$250 RECOURSE loan. Deficiency Judgment on Short Sale???

[SHAMPOO]

We are in a nice home in the badly hit Inland Empire, CA purchased at the height of the market in 2006. Home is now worth approx. $600K. Total debt is $1,037K. The original first is $787K. The 2nd was unfortunately a refi at $250K. Total $ we have into this house is $1.4M. This second is now recourse debt! All of our neighbors are bailing out 1 by 1. The values are sliding fast. In addition, we have had serious hardships and must move soon. We are weighing our options: Loan Modification, Foreclosure or Short-Sale. Our loans are both with Chase -

I understand they are extremely difficult.

1. Loan Modification - Any chance of principal forgiveness in an amount that would make sense ($250K or more)? We would qualify for the required 31%.

2. In a foreclosure, I understand they will likely still come after us with a deficiency judgment on the $250K. Also, our credit is sparkling in the mid-800's. We would like to purchase a new home ASAP an not wait 7 years!

3. A short-sale is our preference. This would get us away from this mess with the smallest scar on our credit. However, is there any chance that Chase would work with us? Also, any chance that we could settle without a deficiency judgment on the $250K?

4. Bankruptcy - not an option, I believe...see why below. Also, 10 years of scarred credit? We have been self-employed with an honest loss, or at least profit not even high enough to pay the house payment, for 3 years (damn economy!) We have a severely ill child, huge medical bills, etc. We've drained our retirement accounts and run up $75K of credit card debt during this time. With this new employment, things have turned around recently. We can finally pay our bills barely.

Big Problem: Deficiency Judgments and Bankruptcy are not an option. The reason is that I have approximately $500K of family stock in my name. This is stock that I have promised my parents that I would protect with my life and never sell or lose it in any way.

I am so freaked out about losing this asset over this house problem! I assume that because of this, Chase would not deal with us in a short sale without a deficiency judgment or settlement (this asset was listed on all of the loan applications - kind of difficult to hide now). One thought would be to gift this stock to irrevocable trusts set up for our children.

Would that do the trick of getting it out of our name? Any other suggestions?

Thank you, thank you, for any advice! This is my worst nightmare!

[Moe Bedard]

Hello Shampoo!!

1. Loan Modification - Any chance of principal forgiveness in an amount that would make sense ($250K or more)? We would qualify for the required 31%.

You can possibly negotiate on the 2nd at 5-10 cents on the dollar. I have seen this many time, but not when it is the same lender. Not sure how that will turn out.

2. In a foreclosure, I understand they will likely still come after us with a deficiency judgment on the $250K. Also, our credit is sparkling in the mid-800's. We would like to purchase a new home ASAP an not wait 7 years!

In this type of situation, credit and money is used as an equalizer. You want to keep your score and they want their money. You have a contract with them and owe them money. This makes them the dealer in the poker game and we know the odds against the house....

3. A short-sale is our preference. This would get us away from this mess with the smallest scar on our credit. However, is there any chance that Chase would work with us? Also, any chance that we could settle without a deficiency judgment on the $250K?

Very unlikely when you are not late.

4. Bankruptcy - not an option, I believe...see why below. Also, 10 years of scarred credit? We have been self-employed with an honest loss, or at least profit not even high enough to pay the house payment, for 3 years (damn economy!) We have a severely ill child, huge medical bills, etc. We've drained our retirement accounts and run up $75K of credit card debt during this time. With this new employment, things have turned around recently. We can finally pay our bills barely.

I understand this is not an option, but based on what you just stated, you are Bankrupt. If you can barley survive and cant pay your debts, you are BK

Big Problem: Deficiency Judgments and Bankruptcy are not an option. The reason is that I have approximately $500K of family stock in my name. This is stock that I have promised my parents that I would protect with my life and never sell or lose it in any way.

You are probably going to have to walk, forget your credit and buying if you are counting on this. Maybe a trust etc would help protect you or moving to a different state, change your name etc...Kidding I suggest speaking with an attorney and with that $500k I am not sure if you would be able to claim BK.

Walking away when you have assets is tough and I recommend contacting an attorney before you do anything.

[SHAMPOO]

Thank you, Moe. We have been referred to an Asset Management/ Real Estate attorney to speak with next week. I'll let you know their advice. Crazy stuff. Appreciated your input.

[Moe Bedard]

No problem Shampoo. Sorry I couldn't be of more help. I wish you the best and please keep us posted on your progress.