help?

[litlenancy]

okay so here is the dilemma my parents own two homes their rental which is on a fixed and own 10 years on and rent out and a home which is on a pick a payment and have over 200,000 negative equety and is used as a primary residence . so they are thinking of walking away ..their concern is will they put a lien on the home they keep? oh and they also have their own business how will that be affected? any suggestion will be helpful ..thanks

[The Professor]

You are going to need to be more factually specific. Break down the properties separately and include their location (state), estimated fair market value, whether it is owner occupied, and loan information that includes loan balances, the identity of the lender, and whether the loan was created at the time of purchase.

Daniel

[litlenancy]

both homes are located in fairfield california.

1st home - home is currently used as a rental property , balance on loan is 200,000 homes in area are currently selling for 150 -170 , have a line of credit of 100, 000 , although loan is upside down paymen always made and in great standing have 10 -13 years left on loan . wish to keep this home

2nd home- , primary residence , b0ught home in 2004 for 350,000 on a pick a payment loan through wachovia , currently make min payment to keep home ..now the principal has gone up to 380,000 . called wachovia and tried to modified they arent really offering nothing much to help . home in the area also in fairfield are selling for 175-190 ...i am negative close to 200,000. .wish to walk away and live in my rental and make it as a primary residence .

what are the consequaences ? i already know bad credit will be the fisrt ..will i be able to rebuild credit sooner , making my monthly paymmets on the home that has a fixed payment? will they put a lien on my home that i keep ?

[The Professor]

The key here is application of California Code of Civil Procedure Section 580b. What I need to know is which loans were created in conjunction with the purchase of the properties (1st home and 2nd home). Also there wasn't all that clear of a picture on the loan(s) on the 1st home. Is there a 1st loan and a 2nd loan? I assume that to be the case but hate to assume. Is the current balance of the "line of credit" at $100K? If so, then the what would be the combined balance of the 1st loan and the 2nd loan?

Daniel

[litlenancy]

on the first home whisch is the rental , their is no 1 ast and second , just one loan itself and the line of equity for the 100 thousand

the second home which is where i live has no ist or second either . just one loan with wachovia .

[litlenancy]

so the combine balance for the rental would be 300,000 thats including the original loan and the home equity . what is 580b?

[The Professor]

A "line of equity" is a loan. It is a loan with a variable principal balance depending upon how much is drawn on it. So please, focus on providing complete information. Tell me what the balance is on the first loan and then what the balance is on the "line of equity," more commonly referred to as a "line of credit." Sorry to be so specific but I don't want to provide you wi th a mistaken answer based upon my misunderstanding of the facts.

Daniel

[sluja]

my 1st is with Wachovia, ( my parent are co-signers on 1st ) which I was just denied a refi, at the last moment, never recived anything about why like they said I would, I have a 2nd with american general for $20,000, (without my parent co-signing 2nd) If I default on the 2nd, what happens next, my loan balance is $356,000 and rising the house was just appraised at $190,000 could the 2nd foreclose, how can I get out of this nightmare without ruining my parents?

[The Professor]

I take it the $20K second is what you've identified as the "line of credit." That being the case, let me go through some numbers.

You've indicated the current value of the property is $190K. The current balance on the first loan is $365K. That effectively means the following:

1. The $20K second, from a practical standpoint is unsecured because if there were a sale, the proceeds would only partially pay down the balance on the first loan.

2. There is a substantial shortfall in terms of lack of equity. That shortfall, ignoring the second lien, would be $175K ($365K-$190K).

Before I proceed forward I need you to answer two questions:

1. Was your first loan (Wachovia) created at the time you purchased the home?
2. Was your second loan (American General) created at the time you purchased the home?

Note that if either loan resulted from a refinance of a previous loan your answer should be "no."

Daniel

[sluja]

the answer is no & no
I bought this house in 2003 for $271,500 with my parents as cosigners
I refinanced in 2004 to take my parents off loan, I did but the title company missed a lien for $8,145 which they said I was responsible for, so I had to bring the house out of foreclosure by refinancing again in 2005 with World Savings (wachovia) with my parents back on because of my credit issues, the broker said they would come off in a year, which now didn't happen, no equity in house, everyday I wish I would of let house go back then when it was just me on loan, now I live with this guilt on how do I get out of this without ruining my parents, the are in their 70's and don't understand the scope of this, I am not late on 1st but only paying the minimun, I am almost 60 days late on 2nd.

[sluja]

the 2nd was only taken out 2005 to make major repairs on the home

[The Professor]

One thing that comes with being a parent is the ability to forgive. Don't place too much stock in the effect the eventual outcome will have on your parents. The good news in all of this is that the home is here in California and there are a number of laws that benefit borrowers in real property transactions that don't exist in most of the other states.

The bad news is if the house gets foreclosed it will impact your parents' credit in a negative fashion. The good news is you can expect the lender (Wachovia) to follow the foreclosure path by following the non-judicial process outlined in California Civil Code Section 2924b. Going that direction (as opposed to proceeding through a judicial foreclosure) eliminates their ability to seek a deficiency judgment against either you or your parents. While we can't say with absolute certainty they will proceed non-judicially, in my lengthy career I've only seen lenders follow the judicial foreclosure path in rare instances where the collateral (the real property) was of marginal value and the borrower had lots of assets.

As to the second loan, once the first forecloses you can expect aggressive collection action from its owner (American General). Since this is a relatively small balance, I'm sure you can make arrangements to pay it off over time.

I guess my point in all of this is that you are at a decision point, where removing the emotional side and adopting a pure business viewpoint suggests letting the property go into foreclosure and occupying it until the foreclosure is completed.

Daniel