Walked away in AZ

[LeavingAZ]

Hello! I'm new to the forums and I am so glad I found this useful website. Hopefully someone out there will give me some insight and what's next to come in our situation.

We moved here about three years ago. First time buyers, 100% financed loan @ 7.37% for 30 years. We were on cloud nine when we found out we qualified for the full $200,000 without any down. Our home was beautiful and small. But ours and a wonderful investment. Or so we thought.

Forward on over to July of 2008. I was helping a dear friend look for houses on an MLS listing website. I found that my exact home model, down the street, was valued at a measly $80,000. My jaw dropped and I began to cry out of anger. We owed $180,000 @ $1780.00 month on a 1240 sq ft. home. So bad. Anyway, I started researching our foreclosure laws and found it a better decision to walk away and swallow our pride.

We had no hardships. We were easily paying $1000 over our monthly payment to finish the loan off in 12 or 13 years. We weren't saving very much either though. Well, thus far it's worked out for us. We're happy and the weight that was sitting ever so harshly on our shoulders, disappeared. I do however, have a couple of ?'s to ask the mods or anyone interested in pitching in.

My parents bought a house here for us to live in. They're charging us the mortgage payment for the other house on this one. This is a 2000+ sq ft. home and they only payed $114,000 on it. I was so astonished! They don't wanna include our name (husband and I) on the title until the house is payed off in about 4 or 5 years. Is this smart? How can we go about it?

Second question: will we have to disclose anything to my tax preparer in regards to the foreclosure when it happens?

Third: Will we owe anything when this whole process clears?

Thanks for taking the time to listen to me. We're still a bit confused about this whole situation and we wanna know what's next to come

[cactus77727]

Not sure I understand your situation and question. You have two homes? Can you elaborate?

[LeavingAZ]

We've only owed one home in our lifetime. My parents bought another home for us so we can stay in AZ. We're nowhere on the new home title and until we pay it, we won't "own" it. Since it was an 100% loan, no heloc or refi, will we be covered by the mortgage debt relief act?

I don't care if our credit gets ruined...it's already starting to happen and we haven't even been foreclosed on. I just don't wanna owe anything, y'know what I mean?

[cactus77727]

Oh! That's awesome. So your folks bought the house for you to move into after you walk (or swim) from the current sinking ship?? You've got really cool parents!!! Do they want to buy another, and rent it to me for cheap???!!! I'll be a good tennent for about the next 7 years!!!


So if (home A) is the one you have mortgage on, you need to know a couple things.

Is the loan on home A considered purchase money?
Is the loan non-recourse?
If you used the $200k to buy it, then the answers are probably yes. and yes!!!

Is home A on less than 2.5 acres?
Can they come after you for deficiency?
If it is on less than 2.5 acres, Arizona has anti-deficiency laws. Meaning they can only foreclose, and that's it.

The above is only speculation. I'm just another AZ walker here, so I may be mistaken in my descriptions. Just take it as hints to get to your answers. You need to talk with a qualified attorney, and accountant to verify and evaluate your specific situation.

[LeavingAZ]

rofl, You're delightful, thanks for the playful banter

Purchase money, meaning the loan was used entirely for the purchase of the home (no funds for x items, etc.)? Yes, we didn't take out any $ at all.
The house is really small, less than 1/2 an acre at that. I can't wait for them to put a lockbox on the house. I literally drive there everyday to see if there's anything up. They've sent paperwork saying they can help, but I called them today and they said it was approaching foreclosure rapidly.

Surprisingly, the peeps over at Citi have been kind and don't make a fuss about much. I've told them straight up that we're no longer living there and that we won't need to get evicted. I was paying $2780.00/month (1000 extra on principal) and on this house our monthly payment is only $885.
It's been the best thing we've done thus far.

[cactus77727]

The attorney I consulted with, said after they foreclose, the lender will be required to send a 1099 showing what he debt forgiveness was for that year. So if it forecloses in 2009, you'll get the 1099 earlier next year for the 2009 tax year.

[LeavingAZ]

Ugh, I hope so. The Citi agent told me it'll take another 2 months for the prop to foreclose. Now, does it have to sell to see what the amount of the forgiven amount is for next year's taxes? Or do they basically swallow the remaining 180k? I'm sorry, I'm such a mess! Never thought I'd be doing this.

[cactus77727]

Never thought I'd be doing this.

If you told me a year ago, that I'd be where I'm at right now, I would have never believe it. I was making decent money, living my life. I still get dumbfounded though... wait, what just happened? Oh. Trillions of dollars gone. Oh. OK

As for taxes, the best you can do is verify your situation, and wait for the 1099.

[LeavingAZ]

thanks.
can't wait to get all this mess sorted out! I don't regret what I'm doing though...not a bit.

[goodymj]

How can you tell if the loan is a non-recourse loan or not, and how are the loans treated differently? I refinanced my original purchase money loan to change from a 30 year to 15 year loan. I know it's considered purchase money still (I live in AZ), but have no idea about whether it's non-recourse or not

[ProfessorShays]

The loan documentation won't reflect it as being non-recourse. That characterization is the result of anti-deficiency legislation. In Arizona the non-recourse characterization results from the loan being "purchase money" meaning the loan proceeds were used to purchase the home. It must be a primary residence and the size of the lot is limited to 2.5 acres. Arizona has that one additional benefit that you mentioned that basically results in a "refinance" not killing the purchase money characterization (it is different here in California).

Daniel

[LeavingAZ]

I was reading a post regarding PMI and LMI insurances. I have a pmi since we gave no down, except for closing costs...

will they come after me for the 20% that we were supposed to pay?

thanks in advance for your input!

[ProfessorShays]

If we assume that the nature of your secured debt is non-recourse based upon its purchase money characterization, then the fact that there was PMI doesn't change your "non-liability." The right of the PMI company is through subrogation based upon its payment of a claim. Unfortunately for the PMI company, they have no better claim that the source of their rights. Since your lender's remedies are limited as the result of the non-recourse nature of their loan, the PMI company sits in the same position.

Daniel

[LeavingAZ]

Thanks so much for your response Professor!
No heloc, refi or anything else here.
Just a couple of two young kids that didn't save up enough money and got an 100% financed loan...

Thanks again so much!

[oregonheaven]

Welcome to the walkers club. Enjoy your ride.

[LeavingAZ]

LOL!
Thanks a mill.
About a ton of pounds was lifted off of my shoulders when we decided in doing so

[ProfessorShays]

Oregonheaven said, "Welcome to the walkers club. Enjoy your ride." I't characterize it more as a stroll rather than a ride .

[LeavingAZ]

Lol!
Can't wait to wear the "Foreclosed On" badge

[cactus77727]

I was thinking more like a "I bailed myself out" badge than a scarlet F.


Well said:

About a ton of pounds was lifted off of my shoulders when we decided in doing so

[LeavingAZ]

Thanks
and yes, hooray indeed that we decided just in time!

[LeavingAZ]

So it's been a while since I've given any updates on my situation. I've mostly posted questions addressed to Prof Shays
Anyway, I'm officially on countdown mode...
April 23rd will be the day the foreclosure auction takes place. I really can't say I've been more nervous/excited about a particular event in quite a while!

Our security door was stolen about a month ago, by a neighbor, now I know. He was able to come clean before HE left from his rental property in my prior neighborhood. I didn't give too much thought and can forgive. The HOA dues are still being paid, though I don't see much upkeep with their "regulations". My trees and beautiful shrubbery are a thing of the past and if it weren't for weekly visits, there would too be floods of newspapers on the walkway.

We've since been locked out, for our martgage company decided to secure the property after a long while of it not being done. Guess they figured we didn't vacate until recently. Alas, all is almost done. We've adopted a nicely kept foreclosure as our home, and have come to the conclusion that it's the best thing we could've done. It's a 2006, one owner owned home, with many upgrades I've always wanted.

The past owners have kept ties with a few of our neighbors, and they've divulged some information of their (now mine) foreclosure. Their home went up for auction on April of 2008. No one bid on it, so the bank kept the home and issued it a realtor. After the 90 days mandatory period it was just a waiting game. On August of 2008, the bank issued a new trust taking them off of the deed and cleared the liens (tax & HOA they owed), so they've been in the clear.

Thinking about their case makes me hope my ride will be the same. We've got a couple of things in common in my case...

April foreclosure, no refis and one loan. So my conclusion is, that on August of this year, I should look up my public records and search for the new deed.
Can't wait to see us off of the title and a 1099C coming our way.

Wish me luck

[cactus77727]

Hi LeavingAZ. Mine is 4/21. Kind of feels like that moment just before you board the roller coaster doesn't it? Not sure we want to get on this ride. There's no turning back now is there? Hang in there.

[AZChick]

So after the auction date your name will still be on the title? I thought automatically it was sold and the bank took over, including recording the title into their name? How can it be sold at auction but the title still be in your name??

[LeavingAZ]

The title changes, but when it's actually shown on public records it's a diff story. It took these people about a month to see it change on the recorders' site. I'm not sure if this tends to all cases, but this was their very specific scenario.

Thanks Cactus! I'm looking forward to the end of this month...more than anyone actually knows

[LeavingAZ]

Another example of when the deed changed over is that of my next door neighbors. They foreclosed on their home and had an auction sale on 02/26/2009 and sold it that same day to a nice couple. They've (my nieghbors, not the new owners) have since been renting the place for a grand less, from the now owners. The deed changed over to the now owners' names on March 24th, 2009. Almost exactly a month after it was sold at public auction.

[MRC123]

We are in AZ also and our auction date is set for April 17th. I can't wait. I just want this to be over with.

[AZChick]

how and how far in to the process did you all get your auction dates? I'm at 120+ days and have recieved nothing.

[kent302]

LeavingAZ wrote,

"Our security door was stolen about a month ago, by a neighbor"

This is kind of funny, like someone stealing the car alarm. Did they take anything else?

Last year there was quite a greymarket for nearly new air conditioners with the coolant lines hacked off on craigslist.

-kent

"What doesn't kill me will only make me older." - cartoon.

[MRC123]

I think we got our notice of trustee sale in January 09 and our first missed payment was October 08, so it was right about 90 day mark.

We have moved into our rental as of March 27 and doing great. The move was lots and lots of work, but we did it.

[LeavingAZ]

He only took the door. We've been going everyday, not that it really matters anyway, to check up on the house. I figure that if people see we're still invested with the security of the home, they will think twice about whether or not to violate it. Countdown officially, 20 days!

[knabrusc]

Just an update here from a long time ago. First payment missed was Sept '08. Auction date was March 6th. It did auction and the sale went through March 17th I think (found it on Zillow). We owed $280K on the house, it is currently worth $216K. The auctionstarted at $150K and the house sold for $173K. Waiting for it to hit our credit fully and the foreclosure blackmark to stamp itself on there. It is on Experian but I didn't get a Fico score off of there. Will let you know once we get that so everyone has an idea of what it will do. Still don't regret our decision whatsoever. I did pull our cret report and the only bad thing on there since I established credit is the foreclosure. Everything else show's perfect, so only time will tell...Hope everyone else is doing well and trusting their decision to walk away

[DaveFred]

Knabrusc,

Just curious how you determine the current value of you now foreclosed home. You stated it was worth $216k but it sold at auction for $173k. To me that means it was not worth $216k in the first place. Every foreclosure pulls the value for yours and every home in the same area down to that value until more recent sales come in at higher prices and the available distressed homes are gone.
I ask this because recently I have heard of lenders using some different valuations based on fair market value or book value and not the real market value when negotiating with folks on loan mods and for there own balance sheets to look better.

[jcrangel]

We refinance to pay are car off will they come after us that was in 2006 but we gave down 23,000 when we bought our house please tell me if we foreclose we they come after us because we refinance we bought 2005

[AZnOUT]

LeavingAZ, Congrats on your decision and execution. Sounds like a smooth fresh start/do over. Good Luck going forward.

Cactus' journey described in one of the other threads has been very insightful and helpful in consideration of my own facts and circumstances (thanks Cactus, I understand that was not an easy process and commend you for your humor/resolve in light of the unfortunate circumstances surrounding your "walk"). I'm currently in AZ and have clearly over analyzed a decision that I've yet to make. Like many on this board, I may make a financial decision to walk given the described facts below. I have employment considerations that may force me to wait on the sidelines a few months and continue to monitor the markets.

High Level: Loan(s) close to $1m, value between $450-$600, no significant hardship, but like LeavingAZ comfortably "renting" my purchase money home for a significant amount relative to rentals in the area. While I considered the emotion/ethics may be worth 10-15% decline in value, the current market has kicked in the economic analysis full throttle. What I've read to date, I would expect 200-300 hit on credit report and free rent for 6 to 8 mos. I may aggressively attempt to force a principal reduction or simply ignore the second at some point in the process prior to forclosure (70/25 1st and 2nd), but do not have a definitive game plan at this point. However, I recognize that I may not have this option based on my lender but who knows what the market will look like in 4-6 mos.

Also Professor, thanks for the excellent advice throughout this thread.

AZnOUT (currently still in

[LeavingAZ]

Thanks for the well wishes and updates!
15 days and counting!!
can taste it already

[LeavingAZ]

Oh snap!

2 more days...

I can smell


IT!

bring it baby

[kent302]

LeavingAZ, Congrats on your decision and execution. Sounds like a smooth fresh start/do over. Good Luck going forward.

... While I considered the emotion/ethics may be worth 10-15% decline in value, the current market has kicked in the economic analysis full throttle. What I've read to date, I would expect 200-300 hit on credit report and free rent for 6 to 8 mos. I may aggressively attempt to force a principal reduction or simply ignore the second at some point in the process prior to forclosure (70/25 1st and 2nd), but do not have a definitive game plan at this point. However, I recognize that I may not have this option based on my lender but who knows what the market will look like in 4-6 mos.

Also Professor, thanks for the excellent advice throughout this thread.

AZnOUT (currently still in

From what I gathered, the 9-12 months rent-free ride from 2008 timeframe may not hold this year. Lenders had a number of reasons to hide f-c numbers, probably accounting shell-game and wait-n-see what Obama do. Now they got their mark-to-fantasy accounting rule and "900 mile tall stack of $100 bills" bailout money to jazz up a fake quarterly profit. Foreclosures seem to be processed with a sense of urgency.
What housing recovery. I think this summer, the bubble states will be hammered when unemployment, shadow inventory and 2nd f-c wave hit.

[LeavingAZ]

So it's been a little while since I've posted on here regarding the latest foreclosure info. Our home auctioned off on April 24th, sold to X for $160,000. I'm guessing it's to a bank that takes care of faulty/bad loans. No person in their right mind would've paid that much in a market as good as this. Anyway, I looked into the County Recorder's office docs and our name has been officially removed off the deed. It's been crazy waiting and searching until I've finally found what I wanted so bad. Now, I'm gonna wait until early July to be out in the clear and that's the time I'm going to throw a party.

Hope all of you are doing well on your ventures and that your turnout is as good as mines been.

[AZChick]

Congrats, you are free!

[Enough Already]

Thanks for posting an update, LeavingAZ! We all know what it's like to go through this, so it's nice to hear updates from the other side! I'm glad it went well for you. Please let us know if/how the foreclosure effects your life as you go.

Enjoy your party!