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.