Running Out of Options

[Schnelle]

Professor Shays I am in need of your guidance.

I will begin by providing basic facts about my Countrywide mortgage:

Date loan acquired: August 2005
80-20 Interest Only Loan
1^st loan – 220,000 at 6% Fixed for 10 years
2^nd loan (HELOC) – 65,000 adjustable rate (original loan amount was 55,000 which was used as down payment but it was modified to increase line of credit to 75,000; I used the 10,000 line of credit to cover negative cash flow)
Status: Current
FICO: above 760
Market Value: Around 150,000 (bought for 275,000)
State: CA


Below is my modification thread:

Modification rejected so hired lawyer

Since our mortgage was acquired our cash flow has been negative. I have done everything I can to get into an affordable loan.

1. The first year after loan was acquired I tried to refinance
Result: Failed due to lack of equity.

2. June 2008 - I attempted to modify my loans on my own.
Result: Rejected due to being current.

2. Jan. 2009 - I tried again and this time using the services of Attorney Griswold / Loan Safe Solutions
Result: Based on recent feedback Countrywide may still end up rejecting my modification proposal.

As much as I want maintain my credit score, I can no longer sustain our negative cash flow. I feel that my only option is to walk away. Please enlighten me.

[The Professor]

Let me focus on the second loan. Describe the nature of the second loan. By this I mean was it a "refinance" meaning a new deed of trust was recorded, or structured as an additional advance (most deeds of trust have a provision that allows the lender to make what are characterized as additional and/or obligatory advances).

Daniel

[Schnelle]

Prof. Daniel,

The 2nd loan was originally used as 20% down payment; it was never refinanced instead it was "modified" a few months after the loan was signed to increase line of credit from 55,000 to 75,000 providing me with 20,000 available line of credit. 10,000 of which i used to cover our negative cash flow. The rest of the line of credit has now been shut down.

According to the modification agreement document only the credit limit was amended everything else remain the same.

[The Professor]

This certainly provides an interesting situation, and one that I suspect will favor you if the holder of the second ever attempts to seek to collect at the point where their loan becomes "unsecured" as the result of the foreclosure of the first loan. The problem they face is one of "non-disclosure." That is I'm reasonably sure you could argue that they never told you that taking additional money would change the characteristic your purchase money loan to that of a recourse debt. My sense is that an equitable judge would characterize your liability as that which you borrowed that is in excess of the original loan amount.

I would run this by a lawyer skilled in real estate law and debt collection practices to see if you get their buy in. It is a common sense approach to application of CCP Section 580b to your situation. Hope this helps.

Daniel