Is JP Morgan Chase Bluffing?

[imacamper]

My wife and I resided in a California home for 18 years. We didn't like what was happening in the neighborhood so we started looking at other homes and placed our home on the market in October 2006. The appraised value at that time was $450K so we listed at $429K to sell quickly. We had only a first mortgage with Citibank. The balance was $210K

We found a home we liked, made an offer, and it was accepted in November 2006. To move the equity from our old home into the new, we took out a HELOC with JP Morgan Chase who gave us a credit line of $200K. We also dropped the asking price of our home to $399K.

To close escrow on our new home in December 2006, we drew $175K on the HELOC and borrowed $417K from another lender. We also had savings that would allow us to make all three payments through July 2007. We were confident that we could sell our old home before our savings was depleted.

But then the market fell and we were unable to sell our home for the $399K we needed to pay off the first and HELOC. We never even got an offer that was close. Thus our savings was depleted and our last payments on the old home were in July 2007.

I immediately called the lenders and informed them of our situation. I offered to work with them and asked about options. Neither would talk with us as we were not behind in payments.

Finally we listed with a Realtor who specializes in short sales in October 2007. The Realtor kept dropping the price every 2 weeks until it reached $309K. Finally we got two offers in December 2007 at $290K and they have been submitted to Chase. Citibank doesn't care as it will still get paid in full.

After lots of waiting, Chase finally agreed to accept the short sale this past week if we would pay 15% of the amount they would lose. According to their calculations, that would be about $154K of which they want us to pay about $23K. They will finance this amount over 5 years interest free which comes to $400 per month. I declined their offer and now they are threatening to come after us for the entire amount.

It is my understanding that to do so, they will either have to file for a judicial foreclosure or wait for the first to foreclose and then file for a deficiency judgement. Is this correct for the state of California?

Everything I've read suggests that judicial foreclosures are very rare in CA. And it's not like we're millionaires or anything but we do have assets since there's equity in our new home and we have 401Ks that exceed $100K. Plus because we tried to do a short sale, Chase has our pay stubs and bank statements and sees that we're continuing to save about $1900 per month in our 401Ks since we're nearing retirement.

So is Chase bluffing? Or is it likely they will wait for the first to foreclose and then try and get a judgement. What if I make the first current and thus force Chase to foreclose?

Opinions?

Cheers,

Ima

Welcome to the forum and thank you for joining....

I am sorry but the answer you need is from an attorney, the situation that you are in is something that requires legal analysis. You need to if not but for 2 hours consultation retain and attorney and determine your options. We are unable to provide legal advice in this forum. We can assist in the information for the California Foreclosure rules by posting them for you which I will do below, however interpreting them as to how they will impact you in your situation is something an attorney would have advise you on. As to whether or not Chase is bluffing, well they know that you used the HELOC for something very large in one fell swoop and they are probably not all that thrilled. So as to whether or not they are bluffing....this is a game of who blinks first. Chase is very good at that game.

California Foreclosure Laws


- Judicial Foreclosure Available: Yes

- Non-Judicial Foreclosure Available: Yes

- Primary Security Instruments: Deed of Trust, Mortgage

- Timeline: Typically 120 days

- Right of Redemption: Varies

- Deficiency Judgments Allowed: Varies

In California, lenders may foreclose on deeds of trusts or mortgages in default using either a judicial or non-judicial foreclosure process.

Judicial Foreclosure

The judicial process of foreclosure, which involves filing a lawsuit to obtain a court order to foreclose, is used when no power of sale is present in the mortgage or deed of trust. Generally, after the court declares a foreclosure, your home will be auctioned off to the highest bidder.

Using this type of foreclosure process, lenders may seek a deficiency judgment and under certain circumstances, the borrower may have up to one (1) year to redeem the property.

Non-Judicial Foreclosure

The non-judicial process of foreclosure is used when a power of sale clause exists in a mortgage or deed of trust. A "power of sale" clause is the clause in a deed of trust or mortgage, in which the borrower pre-authorizes the sale of property to pay off the balance on a loan in the event of the their default. In deeds of trust or mortgages where a power of sale exists, the power given to the lender to sell the property may be executed by the lender or their representative, typically referred to as the trustee. Regulations for this type of foreclosure process are outlined below in the "Power of Sale Foreclosure Guidelines".

Power of Sale Foreclosure Guidelines

If the deed of trust or mortgage contains a power of sale clause and specifies the time, place and terms of sale, then the specified procedure must be followed. Otherwise, the non-judicial power of sale foreclosure is carried out as follows:

A notice of sale must be: 1) recorded in the county where the property is located at least fourteen (14) days prior to the sale; 2) mailed by certified, return receipt requested, to the borrower at least twenty (20) days before the sale; 3) posted on the property itself at least twenty (20) days before the sale; and 4) posted in one (1) public place in the county where the property is to be sold.

The notice of sale must contain the time and location of the foreclosure sale, as well as the property address, the trustee's name, address and phone number and a statement that the property will be sold at auction.

The borrower has up until five days before the foreclosure sale to cure the default and stop the process.
The sale may be held on any business day between the hours of 9:00 am and 5:00 pm and must take place at the location specified in the notice of sale. The trustee may require proof of the bidders ability to pay their full bid amount. Anyone may bid at the sale, which must be made at public auction to the highest bidder. If necessary, the sale may be postponed by announcement at the time and location of the original foreclosure sale.

Lenders may not seek a deficiency judgment after a non-judicial foreclosure sale and the borrower has no rights of redemption.

[imacamper]

Originally Posted by Poppy

Welcome to the forum and thank you for joining....

Thank you.

I am sorry but the answer you need is from an attorney, the situation that you are in is something that requires legal analysis. You need to if not but for 2 hours consultation retain and attorney and determine your options. We are unable to provide legal advice in this forum.

Yes, I understand that you can not provide legal advice and I will speak with an attorney. However I was hoping to hear from others that may have dealt with Chase and learn of their experiences. I truely believe that Chase can go after me for the full amount of default, get a judgement, and then collect. In this regard, settling for 15% is a bargain. However will Chase spend the time and money for that amount? Or will Chase settle for even less? I know no one knows what Chase will do regarding me but past history is usually a good indicator of what will happen in the future. This is why I am soliciting reponses from others that may have been in a similar situation as I with Chase.

We can assist in the information for the California Foreclosure rules by posting them for you which I will do below, however interpreting them as to how they will impact you in your situation is something an attorney would have advise you on. As to whether or not Chase is bluffing, well they know that you used the HELOC for something very large in one fell swoop and they are probably not all that thrilled. So as to whether or not they are bluffing....this is a game of who blinks first. Chase is very good at that game.

Yes and I suspect they are much better than I. This is probably why they made the offer on Friday, Feb.22 and then gave me a deadline of Monday, Feb 25 to accept or they will proceed with further action. Thus I have a very small amount of time in which to get the advice of an attorney. I will probably settle just to have the matter behind me.

Thanks,

Ima

There is not doubt that they are better at the you blink who blink no blink game than the average consumer. They have a leg to stand on particularly with the fact that the funds were withdrawn in such a large amount and at one time. They know that you are no longer living in the house.....2+2=4.....they know where the funds went....they want some form of repayment as you did in their minds benefit from the use of the funds to a greater extent.

Do I think they are bluffing, no I really do not, is this personal on their part, no, so my best advise in this situation is to use an attorney to negotiate for you. This is not one that they will drop in my less than humble sneaky, long term lender mind. Believe me I know how they think, they are rather single minded on this one. They would not be alone either, if this were WAMU, BofA, whomever, the position would be the same. Yes they waited until the last minute....they are very, very shrewd the boyz at JP Morgan Chase.....very, very tough as well.

In cases where the property is the only primary and there would be no other property involved I do not believe that you would be facing this issue quite this way. I believe there would be a greater degree of forgiveness, however in this case I suspect they have weighed the issues and taken this stance.

If your sale is not consummated under the facts as given, and if the holder of the first completes their foreclosure, that will place the Chase loan in the position of being an unsecured debt (due to the loss of its security interest in the home). Since it appears that the Chase loan was a true HELOC, and not a "purchase money" loan, I seriously doubt under California Civil Code Section 580b, it would be non-recourse effectively meaning you would be on the hook for the entire amount.

That of course suggests that Chase plays a hard-ball approach, which they might just do. Know that if there is an "overbid" at the foreclosure sale on the first, disbursement of any overbid would go to Chase, thus reducing their debt. Given what you characterize as a relatively low balance on the first, an overbid may well be possible. So Chase receives a partial pay down via the overbid, and chases you for the rest.

I agree with Poppy and find an expert real estate attorney that specializes in these situations. In a past life I did that. Fortunately this time around, well I'm sitting this dance out, enjoying the leisure associated with being tenured faculty.

Daniel

[imacamper]

Thank you both for your insights. In your experiences, do you have any insight as to if offering to settle for less or trying to extend the repayment terms to ten or fifteen years would be a good or bad move? On the one hand, there's the old "It can't hurt to ask." but on the other, I don't want to make them take a harder stance because I ask. I understand that any opinion is not legal advice and I will seek the advice of an attorney on Monday. It's just at this point I am soliciting all opinions.

Thanks again,

Ima

Frankly I would not push the issue, they have some teeth in this situation and as such, seek the legal advice, but realize that they are coming from a position of greater power than they are actually exercising. They can if they wish due to the circumstances come for the full amount due to the purpose of the "use of the funds".

It would not be difficult in my Lender option to make the case for that position. Please seek legal advice and realize that I am speaking from a lender position, they, the lender, are pretty much aware of the circumstances, it is a clear trail of bread crumbs.....so do seek legal advice, they, Chase can put you in a far worse position.

OOPS, meant to point to California Code of Civil Procedure Section 580b.

I agree with Poppy's conclusion. Seems to me, given the Chase position of strength, they are being "reasonable" or "more than reasonable," but again you need to hire and run this by a real estate lawyer.

Look at it this way. They are giving you an opportunity to walk away from a difficult situation with relatively minimal impact to your credit score for a relatively small amount of money ($23K spread over 5 years). A lot of the borrowers I've seen frequent this site have faced far more harsh realities.

Daniel

[imacamper]

Thanks for your opinions. I will post the conclusion of my situation once settled.

Cheers,

Ima

Please do it will further our ability to assist others and determine just how much of a hair cut these boyz will take.

[imacamper]

Update:

I spoke with two attorneys last week. Both suggested attempting to negotiate a lower amount but ultimately settling. Basically the advice was why risk $150K plus penalties and court costs to possibly save $24K, especially when I have enough assets that the lender could ultimately collect on a judgement if it pursued action. I took this information back to my Realtor that is negotiating on my behalf.

Another piece of this story is that 3 weeks ago I injured my back which has put me on disability until at least the end of June. When I told my Realtor of this and that my income will be reduced to 56% of normal. I faxed her proof of my disability (doctor's note) and she resumed negotiations with the lender.

She told me that lenders use automated computer programs that apply modeling to determine what offers to accept and reject. One piece of info that may be useful to others in this forum is that lenders in second position attempt to recover 21% - 25% of the debt in total. In other words, if the sale of the property doesn't net this amount, they will seek a promissary note for the difference. However this amount is augmented by the assets of the borrower and the lender's expected ability to collect on any judgement. Thus this is what the computer program analyzes.

So in my case, I'm waiting for a new offer from the lender. I will post again when I have updated news.

Cheers,

Ima

What you write is inaccurate, Chase is modifying just about everything they can presently...everything, and that is the truth of the matter.

Well, the computer modeling is not the norm for the average servicer, perhaps Citi, Chase, BofA, Country Wide....but the bulk of them do it the old fashion way....by hand and by gut. This is a gut process, what makes sense, no computer can drive this situation that I have seen, the artificial intelligence of DU, LP, CLUES/CLOUT, EMITS, ARC (that one is a real joke), etc....just do not have it in them. So simulation is out of the question, I should suspect they have a formula...I do...and to that I apply some good old common sense risk analysis and gut instinct.

You do need to provide Chase with the disability issue, it goes to the side of ability and capacity, the willingness they already have due to the circumstances and have accepted that part of the formula. With curtailed ability and capacity, they may reduce the required short fall, unsecured amount due to the documented hardship....generously you provided that third party documentation of the hardship...it speaks volumes. Trust me it does...they have made a generous offer to date, let's see where they fall now....me, well, not sure what they will do, they have reduced it so far they may themselves be backed up against the wall with the offer by the actual investor on this credit due to the circumstances overall.

[imacamper]

Originally Posted by Poppy

What you write is inaccurate, Chase is modifying just about everything they can presently...everything, and that is the truth of the matter.

What I wrote is accurate, however I will conceed that either I misunderstood or what my Realtor told me may be inaccurate.

Thanks for your insight.

Cheers,

Ima

I do not think they are inaccurate, just that the biggies may be using some automated modeling formula, to us in underwriting the modeling formula is an AUS...Automated Underwriting System...they are a failure and being proven so rapidly as we watch this whole thing unwind. So far as I have experienced the Lenders that I am dealing with do not have the thing automated on this side yet....as far as the modification process.

Now as far as to the losses, you betcha they have formulas....they are and have been set in stone for ages and ages...just how much loss they can tolerate and swallow, but so far not from the willingness, capacity and ability side for pure modification and loss mitigation. Not that I have come across yet.

I am going to start asking though....never hurts, and to date the guys and gals that I deal with all tell me they are hand processing and underwriting the modification and forbearance side of this stuff. Oh believe me they are pulling credit for purposes of third party verification of data...like employment, consumer debt, other mortgage debt, status of debt, residency issues, and a variety of other issues. They are or should be pulling core logic, MERS/MIN and a whole bunch of tools to assist in the data integrity process, valuation, other property ownership, we have a bunch of them at our disposal, Interthinx, DISSCO, Sysdome.....again that is often gut driven by what the credit report reflects and if it matches what the borrower provided.....who knows they did not do it going into this mess, why would I expect them to be anymore diligent at this end of the process.

[imacamper]

Originally Posted by Poppy

...Oh believe me they are pulling credit for purposes of third party verification of data...like employment, consumer debt, other mortgage debt, status of debt, residency issues, and a variety of other issues. They are or should be pulling core logic, MERS/MIN and a whole bunch of tools to assist in the data integrity process, valuation, other property ownership, we have a bunch of them at our disposal, Interthinx, DISSCO, Sysdome...

So in your opinion, in which direction do they lean for borrowers that had excellent credit (820+) before getting caught up in the recent mess. Add to that everything provided regarding assets, income, etc. was honest. And finally no debt other than mortgages? Would they be more likely to forgive as it is one mistake in an otherwise good record? Or more likely to persue all they can get as the borrowers might be more able/likely to pay?

This is all very interesting. I just wish I wasn't learning because I am in this situation. But no one said education was inexpensive...

Cheers,

Ima

I used to charge for classes in this stuff, and was paid by some colleges to teach it....not anymore, sorry, just to jaded, would tell the truth and they would evict me from the faculty.....

Again they know what you did with that money....that is what MERS/MIN is for....and the credit report....we do a rather interesting investigation as to what is what and where did it go and for what purpose....

Since the funds were used as a down payment in the present property that you reside in...I take the side of your attorney and say, the offer they gave you is quite generous. I realize that now you have hardship, however, that is short term and short lived financially.

If I were in your shoes, if they come back again with the same figures......yeah, that would be what I would do. Better the 23K than the 175K, I think that is more than a generous offer.

[imacamper]

Resolution

Just got word that Chase has reconsidered and will accept the short sale offer "as is" and NOT require a promissary note.

Now I just have to hope that the buyer does not back out for some reason. However my Realtor tells me that the buyer has remained very interested and has been willing to wait. I just hope escrow closes without any further issues. I'm keeping my fingers crossed.

Thank you for the help and support. I hope others have satisfactory results as well.

Cheers,

Ima

That is a good thing, keep us posted, you lucked out as the purpose of that HELOC was known by Chase...you are extremely lucky and have an angel on your shoulder if they follow through as promised.

Please make sure that you are not exposed to them selling the credit for pennies on the dollar and then have some collection firm pursuing you for repayment, that is also a favorite trick, particularly on the Seconds these days. So have some sort of agreement in place that the debt is entirely forgiven as a result of the short sale agreement, and keep that commitment of forgiveness from Chase handy, as that maybe a problem regardless of the agreement (been there done that), I am offering this advice from experience with Chase and these very specific issues....

You need to make sure that the debt is forgiven, the problem is that the 1099 on it will not be pleasant and I suspect that this transaction is vulnerable to that issue. I am not a CPA or an attorney, but you do need to determine the tax implications of this situation as well.

Do keep us posted.

[imacamper]

Poppy,

Thanks for your reply. I have not yet seen the actual acceptance letter from Chase but when I do, I will review it as you recommend. The letter was read to me by the negotiator on my behalf. As I recall, it said something about full satisfaction of loan number blah, blah so I think it's complete forgiveness but I will double check.

As for the 1099, I hope I fall under the recent tax forgivness signed by Bush this past December. I've read the law but my situation is questionable. I'll have to check with a tax attorney regarding that.

Now for the bad news. There were two offers but both buyers are no longer interested. The agreement by Chase (second position) is open ended but the first (Citibank) has only agreed to the sale if it closes on or before March 25th. Otherwise it will foreclose and I'll be back in a mess as Chase will be an unsecured lender. I'm keeping my fingers crossed for another buyer but will be back on the phone seeking the advice of an attorney to best protect myself if Citibank forcloses.

What a roller coaster ride...

Cheers,

Ima

When it rains it pours in these times....

I suspect that if you get another Buyer that Citi will be glad to extend the offer on the Short Sale past the present date....just a real good suspicion that they will.

[imacamper]

Update -

We had several offers and went round and round. Finally there was one from a buyer with a pre-approved loan and we were in contract in the beginning of April. Banks said it must close by Apr. 29th. Fine. Everything was looking good!

But then at the 11th hour, the buyer's lender changed its mind and would not approve the buyer under the original pre-approved amount with 5% down. Now the lender wanted 20% down and the buyer did not have the cash.

So here we go again... The roller coaster ride continues.

Cheers,

Ima

P.S. I did finally see the acceptance letter from Chase and had an attorney review it. My attorney said that it was complete forgiveness. Now all I need is a buyer that can get a loan.

[Moe Bedard]

Ima,

I am sorry it didn't work out with that buyer.............
I hope another one comes along soon.......

Keep the updates coming.........

[imacamper]

Thanks ***.

Good news is that Citibank has already agreed to postpone the Trustee Sale another 30 days. Another stay of execution. Come on buyer!

[imacamper]

Well it was quite the whirlwind. Finally in June, we had a buyer for the same offer as Chase already approved in March. We went back and forth several times. Chase's main issue was that it wanted me to allow it to put a lein on my current home for the balance. I would not and held my ground. We went back and forth with various offers. Finally at one point I offered to bring an additional $15K to closing if Chase would issue an approval "today" as I was afraid we were going to lose our buyer. It agreed but then never acted. Just one more of many lies.

At that point, I became fed up and accepted that foreclosure was imminent. Chase was smart enough to keep postponing its trustee sales so the first would sell and Chase would be free to persure legal recourse as an unsecured creditor. I began to research bankruptcy and what that would mean for me. Not pretty because with the exception this house situation, I am in good shape. Bankruptcy would really screw up my retirement plans. What a mess!

Finally as a trustee sale scheduled by the first approached, Chase verbally offered to accept and amount that required me to bring $16K to closing. Although I had told them that my $15K offer was good for one day only AND it pissed me off that Chase was squeezing an addtional thousand, I decided that I would not cut off my nose to spite my face. I contactacted my Realtor to find if the buyer was still interested. Hell, it had been nearly two months since the buyer's offer.

The buyer WAS interested!!! I was happy this was going to be over. Later that day I received the written acceptance from Chase. But unlike the previous acceptance letters, this one had an additional line that said, "The customer is still responsible for all deficiency balances per the terms of the original loan documents.". Well screw that! Why would I bring $16K to closing just to be later sued for the balance?

However I didn't quit. I spoke with three attorneys, two of which agreed that Chases "statement" didn't mean anything. They explained that legally, there is no deficency if the property is not sold at a trustee sale. And because of California's "one action" rule, Chase's acceptance and subsequent lein release is its "one action" and I could not later be sued in court. Thus I decided to complete the transaction which closed July 30th.

I suspect Chase's line is there to help it sell it's percieved debt to some collector at some time. I will not surprise me to start getting the phone calls as some later date. If the calls start, I'll deal with that but so far so good. I am happy to have this issue behind me.

Thanks for the help and support!

Ima