Ditech/GMAC Mortgage 1st and 2nd Will they pursue a deficiency judgment?

[CaughtintheMiddle]

Mine is a different case because we moved due to hardship and are attempting to sell the house rather than obtain a loan modification.

I was diagnosed with stage IIIC endometrial cancer in March 2007. I underwent surgery and chemo and radiation treatments that ended just this January. My husband was a Director at an Orange County company. My mother lives in our household and is also in follow-up treatment for several different cancers.
With my mom's and my illnesses, my husband's 2-3 hour a day commute from Temecula to OC, and the pressure of his job, my husband decided to look for a job in Pittsburgh, PA near his family--to be near family support and help, to have a lower pressure job, to eliminate the commute time, stress and cost and to obtain better medical care due to the Univ. of Pittsburgh Medical Center.
My husband obtained a good job at an excellent company, but of course makes about half the income here in Pittsburgh. We listed our house on the market on Oct. 14, 2007. We were worried about the market, but never in our wildest dreams expected that it would totally tank as soon as we listed the house.
Since October, we have had only one offer on the house, for $700,000. We had already contacted Ditech/GMACM with our hardship letter and our financial information. They refused loan modification (we couldn't afford it anyway); they refused forebearance, stating that they do not do deferments. They counteroffered the offer at $730,000. Because of the time elapsed and the counteroffer, our buyers pulled out of the sale.
We liquidated our entire 401k to pay off some credit card debt and to keep the house current and maintained. We did this to preserve our credit rating, but if we could go back, we would not have done this. We should have quit paying in January and just gotten the foreclosure over with.
The payments, taxes are all current. We have continued paying for lawn and pool maintenance and utilities.
The only homes that have sold recently in our neighborhood have been foreclosure sales. Buyers are smart enough to wait and pay the rock bottom price.
At any rate, when still talking to GMACM's loss mitigation department about the then short sale, GMAC said that the money they would receive would not be enough and that we would have to do more. He was extremely unhappy that we had used our retirement money to pay off credit card debt--we did that in order to reduce our monthly bills. He did not seem to care that we were still making our payments.
Even though I am a cancer patient, he treated me as if I were a common criminal, saying that if I wanted a deferment, I should move back to California and make my payments. He also told me that people lie to him all the time, I guess implying that I was also lying to him!
Anyway, what I want to know is the odds of them actually going to court for the deficency judgment. I read in another post that I may have to seek the advice of an attorney.
The first TD will most likely be covered in the foreclosure sale or short sale, but the second will not. The total amount of the second is about $225,000. We have documented that the total improvements we made to the house totaled $187,000. Right now we are still in the red every month, and have survived only because of emptying our retirement account. We are now renting and have no real assets except for my husband's future earnings.
By the way, we obtained the second loan in January 2007. At that time, their appraisal came out at 1.1 million. The BPO done this month came out at $750,000. I did not expect to walk away completely scott free, but did expect them to be nicer about working with us because of the hardship. We just had bad luck in the timing of it all. We think that losing our entire retirement account, and now our credit rating as well, is enough punishment. And all of this while my mother (we have a familial cancer syndrome and she has had cancer six times) and I both face follow-up cancer care and worry about a recurrence.
Will they really try to obtain the deficiency judgment? Is there anything we can do other than file bankruptcy?

[Tom H]

I am assuming your first is with Ditech and the second is with GMAC, is that correct? Are these the original purchase money loans?

[Tom H]

Ok,

I missed that, I see you got the second much later. Assuming GMAC is the second they stand to lose all in a short sale or a foreclosure sale. Probably why they were upset you chose to pay down your other debts as if they are wiped out and don't get their one-action rule they can come to collect.

You need to seek the advice of an attorney and they will guide you through the best process to take. I am not an attorney, but simly someone else in similar shoes, and recommend you seek legal advice. There are a lot of issues right now in California on second mortgage liens and they are getting completely wiped out in short sales or foreclosure sales due to the 20% or so reduction in property values - I have heard of strategies that are recommended by attorneys and you should look further into this by seeking legal cousel.

Best of luck

[CaughtintheMiddle]

Ditech/GMAC are one in the same. The hold the 1st TD and the second TD. We have to call the office and talk to two different loss mitigation specialists. We also have to send them duplicates of everythigng.

[Tom H]

Ok, my apologies, I did not know that. Incredibly confusing, that is way out of my lane but I'd still recommend the attorney. I'm sure some of the other folks here may have better advice, I wish you all the best.

Have you read up on the QWRs?

[CaughtintheMiddle]

I guess not, because I don't know what a QWR is??!!

Your obvious fear is that they will elect to foreclose on the first, and the result will be no bidders at the foreclosure sale resulting in the second loan (non-purchase money) being effectively turned into an unsecured debt. Then the holder of this unsecured debt could sue you on the debt and commence collection actions (garnishments, executions, etc.). You case shows the importance of contacting a real estate/bankruptcy lawyer early on. What you have done is to utilize "exempt assets" to pay debts and that may haunt you down the road. Please do not pass Go, do not collect $200. Seek a referral to a competent practitioner for effective advice. There is an art to planning a negotiations strategy, but it must begin earlier in the game where there are options.

Take care,

Daniel

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

Your shoes are not pleasant, and yes they will treat you like a criminal, just remember it is a reaction to having to face that they could be in your shoes. No one should treat you in that fashion, personal experience drives that statement, but they will.

Now, Ditech is GMAC, they are one in the same, Ditech, however has had some issues with the regulators that GMAC has not had, due to irregular behavior....

So....the issues you need to address is whether or not they can take that deficiency judgment and if you are exposed to additional financial risk. That question has to be addressed by a reputable attorney with whom you are comfortable. Do not take the first guy that says bankruptcy...they are all to eager to take that as the advancing rally cry and then after all is said and done drop you in the dirt while going through the nasty affair. I think that GMAC has very capable negotiators that will not treat you as poorly as the idiot that you spoke to and with an attorney making the inquiry you will not find they are as easily glib with their derogatory manner.

Please locate an attorney versed in this side of the world to do the negotiating for you.....lessons in life have taught me that one so that you can stay out of the stress. That nasty disease thrives on stress. You do have true hardship and as such should be accommodated in that fashion, not withstanding that, retain the attorney and minimize your financial risk. In the long run I am doubtful that you will be forced to file bankruptcy with the proper attorney representing you.

The lender does have a moral and corporate good citizen role that they need to maintain......they do not want a poster child for their poor behavior, which you could very well be. Your risk is dependent on a number of issues that the attorney can address and negotiate for you very adequately....

Please keep us posted and let us know how you are doing.....

[CaughtintheMiddle]

When we had the short sale offer, we were gambling that we could keep everything paid up to preserve our credit rating so that we could buy our current rental house. That is why we did what we did. Obviously we could have gone to a bankruptcy attorney, but we wanted to be able to buy another home without waiting for two years. Maintaining our credit rating was one option for us. We gambled and lost. Hindsight is always 20/20. And when you are in cancer treatment, priorities in your life are different. The five year survival rate for my stage of cancer is not very encouraging.

[colomo]

I may be incorrect about this, but I am pretty sure California has very consumer-friendly rules about deficiencies and I think it is a lot harder to get a deficiency judgment there compared to most other states.

http://www.foreclosure.com/statelaw_CA.html

[CaughtintheMiddle]

Thank you for the advice. Looks like an attorney is the only route now. It would be wonderful if we could negotiate without being forced into bankruptcy.

I do hope that BK is not the avenue that you have to seek, very hopeful. Please get a good nasty (litigator type), very experienced attorney to assist you.....that will go a long way with the circumstances that you have in play.

[CaughtintheMiddle]

Just posting the update. Wish I could say it was good news. Posting so others may be able to learn from my experience.
Were not able to negotiate with the lender Ditech/GMAC. Once we did our 2007 State and Federal taxes, we were wiped out financially due to the tax debt owed because of taking the money out of our 401k.
If you are trying to save your house DO NOT USE your401k money. The taxes and penalties, not to mention the loss of your future retirement, are not worth it. We went through all this trying to save our credit rating in order to buy a house, and it all completely backfired. If you are forced into bankruptcy, your 401k account will most likely be considered exempt money that you will be able to keep (I am NOT an attorney, and circumstances are varied in bankruptcy depending on your other financial circumstances, so please consult an attorney in making these decisions.)
Anyway, because we owed 14k to CA and 30k to the IRS and the house still did not sell, we were forced into BK.
The good parts of the story: my mom, who already lived with us, was able to purchase our rental home, so we are secure in a nice home renting from her. Even without mom, I'm sure we could have found some sort of deal on a decent rental house in the Pittsburgh area.
The CA house never did sell. My agent says the market is STILL getting worse. We had one offer for 700k in February that Ditech countered and lost for us. We had one offer for 450k and just recently one for 425k. We did not even bother taking these low offers to the lender.
We filed Chapter 13 bk yesterday, and at this point it is actually a relief. We can finally take the house off the market and give the keys back to Ditech. We stopped paying the mortgage in March, and the house is still not foreclosed. They did not file the default notice until June 17, so the sheriff sale will not be held until the beginning of October! That is over 7 months until foreclosure!!! That is great if you want to stay in the house, but horrific if you just want to get rid of it. We had to pay the insurance on it until we filed yesterday! And we had paid as much upkeep as we could because we were still showing the house for sale.
What we now know for sure in CA: the first is taken care of in the foreclosure sale, the second mortgage becomes unsecured and they can pursue a judgment against you for the difference if they so desire. Our attorney says we are pretty much judgment proof right now because we have no assets to pursue, however, because of the tax debt and not to take any chances, we decided to go the Chpt. 13 route. We will have a payment plan for 3 to 5 years--still has to be decided, then will be discharged for a fresh start.
Without BK, we would have to fight with the creditors over fees and interest rates, so why not just let the BK judge take care of it?
It is very stressful; it's not to be taken lightly. But when uncontrollable circumstances happen in your life, you have to just deal with it all as it is business. It is just business deals. It is all legal. It is not pretty, but you just handle everything within the legal system and take care of business.
God has provided and will provide. I am healthy now, my family is together, we have each other--the rest is just stuff!
I hope this helps someone and good luck to all of you!

[FlyOnTheWall]

Curious, why a 13 and not a 7 after the second foreclosed or was wiped out?

[CaughtintheMiddle]

Under the new bankruptcy law passed in 2005 (thank the credit card lobby and your illustrious elected officials), there is a "means test" for determining which you can file. Our income is to high to file a Chapter 7. That means we are forced to file a Chapter 13, under which you have to file a 3 to 5 year plan. You have to submit a budget, showing your disposable income. The judge/trustee then determines who gets paid what out of your disposable income. You then pay that off under the plan. We owe IRS debt, and that is a priority claim, so that gets paid off first and foremost above the other unsecured creditors. You cannot be forgiven tax debt. If some kind of emergency arises and you cannot make your plan payments, or you lose a job or something, then you can amend your plan (additional attorney fees) or you can file for Chapter 7. If your income goes up significantly or you receive some other income, your plan has to be amended and adjusted upward. At least this is my understanding at this time.
We just filed, so we now wait 30 to 60 days for the creditor meeting and for the "plan" to be approved.
In CA, the first mortgage has no right to come after you with a non-judicial foreclosure, which is done in most cases. With the second mortgage, which is a home equity loan, once the house is sold, it becomes just another unsecured creditor. If you do not bile BK, they can file a judgment against you. In our case, the likelihood would no longer be great because our assets are low, but because we have the tax bill, we feel we would never catch up on our own, plus, it will prevent them from coming back after us in the future. Sorry for being long-winded, but it is very complicated.

[FlyOnTheWall]

Originally Posted by CaughtintheMiddle

Under the new bankruptcy law passed in 2005 (thank the credit card lobby and your illustrious elected officials), there is a "means test" for determining which you can file. Our income is to high to file a Chapter 7. That means we are forced to file a Chapter 13, under which you have to file a 3 to 5 year plan. You have to submit a budget, showing your disposable income. The judge/trustee then determines who gets paid what out of your disposable income. You then pay that off under the plan. We owe IRS debt, and that is a priority claim, so that gets paid off first and foremost above the other unsecured creditors. You cannot be forgiven tax debt. If some kind of emergency arises and you cannot make your plan payments, or you lose a job or something, then you can amend your plan (additional attorney fees) or you can file for Chapter 7. If your income goes up significantly or you receive some other income, your plan has to be amended and adjusted upward. At least this is my understanding at this time.
We just filed, so we now wait 30 to 60 days for the creditor meeting and for the "plan" to be approved.
In CA, the first mortgage has no right to come after you with a non-judicial foreclosure, which is done in most cases. With the second mortgage, which is a home equity loan, once the house is sold, it becomes just another unsecured creditor. If you do not bile BK, they can file a judgment against you. In our case, the likelihood would no longer be great because our assets are low, but because we have the tax bill, we feel we would never catch up on our own, plus, it will prevent them from coming back after us in the future. Sorry for being long-winded, but it is very complicated.

Yeah, familiar with foreclosure, the IRS, the means test and the whole BK process. Just curious about the timing of everything, seems off to me.

Do you have a BK attorney or general practitioner?

[CaughtintheMiddle]

He is a BK attorney. According to him, timing of the BK before or after foreclosure doesn't matter. One relief is that we can FINALLY quity paying insurance on the place and hand that over to the lender. Also having trouble with kids getting into the place, so also have asked lender to go ahead and change the locks.
Why do you think the timing is off? Are you an attorney?

[FlyOnTheWall]

Just some thoughts on your situation, not meant to scare, only to give you more info to make the best decisions for you and your family.

No not an attorney, but I have been from point A to Z over a business collapse; chapter 13 dismissal after 3 years in a plan; and after 20 years of working in civil litigation/collections/foreclosure and most recently in mortgage fraud, I have seen and experienced quite a few things. My clients are solely banks, title companies and lawyers who represent both.

I am also living proof that despite an IRS revenue officer visit (the guys who carry guns), that the IRS is always willing to work with you, as long as you work with them.

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The only reason I ask is few people get discharged in a 13. It's a huge undertaking, and you can ask anybody who’s filed a 13 – they should have gone with a 7, from the start. True, and currently, you might not have qualified due to the means test, but planning for BK, before filing, can really make a big difference. The drop in hubby’s income – would you be under the means threshold if you had waited a year to file?

That’s a big second loan…in me eyes working in collections for bank and title companies – perhaps too big for any real possible collection. You are not judgment proof – only without any readily seizable assets. If your spouse works as a W-2 employee, then they could levy wages if they ever did file suit. Keep in mind judgments do not cross state lines – they would have to sue in Cali and then engage local counsel in PA to “naturalize” the judgment there. Begs the question if they have the tenacity to do that, again due to the high dollar amount. Again on the timing – perhaps having waited to see what they are going to do first? Ideally they would sue and obtain a judgment, which you could discharge in a 7, thus ending your nightmare.

Your 13 payment will include the taxes. In fact, they are paid first. But if you fail to get your discharge and are dismissed for not being able to sustain your plan payment - then penalties and interest are no longer tolled, and you end up paying them from the date of filing. Not too big of a deal (because the IRS will always work with you, as long as you work with them), but many BK attorneys aren't worried, or even look forward at issues like this. It could add significant amounts to the taxes though. An installment agreement on $35K would cost you about $650 month to repay on 5 years should you ever fall out.

And again, if you fall out of BK, then that large debt (second), and any other unsecured debts, could be assigned to junk debt buyers or collection agencies, who will pick up where it was left off.

I realize the strategic planning is too late, but perhaps asking the attorney about converting to a 7 at a later date; or even after several dismissals if a 13 can’t work.

What does they attorney say about the second? What’s the plan?

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Anybody else have any thoughts?

Hang in there

[CaughtintheMiddle]

We do not currently and will not in a year pass the means test to file for 7. Attorney is quite aware of all the scenarios. We know 13 is difficult, but did do a lot of planning and research first and still find it the easiest way. Should some other emergency or loss of income occur, we would convert to 7 as everyone does. Otherwise, we will just stick to the plan. We have been through a lot of tough times in our lives and we will just do it. The plan with the second is that it goes away in BK. Why wait and have a judgment, foreclosure and BK? Not thrilled that the BK laws were changed in 2005 forcing us to go this route, but we really see no other way. After 9 months of cancer treatment, moving out of state, house not selling after on the market for 10 months, we are just weary and ready to get on with our lives, even if that means being on a tight budget.

[FlyOnTheWall]

You sound pretty tough - I'm sure you'll make it thru whichever route you choose.

It's a large debt; for lesser amounts, I've seen people take vacations from their regular careers in order to meet means test requirements. The advantage - just like you originally posted, the turmoil is over quicker.

Just some food for thought from the other side of the fence

Stay healthy and enjoy being away from the SoCal rat race, lol

[CaughtintheMiddle]

We would never dream of "taking a vacation from a regular career." Very risky for us--too close to retirement and with my odds at having a recurrence or a new cancer, we have to have good medical coverage. We really don't want to play the system in any way. We just want to get through it all legally.
If anyone really wants to help, they should write congress and have the BK laws changed back the way they were before the new 2005 law, which made everything easier on the creditors--even when you have a true hardship. Kind of changes the original intent of BK laws based on Judeo-Christian law--wherein the court showed MERCY when things happened beyond people's control!

[civilguy]

Just curious if you tried to negotiate w/ the 2nd loan people on a settlement. I'm in the same situation right now w/ chase. The 2nd is calling me everyday asking to be paid. However I asked them if they would consider taking a lump sum of say 10% of the 155k I owe. She said her supervisor would look at it but I could only negotiate if I knew that we were leaving the house. To me paying 10-15k to settle is a lot better than filing BK.

[CaughtintheMiddle]

Dear Civilguy,
I think you can definitely negotiate. We were no longer able to do that because our tax bill (from taking out the 401k) money) pushed us over the edge, so BK still the only route for us. Without us even talking to them any more, the second offered first a loan modification, then offered we could pay about 56k in lump sum and be done. If we were still in a position to negotiate, we probably we have tried to negotiate the lump sum they wanted lower. We had already moved out of the house (it is in forclosure because we moved and could not sell it, not because we had a problem with our original loan.) In our case, we had receipts proving we had put about 85% of the 2nd money into the house as improvements, and then paid off a car and a couple credit cards as a requirement of the loan. That left only about 38k left. So I would have tried to not pay them any more than that. People on here also said we should get an attorney to negotiate if we got nowhere on our own. In our case it was just too little too late. Everything that could go wrong did go wrong. Better luck to you!