CA stop paying HELOC

[onwards]

I have been reading this board for a while quietly - great information! - and finally signed up so I can xpost this from the two other boards I read regularly (creditboards and bkforum).
=================
I just had a call back from the lawyer I retained to validate my own research into the matter.

It was a delightful little call because what he said was: "I didn't think so, but turns out, you were right!"

That tickled me greatly, but is also, I think, important information.

So, the background and facts:

I filed for Ch7 last summer, and got discharged in December.
My wife was NOT included in the filing.
Our house has two loans on it - a primary at $570K, a HELOC at $125K.
The primary was modified by the lender last April but is still non-recourse (doesn't matter for the point of this post anyway).
The HELOC was refinanced at some point so it is recourse.
We are co-borrowers on both loans.
The house is worth less than $500K.

My question to the lawyer was:

After reading CA's First Action and One Action rules, it appears to me that if we simply stop paying the HELOC, the only option that the HELOC lender has is to go after the property. Am I correct?

And yes, I am indeed correct. Not only that, but my lawyer said that he thinks it is a good strategy considering the home valuation, and he is comfortable with my executing it (considering he will have to defend me should it ever come to court). The only risk (as expected) is that the HELOC lender will choose to simply "sit" on the loan until such time as the property appreciates to a level where it makes sense for them to take action against it, and then foreclose. I see this as rather unlikely.

The important part is that legally, there is nothing else they can do. They cannot, for example, sue my wife for the deficiency. That was probably the most crucial point in procuring this opinion.

What I anticipate will happen is that after 181 days, the lender will charge the loan off and sell it to a junk debt holder or CA, with whom I will be able to settle for 10-20% in return for removal of the lien. It might just be that the HELOC lender will deal before then, and I am in fact ready to offer 20% cash; my lawyer suggested that in the current environment, this is the most likely outcome.

There you go, folks. I am set on this course, but I was happy to have gotten a well-researched legal opinion and wanted to share with you should you decide to embark on the same. Personally, I think everyone in this position (value underwater on first, with a second hanging on) should do so. Hopefully this will give you a bit of extra incentive.

PLEASE remember that I AM NOT A LAWYER, and this is the interwebs, and thus my posting offers you no protection or in fact anything if things go wrong. I am simply posting my own experience and sharing what I discovered over the past four weeks.

[Daisy Cutter]

Who holds your second? There is another thread where we are discussing E-trade helocs, similar topic. Depends on your lender and how solvent they are as to whether they will be willing to take a quick settlement or not.

[onwards]

Who holds your second? There is another thread where we are discussing E-trade helocs, similar topic. Depends on your lender and how solvent they are as to whether they will be willing to take a quick settlement or not.

USAA They are known to be obstinate and not settle. I don't really care - if they don't, then the people they sell the debt to surely will.

[yomann]

onwards - welcome & thanks for sharing your detailed information.
We have taken the same path on our 2nd with Nat.City/PNC.
After 6 months of non-payment, they stopped calling, so I am assuming they charged it off by now.

[onwards]

onwards - welcome & thanks for sharing your detailed information.
We have taken the same path on our 2nd with Nat.City/PNC.
After 6 months of non-payment, they stopped calling, so I am assuming they charged it off by now.

Did you not attempt to negotiate a settlement then? I actually would prefer we avoid a chargeoff - if we can negotiate and settle with USAA before that happens, I'd be happy. I just don't think they will negotiate based on my experience with them last year.

[yomann]

Did you not attempt to negotiate a settlement then? I actually would prefer we avoid a chargeoff.................

No; unless my first is modified to acceptable terms, I am not paying a red cent to the 2nd.
Why would you prefer to avoid a chargeoff ?
It's just an accounting term.
And if the 2nd is sold to a collections agency (at a discount), they would be willing to settle for less ?
I am just throwing this out there, and would like to understand it better than I do ........

[onwards]

No; unless my first is modified to acceptable terms, I am not paying a red cent to the 2nd.
Why would you prefer to avoid a chargeoff ?
It's just an accounting term.
And if the 2nd is sold to a collections agency (at a discount), they would be willing to settle for less ?
I am just throwing this out there, and would like to understand it better than I do ........

Oh, don't get me wrong, that's what I expect will happen (see my original post). But ideally it would be better to avoid the chargeoff since it is easier to deal with one party rather than two, not to mention the difference in reporting. And don't forget that even after chargeoff, unless you get the lien removed, you're never really getting rid of that debt and it can haunt you down the road.

[Daisy Cutter]

And don't forget that even after chargeoff, unless you get the lien removed, you're never really getting rid of that debt and it can haunt you down the road.

I asked this in another forum. I'm not paying a cent until I can get the lien removed, but are there any considerations there? Since the debt is secured by the home, does that mean when it moves to a collection agency they actually hold the lien and can do what is necessary to remove it? I am a little concerned about that. I would like to know what we really need to receive in writing from either a bank or collection agency in order to ensure the lien is removed before we send them a cashiers check. Also this recourse area is a grey area, some lenders feel they have a recourse loan when the law may say otherwise. So they could try to collect as an unsecured debt while keeping the lien at the original bank (although how would that work).

Here is the text from an offer to settle letter that Aurora sent to their current heloc holders,

Upon release of the reduced payoff funds of $xxx, your loan will be considered paid in full. We will report your account as paid in full to the applicable credit reporting agencies and send the necessary documentation to release the second lien from the public records.

[onwards]

I asked this in another forum. I'm not paying a cent until I can get the lien removed, but are there any considerations there? Since the debt is secured by the home, does that mean when it moves to a collection agency they actually hold the lien and can do what is necessary to remove it? I am a little concerned about that. I would like to know what we really need to receive in writing from either a bank or collection agency in order to ensure the lien is removed before we send them a cashiers check. Also this recourse area is a grey area, some lenders feel they have a recourse loan when the law may say otherwise. So they could try to collect as an unsecured debt while keeping the lien at the original bank (although how would that work).

Here is the text from an offer to settle letter that Aurora sent to their current heloc holders,

As much as I hate to say it, it is dependent on many factors, including the law in your state. I have a lawyer retained for dealing with this when it comes; since I am using this strategy to eliminate over $100K in debt, I don't mind shelling several grand to the lawyer in order to ensure that it is rock-solid when it happens.

[sobie46]

What part of CA are you in? Can u send me the lawyer info?

[onwards]

What part of CA are you in? Can u send me the lawyer info?

Sure. Can you send me a PM to that effect? I am not sure where to find the inbox *blush*

[sobie46]

you can email me at james641146@yahoo.com

[onwards]

Sobie, did you get my email? I sent you the info to the email you specific but never heard back.

[rkmgkm]

Sobie, did you get my email? I sent you the info to the email you specific but never heard back.

Hi Onwards, I have a similar situation with my Heloc. I have first mortgage underwater and second(heloc) around 100k underwater. My heloc is with DCU and i am trying to get this loan modified, but they are not co-operative. i stopped paying last 2 months and they are threatening foreclosure inspite knowing that the loan is underwater and they wouldnot be benefited. Please email me the lawyers address if you are satisfied with the process/proceedings. My email is rkmgkm@gmail.com. thanks

[onwards]

Hi Onwards, I have a similar situation with my Heloc. I have first mortgage underwater and second(heloc) around 100k underwater. My heloc is with DCU and i am trying to get this loan modified, but they are not co-operative. i stopped paying last 2 months and they are threatening foreclosure inspite knowing that the loan is underwater and they wouldnot be benefited. Please email me the lawyers address if you are satisfied with the process/proceedings. My email is rkmgkm@gmail.com. thanks

I just emailed you. One thing I'll stress: this strategy DOES have risk - namely, the risk that the bank does foreclose because they have a reason you would not be aware of to do so (for example, they have cross-insured your loan without your knowledge, or they have a deal with the government that makes it helpful for them to do so, see Onewest/Indymac). Or out of spite, or whatever. They are fully within their rights to do so. And regardless if they really intend to do so, you should definitely expect that they threaten foreclosure - why wouldn't they? it costs nothing to do so and if it scares you into paying, all the better. I am simply betting that in my case, they won't, because it will cost them so much. I may end up being wrong, but the numbers do presently work in my favor: first balance is ~$570K, the house appraises in the low-to-mid $400K's at this point, and in a foreclosure will sell for under $400K (as a recent nearby sale shows). So to foreclose they will have to pay the holder of the first (a different bank) $200K over what they will recoup - and they STILL won't be able to go after me for the balance. Don't forget that I got discharged from this debt last year through a Ch7. My wife wasn't, as we excluded her from the filing, but she has nothing to her name and can just as easily get discharged as well if it goes down that route. Oh, and if they want to make it judicial... yum. That's at least four years of legal battles before we have to leave - rent-free! I believe that I really am holding all the cards here, and I fully intend to play my hand out to the maximum of my ability. I am prepared to go all the way, placing as many legal and procedural obstacles in their way as I possibly can, so that they end up settling with me. If they don't, oh poo. We'll spend some of the money that would have gone on the mortgage on my lawyer fighting them for as long as possible, then move. And I'll enjoy it, and especially knowing they lost even more money along the way. This bank (USAA) is the same one that, through being ruthless, immoral, and IMO abusive to me last year forced my hand into Ch7. I have absolutely no interest in being nice. They made it very clear they want these transactions to be all business; that's exactly how I will treat it. Karma is a b**ch. The last point for me is that I am working through trying to get approved for HAMP for our first (through GMAC). If THAT happens, and actually fixes our interest at a low rate (we are currently on an ARM)... well, that will change things yet again. And who knows? maybe USAA will sign up for 2MP and this will all be taken off our hands cleanly. Lots of moving parts here, that's for sure.

[Daisy Cutter]

I see a lot of people in underwater seconds refer to 2MP, but I looked at the 2MP guidelines, and most of it is the same as hamp- lower the rates. Personally I would not be interested in even a 0 rate on my heloc- its underwater and I need it to go away. There is an extinguishment option in 2MP that pays a small amt to the servicers to extinguish the loan, less than 10% if I recall- I don't need to wait for 2MP for that, I will pay to extinguish my loan at 10% right now! If the banks aren't interested in that deal from me I doubt they would bother with 2MP. The only govt program that would make a difference on these seconds is if they offered to pay, maybe 60-70& of the loan. THat would be appealing to the banks. But obviously, the govt is not offering that.

[onwards]

I see a lot of people in underwater seconds refer to 2MP, but I looked at the 2MP guidelines, and most of it is the same as hamp- lower the rates. Personally I would not be interested in even a 0 rate on my heloc- its underwater and I need it to go away. There is an extinguishment option in 2MP that pays a small amt to the servicers to extinguish the loan, less than 10% if I recall- I don't need to wait for 2MP for that, I will pay to extinguish my loan at 10% right now! If the banks aren't interested in that deal from me I doubt they would bother with 2MP. The only govt program that would make a difference on these seconds is if they offered to pay, maybe 60-70& of the loan. THat would be appealing to the banks. But obviously, the govt is not offering that.

Actually, extinguishment is what I am referring to; if they don't do it, fine. It's just an option that could, under these circumstances, be attractive to them. Who knows?

[tracercbd1]

Onwards,

I have been re-lurking here for 6+ months now (we got a crappy loan forebearance before HAMP came out when we both lost our jobs) and now the terms are about to reset, and while we are both working again, we have had to accept jobs at a loss of combined income of $80k per year, and can't afford the terms as they are to reset later this year.

We are traveling down the BK path, but are conflicted about what to do re reaffirming our 1st and what to do with our HELOC, and I was VERY interested in what you are finding.

We too are in CA - would it be too much for me to ask for the name of your attorney? We have consulted several, and my own research turned up a lot of what you wrote, but the attorneys we contacted, didn't "get it" (so we aren't hiring them!)

You can send me an email at notgonnago@gmail.com. Thanks in advance for your help!

[troubleinriverside]

Hi Onwards,

Have seen you on the BK forum. Were in the same boat. BK-7, my 341 is monday. I want to stop paying my HELOC asap, as I feel Im dumping money down the toilet. But I also dont want to disturb things, so as to cause them to ask for relief from the automatic stay. My HELOC is with HSBC for $241K