CA-Thinking about getting out of this underwater situation

[cc123]

Ok Professor Shay, here goes:

1. CA East Bay Area
2. Fair market value approx $100k or less
3. Loan amt $330K, 30 year fixed BofA, current balance about $320k, loan created to buy home only. No second loan.
4. House was purchased and occupied as primary residence

So, we are underwater for practically the entire loan amount and our property is not worth anything. We are not in hardship situation. We have no attachment to the property nor the crummy neighborhood. Do you think the bank will let us proceed with deed-in-lieu without much problem? We heard a lot of horror stories about BofA being unresponsive and a nightmare to deal with. Currently our mortgage payment is automatically deducted from our account set up with BofA.

What is your take on this? Thanks!

[cc123]

Also, we're at loss which avenue to proceed. Since we couldn't present hardship, would the bank still allow short sales? Anyone here did a Deed-in-lieu successfully? I've not seen anyone list the process and time line for DIL. Is foreclosure the best way to go? Our next mortgage payment is due on March 5, so we hope to get things going real soon. Thanks.

[The Professor]

It amazes me with way property values here in California are declining. With a $200K shortfall, a break even point is a long ways away. You have outlined all of the conditions associated with the application of CCP Section 580b (assuming your information is correct). What you are looking at would probably be best handled by continuing to live in the property until the foreclosure is complete, assuming you are willing to view this as a business decision. As always I would suggest that you have an attorney review your purchase and loan documentation to insure that your secured debt is "non-recourse."

My sense is that it isn't worth the time or energy to go through the deed-in-lieu process. Live in the property until the foreclosure is completed. Heck it is a way to extract a benefit. You might even be able to get "cash for keys" after the foreclosure.

Take care,

Daniel

[cc123]

Thanks Prof. Shay. My gut feeling tells me that foreclosure may be the way to go. I'm wondering if the bank will return the escrow money for property tax before we stop paying March mortgage. Do we cancel the homeowner's insurance and get renter's insurance now? We are trying very hard to view this as a business decision but it is still a terrifying thing to do. We've been very conservative in all our financial dealings, so foreclosure is the last thing we imagine us doing. However we feel a little bit more enpowered after reading what others in similar position have done. Stop the bleeding now and don't look back! We'll probably look for rental beginning in August since we don't want to disrupt our kid's school with packing and moving. We already scheduled appointment with a lawyer to discuss this. Thanks for responding quickly. Really appreciate it.

[The Professor]

Don't expect the lender to return funds held in the escrow account. Expect them to pay the 4/10 payment of the second installment of real estate taxes. With regard to the fire insurance, it is paid on an annual basis. Once you quit paying and it reaches a point where there is no money in the escrow (impound) account to pay the insurance premium, the lender will secure its own insurance that covers only the home as a fire policy, you should get renters insurance.

Daniel

[homerunkevin]

I'm in the same boat with you. I have mortgage with BofA also and planning on getting rid of my condo. I already miss my January and February payment.

Originally Posted by cc123

Ok Professor Shay, here goes:

1. CA East Bay Area
2. Fair market value approx $100k or less
3. Loan amt $330K, 30 year fixed BofA, current balance about $320k, loan created to buy home only. No second loan.
4. House was purchased and occupied as primary residence

So, we are underwater for practically the entire loan amount and our property is not worth anything. We are not in hardship situation. We have no attachment to the property nor the crummy neighborhood. Do you think the bank will let us proceed with deed-in-lieu without much problem? We heard a lot of horror stories about BofA being unresponsive and a nightmare to deal with. Currently our mortgage payment is automatically deducted from our account set up with BofA.

What is your take on this? Thanks!

[cc123]

It's crazy isn't it? If we want to we could easily purchase the property down the street (bigger and nicer) outright for less than the downpayment we put up for our current house! We could use up our cash reserve and own the house. So, even if we want to stay in the same neighborhood (which we don't), we would still walk away from the current house because it makes no sense to keep it. But we can't wait for the whole ordeal to be over. This is going to be one hell of a year. Well, maybe another few years of walking around with a badly dinged credit. Keep us updated on your BofA walkaway, homerunkevin. All the best to you!

[cc123]

Prof Shay,

What is this California Franchise Tax thing? I thought for our situation, we are safe from federal and Califonia taxes when we foreclose.

[The Professor]

My sense is you are safe, but if you have not sensed it I stay away from talking about tax issues. Tax law isn't what I'll characterize as intuitive. I do know that there was a quote on one of the recent postings dealing with this exact issue and the author (I believe a tax attorney) indicated that there would be no debt foregiveness liability to the State of California and the IRS.

Daniel

[cc123]

I googled and found this:

Mortgage Forgiveness Debt Relief Law

Seems like California law has not caught up with the federal law yet in terms of debt relief. Oh, dear!