov 1st and then another $300 every 6 months for 3 years...yeah right! We bought the house for $295K(worth $318K), put down $60K and financed for $230K. We refinaced 6 months later and took cash out to make improvements on the house. We fianced $280K and the house was worth $336K. To date our house is now worth $224K.
I called the Maricopa County Bar and paid $35 to meet with a lawyer who worked foreclosures and BK's for 30 min. I did this before our 1st payment was late. I brought all my paperwork and he basically said, I had done all the research and he was going to tell me the same thing I figured out. I qualify under the laws and could walk away without worrying about reprecutions besides the credit hit. Just a heads up though...3 weeks ago, AMEX lowered my husbands cc limit to $500 and they cancelled my card ($21,000) completely. I am a stay at home mom so they saw a HUGE dti ratio. Be prepared to have cc companies alter your cards once they review your credit. I was so bummed. I had had the card for 6 years and had never once been late on a payment. I pulled my own credit report and it looked perfect except for the house. I called and they said because of my score and the big DTI ratio they cancelled the card, even though I had never been late. The only thing we let get behind was the mortgage. Everything else has been kept up to date. Are you looking to rent again? Some apartments are open to those going through foreclosure. I would start looking now at your options. Some will run your credit now before it takes a huge hit and secure you for months down the road too. We had told one company that our lease ended in 3 months but we didn't want to wait until the last minute. Just an idea

[The Professor]

Feedback like this is so valuable to forum participants. Thanks for keeping us informed.

Daniel

[Bye Maricopa, AZ]

Thanks for the advice knabrusc. We haven't secured a rental yet but we know someone who owns a few homes who has offered one for us to rent if needed. I am actually at peace with the decision. It was a HUGE weight off my shoulders.