lost $300K in 1 year-Need advice

[notasmartowner]

Hello,

I am a frequent visitor to this site but finally posting to ask for advice and tell the tale of my stupidity... (like my username?)

I will keep it short as possible....

We bought our home for $800,000 back in March '07...Beautiful house in a beautiful neighborhood in the Inland Empire, California. Myself and my wife bring make about $130K/year (before taxes) We have $5K credit card debt, a $400 car payment and the normal utilities probably around $1000/month (i am being generous)

We took a dumb step and bought the house, of course with ZERO down and 5 years ARM! thinking we will refinance in 2012 when the house is worth WAY OVER 1 mil (Or that's what our Loan officer and Agent thought also)

Well we had 5 foreclosures literally down our street last year and they went for $450K to $550K....!!! More are on sale for avg. $500K.

Our mortgage payment is about $5K (tax and insurance included) and is divided into a 80/20 first and second...first is $640K with Countrywide at 5.25% till 2012 and second is $140K with Wamu at a 15/30 at 11%!

My student loan kicks in next year and there is no way we will be able to afford the house when the payment resets in 2012 since there is NO WAY the house will get its $300 back in 3 years...those days are gone...

I have attempted to call Countrywide once and the guy on the phone told me to cut down on my expenses??? I have to call back with detailed info on my expenses next time...He missed the point that literally 50% of our income is going to the mortgage!

There are 100's of loan mod companies and some are just trying to trick ppl to get their money and run...

I have seriously thought of walking out, although we love the house, but i can save 100 of thousands of $$ if I walk out now OR wait for the hammer to fall in 3/2012?!?!

What do you guys recommend in this situation?

Thanks.

[jdsd21]

I am in a similar situation. Maybe not to the magnitude as it relates to the value of my property, but the principals of the situation are the same. Taking any emotional connections out of the equation and looking at it from a business standpoint, it appears that you are an ideal candidate for walking. Granted all the conditions are met that make your loans non recourse. Answer the following questions, and the Professor will come by at some point to analyze your situation...

1. What state is the property located in?
2. What is your estimate of the current fair market value of the property.
3. For each loan on the property, who is the lender, the current balance of the loan, and was the loan created at the time you purchased the property and its entire proceeds used to buy the property.
4. At the time you purchased the property did you buy it and occupy it as your primary residence?

In the meantime, there is a flux of information going around on this site, I am sure you will get plenty of advice, hang in there, and great job on being proactive...

[angel83]

Originally Posted by jdsd21

I am in a similar situation. Maybe not to the magnitude as it relates to the value of my property, but the principals of the situation are the same. Taking any emotional connections out of the equation and looking at it from a business standpoint, it appears that you are an ideal candidate for walking. Granted all the conditions are met that make your loans non recourse. Answer the following questions, and the Professor will come by at some point to analyze your situation...

1. What state is the property located in?
2. What is your estimate of the current fair market value of the property.
3. For each loan on the property, who is the lender, the current balance of the loan, and was the loan created at the time you purchased the property and its entire proceeds used to buy the property.
4. At the time you purchased the property did you buy it and occupy it as your primary residence?

In the meantime, there is a flux of information going around on this site, I am sure you will get plenty of advice, hang in there, and great job on being proactive...

When you ask if the entire loan created was used to buy the property- what do you mean? I guess if I put down 20%, but then took out 10 and then refinanced the 10 - how does that work in California?

[jdsd21]

Angel83, that question is basically establishing or confirming that your loans are non recourse in nature. If your loan is 100% money borrowed for your home, then it is non recourse in nature (depending on your state, I'm speaking from a Ca standpoint). If on the other hand, your original loan was 100% purchase money for your home (non recourse), then down the road you decided to refinance that loan and take money from your equity to pay off other debt, buy a car, etc, then that loan becomes recourse...hope that helps. The Professor has extensive knowledge for many states, he will stop by sometime and speak to that....

[The Professor]

Angel83, please answer the four questions in a complete fashion and one at a time.

Daniel

[Chrisyunh]

Hey Professor, I'm in a very similar situation to the OP. I don't want to hijack the thread. If you can give me some advice as well, I'd really really appreciate it!

[Moe Bedard]

Chrisyunh,


This is an anonymous forum...........all questions are asked and answered in the threads and posts............without posting any personal contact info.........which is against the tos of the forum.
So you can begin a thread of your own and ask the questions that you would like of Professor Shays...........

[Chrisyunh]

I just realized that. Well, I guess I'll just post on here then:


1. What state is the property located in?
California

2. What is your estimate of the current fair market value of the property.
$470k (Bought it for $600k)

3. For each loan on the property, who is the lender, the current balance of the loan, and was the loan created at the time you purchased the property and its entire proceeds used to buy the property.
First Franklin,
($440k 5/1 ARM 6.5%) ($130k 15yr HELOC 9.1%)
Entire Proceeds used to buy property

4. At the time you purchased the property did you buy it and occupy it as your primary residence?
Yes

[The Professor]

Chrisyunh:

You fit the wonderful factual pattern that brings California Code of Civil Procedure 580b into play. Basically what that law says is if your loans are purchase money (created at the time you purchase the property and the proceeds are used to purchase an owner occupied residence), then your lenders have to look to the property and not to you in the event you quit paying. In other words, the loan is "non-recourse."

So, in a worst case scenario, you lose the home, your credit report gets a heavy ding, but you are not legally responsible to repay the debt or any shortfall. As always I suggest that you hire a lawyer skilled in California real estate law and debt collection practices to review your purchase and loan documentation and see if the loans are "non-recourse."

Daniel