Question for Professor Shays

[DMKBMN]

Professor Shays,
First, thank you for your generous heart and for lending your time and expertise to this forum. For those of us navigating the flotsam and jetsam of loan modifications and possible foreclosure or bankruptcy filing, your knowledge is invaluable. Here is our situation. We are in MN, which I believe from reading others posts that you have stated is a non-recourse state. (True?) We have a 1st with CW for $420K, a second with Citi for $58K and a HELOC with WF for $20K. Zillow says our home is valued at $515K... which would be great if any houses were actually selling. We've had 5 foreclosures in our neighborhood in the past year and there are probably 8 more that have been for sale for over 2 years, and I highly doubt our home would a.) sell within a reasonable amount of time, and b.) would net more than $425K even with a short sale. Due to unemployment/reduced income, we are behind on our 1st by 2 months, trying to do a Fannie Mae Streamlined mod with CW (which nobody at CW that I've talked to knows anything about, so who knows how long that might take?). We are very close to filing BK... which will disqualify us from a Fannie Mae mod. If we just let it foreclose, and there are many reasons that it seems like that is the smartest "business" option for us, can you tell what our tax liability would be for our 2nd and/or HELOC? Can Citi or WF sell the debt to a collection agency? (Even if they did, we have zero assets.) Also, once CW puts it into foreclosure, how long do we have in MN to stay in our home? We are trying to time this in a (semi) methodical way so as not to disrupt our kids too much and would definitely prefer not to move in the middle of this frigid winter. Sorry for this ramble... but any insights you could offer would be helpful. Thank you!

[The Professor]

Good evening. My sense of your situation is the holder of the first loan will likely follow a non-judicial foreclosure path. With what limited research I've done, it appears to suggest that if this path is followed, the holder of the first loan can't seek a deficiency judgment if they go the non-judicial foreclosure route.

Given the amount owed on the first and your estimate of the properties current fair market value, this will leave both the second (Citi) and third (WF) loans in an unsecured status and they could chase you on the basis of an unsecured debt for the amounts owed. However let me caution you that you should seek the advice of an attorney skilled in your State's real estate laws and debt collection practices to confirm this.

As to the length of time to complete the termination of your rights to the property, there appear to be two periods. The first is the foreclosure period. Here the Internet sources I was able to locate seem to indicate a 6 week time period between the first publication of the notice of foreclosure sale and when the sale can take place. Additionally it appears that you would have redemption rights for no less than six (6) months from the foreclosure sale date. My sense is given this redemption right you may have the right to retain possession until that redemption period expires. I would suggest confirming this with a Minnesota attorney.

Bankruptcy may be an appropriate option, because of your potential continuing liability for the second and third loans. I hate to sound like a broken record, but here too the advice of a lawyer skilled in bankruptcy law is important to obtain.

Take care,

Daniel

[DMKBMN]

Thank you, Daniel. Appreciate your response!