To walk or not to walk-in AZ

[cmw863]

We bought our home in September 05 for $375,000 in Gilbert, AZ. Six months later we refinanced to take out equity to buy into my husband's company. We were using all our profit distributions to pay off this company debt and we paid off a lot, but fast forward to 2009 and we are in deep trouble.

We now have a 1st arm of $363,000 (Indymac) and a heloc of $75,000(5th 3rd Bank). Home values of course have plummeted and our house is probably worth $240,000 if we're lucky. Add to this the fact that the company's profits have gone from booming to barely breathing. The partners (my husband included) are just trying to keep the business afloat and are cutting their own hours down to less than 30 hours a week. We can't live on what we are bringing in now and we feel very stressed and totally helpless. What seemed like our path to a successful future has turned very scary. We have very little debt otherwise and good credit ratings, but we just don't know what to do next. We really would hate ever going through bankruptcy, but I also can't see how we could ever pay the mortgage companies back the loss in equity if we foreclose.

If we decide to walk away, what makes the most sense, foreclosure, short sale or deed-in-lieu of foreclosure? As far as the loss of equity, what is the best way to deal with this we can't afford to pay back $200,000?

Professor and others, what do you think?

[cmw863]

If we do have to foreclose, etc... could the mortgage company come and try to sue us for our ownership in our company since it is an asset? It's a private company and our shares are not easily or quickly liquidated.

[Kevin]

You are going to have to give just a little more detail. When you first bought the house was it a single loan? Then six months later when you refi, did you refi the first? second? both?

[faith]

Originally Posted by cmw863

We bought our home in September 05 for $375,000 in Gilbert, AZ. Six months later we refinanced to take out equity to buy into my husband's company. We were using all our profit distributions to pay off this company debt and we paid off a lot, but fast forward to 2009 and we are in deep trouble.

We now have a 1st arm of $363,000 (Indymac) and a heloc of $75,000(5th 3rd Bank). Home values of course have plummeted and our house is probably worth $240,000 if we're lucky. Add to this the fact that the company's profits have gone from booming to barely breathing. The partners (my husband included) are just trying to keep the business afloat and are cutting their own hours down to less than 30 hours a week. We can't live on what we are bringing in now and we feel very stressed and totally helpless. What seemed like our path to a successful future has turned very scary. We have very little debt otherwise and good credit ratings, but we just don't know what to do next. We really would hate ever going through bankruptcy, but I also can't see how we could ever pay the mortgage companies back the loss in equity if we foreclose.

If we decide to walk away, what makes the most sense, foreclosure, short sale or deed-in-lieu of foreclosure? As far as the loss of equity, what is the best way to deal with this we can't afford to pay back $200,000?

Professor and others, what do you think?

Hello,
I found this information and I hope this will help you.

If a homeowner decide to walk away from the house, the lender will immediately begin trying to collect their money, by making hourly phone calls and sending collection letters. After a few months with no response from the owners, they will hire local attorneys and sue for the foreclosure. Once the foreclosure judgment is awarded to the lender, the house will be sold at a scheduled county sheriff sale. And finally, after the house is sold, ownership will transfer to the high bidder at the auction and the eviction process will start in the courts. Within a few weeks to a couple of months, the county sheriff will be ordered to change the locks and remove any remaining people or property. The house will then be put up for sale by the bank, if they were the winner, or the new owners will move into the house.

The lender may be able to go after other assets and income after the foreclosure, if the state in which the property is located allows for deficiency judgments. Not all states allow this, so it is important that homeowners look up the applicable foreclosure laws. But banks almost never sue their former clients after foreclosure; they know that they could not make the mortgage payments to begin with, so there is little reason to assume that they can make payments on a judgment involving the mortgage. And it will cost the mortgage company more time and money to hire attorneys to sue the former owners again, when they have not collected a single cent from the original foreclosure lawsuit. In other words, it is just not worth their time.

Making the decision to give up on a house is never an easy one, and one that is up to you to make. There are always various methods that can be used to stop foreclosure, and you as a homeowner should exhaust all of them before admitting defeat. But, not all circumstances allow homeowners to work vigorously on numerous options to save their homes. In these cases, knowing the potential consequences of simply leaving the home is vital for homeowners to make an informed decision and begin the process of starting over with no regrets or worries about the former home.

Have you tried contacting your lender, writing a financial hardship and see if you will qualify for a loan modification. Or you have already decided to walk away. You can check the walk away section where Professor Shays gave all the pertinent information about deficiency judgment and foreclosure laws in Arizona. Good luck and take care.

[cmw863]

Kevin,
When we took out the original loan is was just a regular 30 year fixed with no second.

I've read a lot of the threads so I know the basics, but what I'm most concerned about is protecting the company. It is on shaky ground with the development at a virtual standstill here in AZ. I just feel totally screwed. I wish we had known the deal about the non-recourse being forfeited if you refinance, it seems like they should have to tell you that.

We were told that we wouldn't qualify for the modification. Plus Indymac won't even consider it unless you are late. So, should we foreclose and what are the chances of judgment against us?

[helpinNE]

I found this information about AZ foreclosure laws on this site. Please read the NOTE on the bottom as I think it applies to you. I think if the lender follows the non-judicial foreclosure path, if you have one loan, even if it is a refi, you are safe from a deficency judgement as long as your property is a single family home on less than 2.5 acres. I would contact an attorney for a consult to find out if this is infact the turth.
Quick Facts
- Judicial Foreclosure Available: Yes
- Non-Judicial Foreclosure Available: Yes
- Primary Security Instruments: Deed of Trust, Mortgage
- Timeline: Typically 90 days
- Right of Redemption: None
- Deficiency Judgments Allowed: VariesIn Arizona, lenders may foreclose on deeds of trusts or mortgages in default using either a judicial or non-judicial foreclosure process.

Judicial Foreclosure
The judicial process of foreclosure, which involves filing a lawsuit to obtain a court order to foreclose, is used when no power of sale is present in the mortgage or deed of trust. Generally, after the court declares a foreclosure, your home will be auctioned off to the highest bidder.

Non-Judicial Foreclosure
The non-judicial process of foreclosure is used when a power of sale clause exists in a mortgage or deed of trust. A "power of sale" clause is the clause in a deed of trust or mortgage, in which the borrower pre-authorizes the sale of property to pay off the balance on a loan in the event of the their default. In deeds of trust or mortgages where a power of sale exists, the power given to the lender to sell the property may be executed by the lender or their representative, typically referred to as the trustee. Regulations for this type of foreclosure process are outlined below in the "Power of Sale Foreclosure Guidelines".
Power of Sale Foreclosure Guidelines If the deed of trust or mortgage contains a power of sale clause and specifies the time, place and terms of sale, then the specified procedure must be followed. Otherwise, the non-judicial power of sale foreclosure is carried out as follows:

1. The trustee must record a notice of sale in the office of the recorder of the county where the property is located. Within five (5) days after the notice is recorded, the trustee must mail, by certified mail, a copy of the notice of sale to each of the people who are parties to the trust deed, except for himself. Additionally, the notice must appear in a newspaper in the county where the property is located once a week for four (4) consecutive weeks, with the last notice being published not less than ten (10) days prior to the date of the sale.
   
   Optionally, if it can be done without a breach of the peace, the trustee can post the notice at least twenty (20) days prior to the date of the sale, in some conspicuous place on the property to be sold and/or he or she can post the notice at the courthouse or at a specified place at the place of business of the trustee in the county in which the property is located.
   
2. The trustee or the trustee’s agent must conduct the sale. The sale is for cash to the highest bidder, except that the lender can make a "credit bid," which means to cancel out some part (or all) of the money the borrower owed the lender on the lean, instead of paying cash. A successful high bidder must pay the bid price by 5 pm of the day after the bid, other than a Saturday or legal holiday. Every bid is an irrevocable offer until the sale is completed, which happens when the bidder pays the bid price to the trustee’s satisfaction. If the high bidder fails to make the payment by 5:00 pm, the day after being notified of the option to buy, then the trustee may postpone the sale.
   
   The trustee may postpone the sale to another time, or another place, by giving notice of the new date, time and place by public declaration at the last place and time the property was offered for sale. No other notice is required. A trustee may also, by written agreement, extend the time for a buyer to come up with the payment.
   
3. Once the sale is complete, the proceeds will go to the payment of the obligations secured by the deed of trust that was foreclosed, then to junior lien holders in order of their priority. The successful bidder gets a trustee’s deed, which provides conclusive evidence that the trustee conducted the foreclosure sale property.

A note regarding Deficiency Suits: A lender may not bring a deficiency suit against a person who lost a property that is 2.5 acres or less at a foreclosure, provided the property was a single one-family or a single two-family dwelling. This is so even if the high bid at foreclosure was less that the balance due on the loan. However, in foreclosures against other types of property, a deficiency suit is allowed, but is limited to the difference between the balance owed and the fair market value of the property, and then only if the suit is brought within ninety (90) days of the power of sale foreclosure.

[cmw863]

Moe or anyone, do you have info on a real estate attorney in AZ who could help us and not charge a fortune? I just don't know who to turn to for analysis of our situation, looking over loan docs, etc...

[fallacy]

State Bar of Arizona

Click on the "Find a lawyer" link in the top right corner, and narrow your search by typing "real estate"

Hope you have better luck than me!

[RimToRimHiker]

cmw863: Welcome to this website. We also live in Gilbert. For months I worried about how we would be able to hang on to our house. We've completely exhausted our savings account and our credit card balances have increased because we've strived to pay our house payment on time each and every month. We had always paid our cc balances in full every month prior to last summer. Our credit rating was something we greatly valued. Add in the emotional factor of potentially loosing the place you call home. Talk about being conflicted!! Thanks to reading through umpteen threads on this website, especially those posted by Professor Shay, we decided the best course of action for us is to stop making our house payments, let the house go into foreclosure, save as much money as we can and stay in the house until the lender literally kicks us out. It wasn't an easy decision because we really do love our house and it's location. We put pen to paper and began to view the situation as solely a business decision. We worked hard to take our emotions out of the equation. Short of the lender drastically reducing the principle of our loan (we owe approx $314K on a house worth about $220K) and giving us a rate of 5% or less, we will walk. This month is the 1st payment we have missed. It felt very strange not to make a house payment considering we've been making house payments on time for some 20+ years but we think in the long run this will be a good business decision. Best of luck to you.

[Optimistic1]

Newbie, also, here. I live in Mesa, AZ in a home that we purchased in 2005 for $350k, now listed at $199k to get offers for a last-ditch effort short sale. We exhausted everything to make our lofty payment and in July, decided to stop the madness. Living on credit is not the answer. This has been quite a process as I speak with the lender (Wells Fargo) and their inept staff at least 3 times a week. Our Trustee's Sale date is March 18th, but WF said they are offering us a Moratorium to show them we can increase our income (which we will not be able to do) by May 27th. We have a VA loan, so I'm thinking it will take a miracle to get a short sale concluded by May 27th, but we'll see. Anyone know about short sales and the VA? How about how long it takes after the Trustee's sale to be evicted? Thanks for any help. I'm thankful I've found you, here.