Letting Home go in California. Will I still owe the Home Equity Line of Credit?

[misfitdevil99]

Hello all. I own a home in Southern California. I bought the home using my VA benefits. I am 3 months behind in my mortgage. It doesn't look like the mortgage co. (Countrywide) is going to modify the loan so that I may keep it, as i am $300 in the hole every month due to complete loss of overtime at work and the child support I pay increasing to $850 per month. I already contacted HUD and they sent a modification proposal to Countrywide 40 days ago but Countrywide has yet to receive it. My question is, I owe $64,000 on a Home Equity Line of Credit I got through Washington Mutual Bank on the house. If Countrywide forecloses, do I still owe the Equity Line of Credit? Will Washington Mutual come after me for the money? I owe $220,000 on the house, it was just appraised at $175,000. Also, when I contacted the VA, they advised me to deed the house over to them. At this point, I dont even want the house anymore. The area I live in has gotten terrible and is getting worse. If the home is foreclosed, how can I make this least financially devastating as possible?

[The Professor]

The challenge you face is not with the first loan but with that second equity loan. If the first forecloses, you will find that the second will chase you to collect the money its owed as an unsecured loan. In your shoes, I would seek the advice of a lawyer skilled in debt collection practice and bankruptcy.

Daniel

[misfitdevil99]

Thanks Professor! I've been doing a lot of reading both on and off the site. So much information its overwelming! But yes, the HELOC is whats really causing me to lose sleep at night. I've come to terms with letting the house go. Its honestly (yet sadly) what makes the most sense for me. I'm just really worried about the HELOC. I thought about hiring an attorney (such as those on this site) which state they can help protect you during the "walk-away" process. But I have my doubts as to how much help they'd actually be??? I mean, if i stay in the house till the last possible minute before they kick me out, the VA has stated they will settle a claim with Countrywide and est. a debt against me, however, they stated they would never attempt to collect. But then, I face the possibility of WAMU coming after me for the 64k HELOC. If i Deed the property over to the VA at the last possible moment (as they suggested) i understand it will be less damaging to my credit, but will that change anything with the HELOC, or is it no diff. than if they foreclosed? Due to the HELOC, and me not being able to afford paying back any more than the $200 interest only payment i pay WAMU monthly, i'm starting to fear bankruptcy might be the only way i get out from under the HELOC.

[The Professor]

I seriously doubt VA would accept a deed in lieu, given that would mean they would take the ownership interest "subject to" the HELOC loan.

Daniel

[gravymark]

So the HELOC you have was taken out after you purchased the home, and not part of the initial purchase money?

I have a HELOC on mine as well, but I did a 80/20 purchase with the 20 being a HELOC with Wells Fargo. I was advised that mine would be a non recourse loan because it was purchase money, even though I did refi it, but never took out any additional money.

[misfitdevil99]

I originally purchased the home for $199,000. A year later I refinanced it for $240,000, so that I could buy out my ex fiance (whom I bought the home with but seperated from). I gave her $35,000 to buy her out. A year after that I got a HELOC with WAMU Bank in the amount of $64,000. Which over the last 3 years i've used to make various upgrades to the home, and for the last year, needed to use to cover my monthly expenses due to loss of overtime at work and the child support i pay monthly nearly tripling. I know this wasn't smart, but It was the only way i was able to survive. Now, I owe $220,000 on the home loan, and a seperate $64,000 to WAMU for the HELOC. Im thinking i really made some desperate choices which have resulted in me being in a hopeless situation. I keep reading more and more, trying to figure a way out, but its not looking good at all.

When i spoke to the VA I told them about the HELOC, and they still advised me to Deed the property over to them. If they did this, would that mean i'd get out from under the $64,000 owed on the HELOC?

I'm seriously thinking i'm going to be forced to file bankruptecy. Which is devastating to me since i've never had a bad mark on my credit, and have spent years getting to the high 700's where its at.

[The Professor]

Gravymark said, "I have a HELOC on mine as well, but I did a 80/20 purchase with the 20 being a HELOC with Wells Fargo. I was advised that mine would be a non recourse loan because it was purchase money, even though I did refi it, but never took out any additional money."

Is your home in Californa? If so, I will be suggesting that you get a second opinion from a lawyer qualified in real estate law relative to application of CCP Section 580b, and I don't think you will like the opinion.

Daniel

[gravymark]

Professor,

no, my home is actually located in Arizona.

[The Professor]

You are on the correct side of the Colorado river, given your facts.......

Daniel

[gravymark]

Originally Posted by Professor Shays

You are on the correct side of the Colorado river, given your facts.......

Daniel

that confused me sorry haha, was that to me or to Misfitdevil?

[The Professor]

Graveymark, it was directed to you. Yuma and Winterhaven are only a mile apart, but worlds apart when it comes to refinanced seconds on personal residences........

Daniel

[Ambling]

From reading the FAQ pages at irs.gov I am under the impression that HELOCs in California do qualify for non-recourse protection under these circumstances:

* the money was used to purchase a primary residence
* the HELOC was begun within 3 months after the purchase

Professor, you don't agree?

[The Professor]

What if, within 3 months of purchasing a home, I go out and borrow money on a new HELOC to pay for the cost of my "around the world" vacation? No benefit flows to the home as the result of this borrowing. If the debt is forgiven, then are you suggesting I don't have to pay taxes?

I hope you are not suggesting IRS regulations control what is recourse and what is non-recourse under CCP Section 580b.

Daniel

[misfitdevil99]

Ok, so i'm stuck with the HELOC. Fair enough. If the house forecloses (which it will) at what point do i tell WAMU or do I? Should i stop paying the HELOC payments now (which are interest only)? Should I call WAMU to try to negotiate a settlement? Will they? If they do, I owe $64,000, what do you geuss they'd settle for? I know this is a lot of questions guys, but i sure appreciate your input. Thanks!

[paigowman]

I looked through my loan docs on my 2nd (HELOC used as purchase money only) for a Texas property. Where would it say non-recourse? Would it say this loan is non-recourse? I don't see anywhere with that wording in the HELOC loan docs. I know that Texas is a non-recourse state, so is it assumed that the loan in non-recourse? Thanks!