Walking Away in Oregon -- What am I missing...?

[Kick_Me_Out]

While I am not in as desperate of a position as many people here, I have gotten myself in a mess. I have finally given up the fight in the moral battles of not paying back what I promised.

As much as I wanted to capitalize on the Sky Rocketing property values that were going on here in Central Oregon, I got in at the wrong time -- the top!

Purchased House (we'll call this property 1)in Oregon as Investment Property in September 2006. I'll spare you the details of "the investment plan" since it obviously did NOT work... After it sat empty for almost two years, we moved into it as a residence in June 2008. $275,000 Sales Price. $220,000 Interest Only First through Litton. $55,000 Second through Specialized Loan Servicing. As of now, 3 months with no payments... Contemplating a short-sale, a Realtor told me yesterday that it was worth maybe $120,000. Payments are nearly $2100 per month. I will admit that this was a dumb purchase. Bad timing, rushed into it, pushed us to (if not just past) the limits of what we could handle.

I have three rental properties that luckily I bought at a decent time and am in a little better shape on.

The first rental property is a duplex (Property #2). This is the property that was my residence when I bought the house listed above. Both sides have been vacant for a year, but we finally have gotten a renter that will be moving in on the First. CountryWide Loan turned in to BofA and we have kept that one current because the ground it was built on was my Mom's and I'd have additional family issues if I let that one go.

Two small properties -- These are what I look at as my retirement savings. There is one with an old trailer and one with an old studio. These properties are paid off (no Loans against them at all, but Tax liens are coming if I don't pay past years taxes), and as old as the buildings are, I have good tenants in them.

My wife getting laid off, lack of renters in the duplex, the >$150,000 underwater, and credit card debt has pushed me over the edge. I think I have decided to let our residence go (hence the three months of missed payments!). So, I have a couple questions.

If I allow the property(#1) to go to Foreclosure, will I get a 1099? This could be a bit tricky in that I bought it as an investment property, but then moved (about 20 miles away) into it as a residence so that my kids got into a different school district.

If I allow the property(#1) to go to Foreclosure, will the 2nd Mortgage come after me because of the other properties that I have? Or do Anti-Deficiency Laws in Oregon prevent that?

Right now I am saving everything that I can -- I had been putting the "with held" house payments toward high-interest credit cards, but think that as of this month I am going back to just minimums. I think at this point I would be better off keeping my credit looking as bad as it can be. Looks like I'll be putting anything extra into the "mattress."

I have had very little contact with the mortgage companies. When we moved, we did not get another phone number so they can only contact me by mail. I did call each of them letting them know that my wife was laid off and that I couldn't make the payments. SLS offered to lower the interest rate quite a bit, but my motivation to pay them is ZERO since it is so far underwater and they would get nothing if a Foreclosure happens (Unless they come after the two properties that I look at as my retirement account...)

So, any advice that anyone can give about Foreclosures in Oregon would be great.

If you haven't read it yet, everyone should read this whole post about a guy who lived rent free as long as he could and everything that he went through...

Walking Away in Arizona - My Journey

If there is any interest, I will try and keep you updated with my trek. I think I am going to wait until almost auction time to line up a local rental to move into, but I'll be able to rent a house almost twice the size for half the money.

As I look at it right now, hopefully the only real sacrifice will be to my credit score. Am I missing anything?

[Moe Bedard]

If I allow the property(#1) to go to Foreclosure, will I get a 1099? This could be a bit tricky in that I bought it as an investment property, but then moved (about 20 miles away) into it as a residence so that my kids got into a different school district.

Here is some info straight from the IRS:

Home Foreclosure and Debt Cancellation

Update Dec. 11, 2008 — The Mortgage Forgiveness Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualify for this relief.
This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately).

The exclusion doesn’t apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.

The amount excluded reduces the taxpayer’s cost basis in the home. More details. Further information, including detailed examples, can also be found in Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments.
The questions and answers, below, are based on the law prior to the passage of the Mortgage Forgiveness Debt Relief Act of 2007.

If I allow the property(#1) to go to Foreclosure, will the 2nd Mortgage come after me
because of the other properties that I have? Or do Anti-Deficiency Laws in Oregon prevent that?

This depends on just how the foreclosure was done. If only the first mortgage holder note was foreclosed, then the second which is held by the same servicer was removed off of the title for foreclosure purposes.

By doing that they can keep the second mortgage on the books , charge it off and still try to come after you for the money.

Here is a link to the foreclosure law in Oregon

Oregon Foreclosure Law

Right now I am saving everything that I can

--


Smart!

[Kick_Me_Out]

So -- Here is where I am at now. I have still not sent any payments to the first or the second, and surprisingly, other than the typical "we are going to foreclose" letters, I haven't heard anything from either the first, or the second.

The new renters did move in to one side of the duplex -- now that property is only costing me $900 per month.

I took the three payments that I have missed, and used them to pay off two of the three years worth of back taxes on Property #3 and #4. At least there won't be any tax liens on those for a while.

Credit cards have continued to slash my limits down to the current balances, except Chase. Not sure why, but they have come down a little bit on my credit limits, but not as hard as BofA, Citibank, Discover, and even my Lowe's card.

I have decided to try one other thing with both Mortgages to see what happens. I have filled out the form on Litton's website about Financial Hardship and am sending them a letter today. I explained that my wife is still unemployed and we can't make our payments. I explained that we purchased for $275,000 and that a realtor recently told me that it was probably only worth $120,000. I have asked very bluntly to reduce the principle to $130,000 and change over my loan to a 30 year fixed at about 5.5%. I doubt they will do it, but I figure that every time I get a letter from them, I will resend that offer.

As for the second -- I'll ask for opinions... From what I have gathered from LoanSafe, is that in Oregon if the First forecloses, the second can still come after me. So, I think that I will just write up an offer to buy it out at 5 cents on the dollar and send it off. Every time that I get a letter from them I will resend it. The worst they can do is say no, and maybe counter offer.

I guess my worst case scenario would be that I get a Juicy Refi from the first, and the second is still hanging out on there. And then it still would not be worthwhile to stay. But if I don't get rid of them, they will be there whether or not I walk or not, right?

What if I get the first to refi, and then continue to ignore the second? Then as soon as (if!) property values come back a bit, they would have better standing to Foreclose, right?

[Kick_Me_Out]

And one more question for any one who might be out there lurking... When I bought this house, I bought it as an investment property, but then we moved into it, and it is now our primary residence. Are there any ramifications that could side swipe me because the Loan was written up as an Investment?

[Kick_Me_Out]

Update: Sent Letters to both Litton and Specialized Loan Servicing today. Faxed them also...

Litton -- the 1st -- Just told them that I couldn't pay any more, wife laid off, etc... Asked them to adjust the principle down to the Approximate Market Value ($90,000 less than the balance) and to drop the interest rate to 5.5% (From about 7%) and to change from a fixed interest only loan to a standard 30 year fixed.

SLS -- the 2nd -- told them the same thing, but asked them for a settlement at about 5% of the principle ($55,000).

What can they do? Say no? I don't expect either one to accept -- but maybe a counter offer. I am mentally prepared now (I think) to just walk away. I am at about 100 days late now so things should be getting serious. Maybe after the 16th of this month...

If by chance both the 1st and the 2nd agree to my terms, I will probably stay, but again -- I don't think they are going to. So, at this point I am planning on staying until the Sheriff comes!

[Moe Bedard]

As for the second -- I'll ask for opinions... From what I have gathered from LoanSafe, is that in Oregon if the First forecloses, the second can still come after me. So, I think that I will just write up an offer to buy it out at 5 cents on the dollar and send it off. Every time that I get a letter from them I will resend it. The worst they can do is say no, and maybe counter offer.

I agree or you can possibly claim bankruptcy and try a 2nd mortgage cram down.

I wrote about bankruptcy, lien stripping and principle reductions a few months ago. So I thought I would highlight some points here for my readers.

• If the courts remove this 2nd mortgage, this is known as “stripping” the lien, “cram down” or “strip down,” which can also occur if the loan is secured by other collateral that is part of the filing or if the home is not your principal residence, or even if the payment structure on the 2nd mortgage falls heavily during the bankruptcy filing itself.
• Additional liens on your home beyond your initial mortgage, whether you have taken a second mortgage or just another related lien, could be negated in the case of a Chapter 13 personal bankruptcy filing.
• Liens can be stripped off of the debtor’s assets in Chapter 11 or Chapter 13 when there is not enough equity in the asset, after deducting senior liens from the property’s current market value, to secure the unsecured in whole or in part, where the lien exceeds the value of the debtor’s property.
• Section 506 of the Bankruptcy Code acknowledges that a lien is only a secured claim to the extent there is value in the asset to which it attaches. To the extent that the claim exceeds the value of the collateral, that portion of the claim is unsecured.
• In Chapter 11 or Chapter 13, even voluntary liens, such as mortgages and security interests, can be stripped down to the value of the collateral, with the exception of voluntary liens secured only by the debtor’s residence. Congress is currently considering changes to bankruptcy law allowing the modification of home mortgages.
• Tax liens can also be stripped off in reorganization proceedings (Chapters 11 and 13) to the extent that the lien does not attach to equity in property. Tax liens can’t be avoided in Chapter 7 on the grounds that they impair exemptions; if the tax is dischargeable in the Chapter 7, the bankruptcy court can determine the amount of the lien that is secured at the time of the filing. Payment of that sum entitles the debtor to the release of the lien.

Read more on mortgage bankruptcy on your second mortgage here.

I guess my worst case scenario would be that I get a Juicy Refi from the first, and the second is still hanging out on there. And then it still would not be worthwhile to stay. But if I don't get rid of them, they will be there whether or not I walk or not, right?

Yes.

What if I get the first to refi, and then continue to ignore the second? Then as soon as (if!) property values come back a bit, they would have better standing to Foreclose, right?

Your second mortgage has now become unsecured as the collateral has already been foreclosed by the first mortgage holder. If you do not pay it off, the collection agency can sue you for non-payment. In this situation, borrowers usually enter into a negotiation with the collection agency to settle the debt for less than owed. Once both the parties reach a settlement and you pay off the settled amount, you can request the lender to report the debt to the credit agencies as 'settled as agreed' and remove negative items like late payments, collections etc.

And one more question for any one who might be out there lurking... When I bought this house, I bought it as an investment property, but then we moved into it, and it is now our primary residence. Are there any ramifications that could side swipe me because the Loan was written up as an Investment?

Not if this was done in good faith. Usually it is the other way around, so you should be fine.

[Kick_Me_Out]

Thanks Moe -- I appreciate the insight. If I am understanding what you are saying correctly, in Oregon, after the 1st forecloses and there is a deficiency, the 2nd can still come after me. I have looked at the laws for Oregon and must be reading it wrong. Here is what I found...

>>>>>>>>>>
86.770 Effect of sale. (1) A sale made by a trustee under ORS 86.705 to 86.795 shall foreclose and terminate all interest in the property covered by the trust deed of all persons to whom notice is given under ORS 86.740 and 86.750 and of any other person claiming by, through or under such persons, and such persons shall have no right to redeem the property from the purchaser at the trustee’s sale. The failure to give notice to any of these persons shall not affect the validity of the sale as to persons so notified.
(2) Except as provided in subsection (4) of this section, no other or further action shall be brought, nor judgment entered for any deficiency, against the grantor, or the grantor’s successor in interest, if any, on the note, bond, or other obligation secured by the trust deed or against any other person obligated on such note, bond or other obligation after a sale is made:
(a) By a trustee under ORS 86.705 to 86.795; or
(b) Under a judicial foreclosure of a residential trust deed.
(3) Notwithstanding ORS 88.070, when there is a judicial foreclosure of a trust deed that is not a residential trust deed, the judgment shall provide that if the sale proceeds are insufficient to satisfy the judgment, execution may issue for any amount by which the unpaid balance of the obligation secured by the trust deed exceeds the net sale proceeds payable to the beneficiary.
(4) Nothing in this section shall preclude an action judicially or nonjudicially foreclosing the same trust deed as to any other property covered thereby, or any other trust deeds, mortgages, security agreements, or other consensual or nonconsensual security interest or liens covering any other real or personal property security for the note, bond or other obligation secured by the trust deed under which a sale has been made or an action against a guarantor to the extent of any remaining deficiency following judicial foreclosure. A guarantor of an obligation secured by a residential trust deed shall not have the right to recover any deficiency from the grantor or any successor in interest of the grantor. [1959 c.625 §§12, 13; 1965 c.457 §9; 1981 c.811 §1; 1983 c.719 §8; 1985 c.817 §7; 1989 c.190 §6; 1997 c.786 §1; 2007 c.166 §16
<<<<<<<<<<

So I read that law as this -- if the 1st Forecloses by Non-Judicial means, then they CAN NOT come after me for a deficiency -- Are there different rules for the 1st and the 2nd?

I found this in one of your other posts >>>>>>>>>> In this kind of foreclosure of a trust deed, the owner has no right of redemption. However, when the foreclosure is by "advertisement and sale," the owner does not have to pay a deficiency, either. In addition, the owner can stop the foreclosure by paying all delinquent payments together with trustee's and attorney fees and costs at any time up to 5 days before the scheduled sale date. The trustee will then file a notice in the county records showing that the foreclosure proceeding has ended. <<<<<<<<<<

Again -- is this ONLY relating to the 1st?

Sorry if I am being dense here.....

[Kick_Me_Out]

So I got on SLS.net and they have a place where you can email them. So I typed the same letter into there that I mailed them and 24 hours later I got a response!

Not what I was hoping for though. They offered to cut my intereset rate from about 13% down to 4.25 of 4.5%. That would cut my payments from almost $650 to under $275. That is a nice cut -- but I am still in the same place with regards to Equity -- WELL UNDERWATER! So I re typed the offer part of the original letter and sent it back to them.

Let them Foreclose!

[CWandSLSat619]

so you've SLS never modified your loan from the get go? With my case though I have successfully modified my loan from them last Aug 08 from 11.375 down to 7%. And then now, their trying offering it to lower it down to 6.

I don't know I just want them out of my hair... still worried about the 1099 implications though.....

[Kick_Me_Out]

Never previously modified through SLS -- and am just looking to get them to go away also. And I don't think that I am all that worried about the 1099. I think I read on here somewhere about most of those should be able to go away too - with a good CPA...

Let's look at really general terms...

Buy the house for $200,000 (finance 100%)
Bank Forecloses
They have it appraised and it is at $100,000

They are $100,000 short so they give you a 1099 for $100,000

If you bought it for $200K and "disposed of it" at $100K, didn't you lose $100K? then you get the 1099 that shows income of $100K. Doesn't that make things a wash?

I would need some clarification on that from a tax person, but I think I read that on this board somewhere...

[CWandSLSat619]

I don't think you can claim your loses.... If the property has been foreclosed upon.. then I'm not worried of any tax implications but if it's a forgiven debt not sure how that play esp here in cali

[Kick_Me_Out]

Maybe that was only on an investment home -- had one of those go bye-bye too. But I did Deed In Lieu... Got a 1099.... We'll see how that washes out when I get around to my late taxes...

[Kick_Me_Out]

Got a message in my email that there was a new message for me at SLS.net. So, I logged in and all it said was to call their Customer Resolution Department at 800-306-6059.

So, I called them and asked about the settlement. They told me that they hadn't received any of my Loan Modification paperwork -- that's probably because I wasn't asking about a modification!

I told them that my attorney had recommended that I let the property foreclose and then file for bankruptcy, but I wanted to see if there was anything that I could settle first to avoid bankruptcy.

I can't remember what exactly she said, but she said something like any offer would have to be at least $11,000. I told her that was way too much money and so I guess I would just have to let it Foreclose and file for bankruptcy. She said it was up to me...

So, I said thanks and that was it. Still haven't heard much from the 1st -- except that I am late and that they could accellerate foreclosure. Considering that I was late on May 1st, that puts me just over 100 days now without a house payment.

When can I expect them to get serious?

[CWandSLSat619]

Hi kick me out, Just talked to SLS and they denied my offer to negotiate for 10K they said because I was not in foreclosure... they said they can only do that if i'm in foreclosure... are they kidding me??? then I will go in foreclosure since BofA didn't really gave me a good offer!!!! and they won't see that 10K I offered them!