Finally Ready to Walk in Calif.

[Esme56]

Hello Everyone,

I am very thankful for this forum and I am hoping some of you can give me advice.

My condo is currently about 50% underwater and I have made the decision that it is not worth it to pay an interest only mortgage on something that has negative value. I have been struggling with this decision for about a year but the time really has come. I had buyer's remorse right after I bought (at the peak, about 3 years ago) and have been stuck here because of the housing market ever since. My condo is a tiny one bedroom 580 square feet. I could buy a 3 bedroom house now for the price I paid. I cannot see myself living here for another 10 years until there is even the possibility of selling. So I have a few questions:

-My income has actually gone up since I bought so I am sort of in a different situation. I can afford the payments...I am just very unhappy here and think I am wasting all my money on bad debt. Does this affect my ability to walk away? Can the bank prove I can make the payments?

-Are there any tax implications? I never refinanced. I've read about the Federal Debt Relief Act so I think I would be OK with the IRS, but what about California State Taxes? Also, is the Federal Debt Relief Act set to expire soon? I worry that it may expire before my home gets foreclosed on.

-What do I say to the bank when they call? I really have no desire to work with them and just want out.

-Can the bank come after me for any other assets? I have a little money in savings (about 15K) and just bought a new car while my credit is still good.

-Finally my loan is almost all financed through one bank (B of A) but I received a small FHA down payment assistance loan (about 10K). Will I have to pay that back or do they both get wiped out with the foreclosure?


Thanks for any help!

[The Professor]

As you may have noticed, in virtually all of my responses I suggest that it is absolutely critical for you to have an attorney skilled in California real property law and debt collection practice review your purchase and loan documentation to confirm what I'm suggesting. Your situation appears to indicate that Code of Civil Procedure Section 580b applies effectively making your loan with Bank of America "non-recourse." That is because it was created at the time you bought your residence. I just don't have enough information about the down payment assistance loan. Is it secured by a second deed of trust?

Daniel

[Esme56]

Daniel,

Thank you so much for your help. I am definitly planning on seeing an attorney.

Here is a little more info on my loan:

Total Mortgage $295K
B of A loan $286,150
CHFA down payment assistance loan $8,850K

Current value of my cond $120K

So I have read the paper work of my second CHFA loan and it looks like I might have to pay it back. It is a deferred interest loan, part of a first time homebuyers program, which means I don't have to pay until I sell the condo or pay it off. But on the paper I signed it says that "Acceleration of Payment is due immediately in the event of a default under the termsof this note or deed of trust securing this note; In the event of a default under the terms of any superior note or deed of trust on the property". This means I must have to pay I am guessing. I will take all the paper work to an attorney.

Please let me know if you have any input!

Thanks a million.

[The Professor]

My sense is you will not have to worry about that second loan as it is also a secured purchase money loan like the first loan, and as such non-recourse.

The language you quote, "Acceleration of Payment is due immediately in the event of a default under the termsof this note or deed of trust securing this note; In the event of a default under the terms of any superior note or deed of trust on the property," is in virtually all secured loans. It is ineffective because in order to accelerate the payment, California laws relating to enforcement of secured real estate loans (Civ.Code Section 2924b in particular) control.

Daniel

[Esme56]

Daniel,

Thanks so much...it will be a relief if I don't have to pay the 2nd loan.

Do you know anything about California tax law? I haven't been able to find anything on the web. Do we get taxed for loan forgivness by the state?

[The Professor]

I try to avoid tax issues as much as I can, although usually California tax legislation somewhat mirrors that provided by the Federal Government. As homework, you should Google the following key words:

California mortgage relief act

Daniel

[KT in CA]

California has not as of yet extended relief for 2009 as far as what I have been able to find out. With the way things are here they probably won't, but I'm holding out hope.

[zaskar12]

I am in a very simlar situation, and looking to by another property before I forclose/deed in-lieu on my current property. Does anyone know if there is any leagle implications to buying another property before I forclose on my property?

[Moe Bedard]

Yes it is considered material misrepresentation and is considered mortgage fraud by the FBI...............

Fraud for housing represents illegal actions perpetrated solely by the borrower. The simple motive behind this fraud is to acquire and maintain ownership of a house under false pretenses.

Mortgage Fraud is defined as the intentional misstatement, misrepresentation, or omission by an applicant or other interested parties, relied on by a lender or underwriter to provide funding for, to purchase, or to insure a mortgage loan.

of course not everyone is caught...........but if the new application is flagged by an SAR (Suspicious Activities Report) by the FBI, then that could create a bigger problem............then just renting until you are able to buy again........or having a non related party buy the new property for you and rent it back to you to purchase later.

[zaskar12]

***,

Thanks for the advice. I moved in with a family member and tried to rent out my home to save a little money each month. I am still lossing around 1000 dollars a month (rent is 875-mortgage and hoa 1900). I have taken a larger loss in my income the last few months and am looking at possible forclosure or loan mod. I have spoken with an attorney but still dont know what to do. From the sound of it most loan mod's just extend the term of the loan to 40 years and a lower rate. Chances are this wont bridge the gap between the rent differnace and what my payments are. I have called Chase many times to talk with someone about options and get the same answer : apply and wait 90-120 day for approval.

What is the best way to forclose on a property? Just stop paying the bill? or do I try and short sell the place? what would you recomend?

[Moe Bedard]

You would have to speak to a real estate foreclosure attorney regarding the foreclosure process in your state because if the loans are purchase money loans, there are anti deficiency laws in California that you would need to discuss which would be to your benefit.