To all those in recourse states...

[Enough Already]

Hi all,

Has anyone heard of, or had any experience with a mortgage lender suing or trying to actually collect on the loan deficiency amount?

I wish all states had the buyer protection of CA and AZ.

Any info would be helpful.

Thank you

[ORNV3]

Hi Enough Already,
Unfortunately I don't have an answer for you. I've been looking EVERYWHERE for the answer to your question because the same question is on my mind 24/7. I've found a few websites (I don't know if they're good ones or not) that say that deficiency judgements are very rare. I think this is probably because the housing market has never been like this before. I'm the kind of person that always prepares for the worst..... and I think that the banks will probably come after us eventually, or sell to a collection company. I don't know for sure but I can't imagine that they will just let all of the money go out the window. Although I hope they will!

[Moe Bedard]

you may want to read this story............the PMI company did..........

I guess it's over...

[Enough Already]

Hi ORNV3,
This is on my mind 24/7 too. I've read the same things - they rarely go after the deficiency, but I'm sure that won't last forever. This whole mess is unprecedented, so I expect all kinds of things will be changing.

If it's true that some of these banks will settle for around 10% the actual loans must not really be worth that much to them. It seems they'd rather have the small amount of cash in hand, than to try to collect a larger sum later via law suit. Maybe that would explain why they might not go after the recourse loans after foreclosure?

We're meeting with a local attorney, on Wednesday, who has experience negotiating with the lenders duning foreclosure, and getting them to agree not to persue the deficiency. Of course, it would be ideal to work that out.

Once we stop making the payments and go through all of this I don't want to worry about a deficiency judgment for the next 4 years.

My thread is: Walking away in FL - Recourse state- No hardship. Please send me the name of yours too. It's good to know that we're not totally alone in all of this.

Thanks

[Enough Already]

Hi ***,
What a story. Scary stuff there. It looks like the LMI went after her. How do you know if your lender has LMI (lending mortage insurance - I assume)?

Thank you

[The Professor]

Based upon past experience it isn't the lender you have to worry about. It is the entity those delinquent assets (troubled assets) are sold to at a deep discount. Often times they are purchased by collection agencies that focus more on your ability to pay than the fairness in enforcing claims based upon other issues. Their approach will be to first obtain a credit report. The second step will be to do an asset search. Once they reach a conclusion that non-exempt assets exist they will begin their collection actions.

Daniel

[ORNV3]

It's pretty scary not knowing what is going to happen. As for me.... I have NO ASSETS at all. The only thing I have is a job so I guess they could garnish my wages. Honestly, my plan is to stop working all together in a few years and start a family. My fiance has a few more years of school and then he'll be the one making the money. The house is only in my name. Could they come after him in the future when we get married?

[ORNV3]

Enough Already,

My thread is "can afford the first but not the second." Please keep posted!

[Enough Already]

Prof Shays,
Thanks for your reply. I bet you're exactly right. The mortgage company won't bother with the debt, but they will sell it to a collection company. That's the scary part. The thought of having a bunch of vicious collections calls is almolst enough to scare me off.

[markmc2000]

Professor.

I thought I read somewhere that one had to go to court before an organization could do an asset search. Are you sure about being able to do an asset search before going to court?

Mark

[The Professor]

You have to get a judgment before you can do what's called an OEX (Order of Examination). But there is nothing to stop a creditor to do an asset search before spending good money after bad by suing an insolvent defendant. As a matter of fact, one should always do an asset search before spending money on a lawsuit with little chance of success in collecting. If you have any doubt about the nature of this business I suggest your google "asset search" and report back on your findings.

Daniel

[markmc2000]

Got it. I'm just going to try like heck to get a short sale thru. Also plan on keeping the second current to prevent them from sending my loan off to collection agency before we get a chance to negotiate.

Mark

[Enough Already]

Hi all,
We talked to an attorney today. First, as we've heard so many times, he said the banks are rarely going after deficiency judgements. He says they are likely to offer to settle for 50%, but that's their first offer - never accept their first offer.

He also had a good point about the possibility of the bank selling the loans to collections companies. He said normally collections companies deal is smaller debt amounts, $3K- $4K that kind of thing, and purchase the debts for pennies on the dollar. The banks wont have small amounts like that to sell, they will larger debts $25K, $50K, $100K+. And, the banks won't be selling them one and two at a time. They would sell them in big blocks - so for a junk debt collections co to purchase those, they would have to come up with a lot of money. Plus it would be a big risk for them to pay out to buy them not knowing if the could even collect. There's a big difference between paying $300 - $400 to a try to collect some old credit card debt, than paying out $300K -$400K to purchase a bunch of foreclosed mortgage debt. From a business perspective it's risky for the collections company.

[Enough Already]

Woops, clicked send too soon.

Anyway, the point is that a collections co would be going out on a limb to purchase the bad loans, and try to collect them. So, he feels the will come up with some way to try to collect on these loans at some point, but for now they just don't seem to have a good system worked out.

I made sense to me, but it could just be wishful thinking on my part.

Prof Shays, Any thoughts on this?

Thank you

[The Professor]

I respectfully disagree. I will start by pointing out that there isn't a person out there still working who has a memory of an economy this bad. What your attorney fails to realize is that there are a variety of ways debt like this can be sold. One primary way is on a participation basis where the seller (your lender) sells the debt for a relatively insignificant amount of money to the purchaser, but participates in the benefits associated with a successful collection effort against you.

True we have not seen lots of actions in the past seeking recovery for deficiency judgments, but we have never seen the declines in real estate prices that have created this many opportunities to sue for deficiency.

Sorry for the bad news.

Daniel

[Enough Already]

Prof Shays,
Thanks for your reply. Very good point. In that case I'd better save up my mortgage paymens to settle the debt when the collections agency comes calling (yikes)! I hope that the attorney was right about being able to settle the debt for 50% or less.

Another thing he suggested is that a short sale is a good way to go because you can often negotiate forgiveness of the 2nd mortgage as part of the terms. We don't qualify for one now, but I guess they're more likely to approve once the mortgage is in default.

He also said not to lose sleep over this stuff. Too late!


Thanks again.

[The Professor]

I wouldn't lose sleep. I also wouldn't store the dollars you are saving to settle this claim in a place that can be connected with you. Always better to claim that your mother, father, uncle, brother, etc., is lending you the money to settle the claim.

Daniel

[Enough Already]

Good advice! I'll be sure to take care of that.

[ORNV3]

Thanks for posting your findings. I really appreciate reading the forum and learning so much! I'm going to make an appointment with another bankruptcy attorney for next week. I'm not sure if the one I talked to before understood what I was saying.

It looks like I do qualify for chapter 7, I'm thinking of just filing to shield myself from any judgments or possible collections in the future. My second mortgage is for $92000 and there is NO WAY that I can even consider paying off half of that amount.

As for not loosing any sleep..... I can hardly function right now. I'm scared to death. I know it might be a little crazy to file for bankruptcy when my only debt is my home, but I'm willing to do anything to get my life back. The way I'm looking at it... I really have noting to lose if I file now. If I wait a few years and see what happens, I might have everything to lose.

[Enough Already]

Hi ORNV3,

I completely understand your feelings. I toss and turn all night thinking about this stuff - it's so stressful.

Not paying the mortgage is just so against the way I normally do things. I pay all my bills, always, on time - no matter what. My mortgage payment is due in about 10 days. I've normally paid it by this time, but have been putting it off while trying to come to a decision. Every time I think of skipping the payment my stomach drops to the floor.

I think BK may be a big jump. I believe you can do it once in your life, so you want to make sure you use it only if you really ever need to. I've also heard of them offering settlements of much less than 50%. The attorney I talked to yesterday said 50% is normally their first offer. Not their final offer or their best offer.

You know what also really freaks me out? What am I going to tell my neighbors, and friends?? Do try to avoid it, or just tell them I made a business decision and walked away?

Hang in there. Have you missed a payment yet?

[ORNV3]

Hi Enough Already,

I know BK is a big jump.... I just don't know if I can go on like this for months/years waiting to see what's going to happen. The thing is.... I'm going to get married soon and want to have this all behind me.

I did not pay my mortgages in January. First time ever! It was heart breaking because it goes against everything that I believe and everything I've always done.


I was able to pull together enought money to make my first mortgage payment late, but I have not and am not going to pay the second. I went ahead a paid the first because I have renters in the house right now and 1 and 1/2 months rent = 1 first mortgage payment. I have to figure things out so I can let them know what going on asap.

I told my family and close friends about what's going on and they have been very understanding and supportive.

[cactus77727]

I wish I could reassure you all. I was stressed at the beginning too. It's hard, mostly because these are uncharted waters for us. These are extraordinary times, and there is no way I'd be missing payments either, if circumstances didn't required it. I realize it's worse for some than others. But hang in there.