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Foreclosure and Separation... ugh

Discussion in 'Deed in Lieu of Foreclosure - Do You Need Help to ' started by malikeye, May 18, 2009.

  1. malikeye

    malikeye LoanSafe Member

    We are in the process of separating. Together we can both afford the mortgage, but separate, we cannot. Neither of us can afford to live alone and pay the mortgage at the same time. Oddly enough, the mortgage has been the biggest problem that is resulting in us separating. Not because of the payments, but the constriction to not be able to finance other "things".

    We have always paid our bills, and have zero late payments. We both have ~700 FICO's. The area we live in has many houses for sale. The house next door, the house across the street, two houses down, etc, etc. The developer bailed on the development and didn't finish some houses, didn't complete the roads, and hasn't sold a lot in the year since we've moved here.

    We owe maybe slightly more than what the house is worth, and there is zero chance that we would even be able to complete a shortsale if one was approved. We've had the house for a year. It was a custom build, and is pretty well upgraded. It appraised for like $315k at purchase. We owe $301k, and I'm willing to bet it lost that $15k we had in equity.

    We are currently stuck with 2 choices. Either we walk away completely, or we go for a deed-in-lieu. I've done some research on these options, and neither seem optimal. I am leaning towards a DiL due to the fact that it happens quicker, but I'm not keeping my hopes up. Bankruptcy isn't appropriate here, as we don't miss payments for anything. I consider this a "hardship", but there is no adjustment the bank can make to bring our current mortgage payment to a place where it will save our marriage :( The damage is already done, and yes, it was imposed upon ourselves.

    I've contacted a real estate attorney, and as soon as I mentioned the word divorce, his antennae sprung up and found a profit point and switched the whole conversation to divorce. I did get out of him however that we are in a non-deficiency state. I need to confirm this with another lawyer. I have also been reading that our state is a non-judicial state. Of course I've read the opposite too. I have however read more accounts stating the above is true. Ultimately we will just have to see, as we don't have a choice.

    A few questions :

    - Do we just stop paying now? Can we do a DiL if we are behind?
    - Are there any options I'm missing? We need to separate, and the mortgage needs to go away, that is the bottom line.
    - Are there any gotchas that I'm missing?
    - Separate after? before? in the middle?
    - I've read we should keep paying the HOA fees. Correct? I am guessing paying until the deed is out of our name.

    We plan to just not pay this months mortgage and let it go. We both have worked out places to stay. We both have cars that will keep us mobile for the next 5 years or so to "ride" it out ( no pun, eh? ). We both will have income enough to dig ourselves out of credit card debt nicely ( all my cards canceled on me, I can't use 'em anymore anyway ). We won't be debt free, but we have been burnt to a crisp, so it's not gonna happen again.

    Just need some advice, at all. It's kinda hard / lonely doing this with a separation lingering above our heads.

    Just for reference, we are in NC.

    Thanks
  2. helpinNE

    helpinNE LoanSafe Member

    I am sorry to hear about your marital problems. I have been there so I know seperation alone is tough.
    I would recommend you talk to a different lawyer and not mention divorice right away.
    Do you have one lender or two? DIL are really hard to get, in fact, I have not seen one case on this boad where someone has sucessfully gotten one. Most lenders also require that the house be on the market for at least 90 days before they will even consider one.
    A quick google search showed "Lenders may pursue a deficiency judgment and borrowers retain the right to redemption.". Thus I am concerned about the accuracy of the information that the lawyer you spoke with gave you.
    I would recommend listing the house as a short sale, especially since you are not very upside down on the property. One of you continue to live in the property until one of three things happen a) You sell the property; b) You are successful in getting a DIL or c) the foreclosure process is complete.
    Stop paying the mortgage and live in the house 'rent free' until one of these three things happen. This will give you a chance to get the divorice complete and save a little money.
    Yes, you do need to continue to pay the HOA dues as you are personally liable for them.
    Best of luck to you.
  3. ProfessorShays

    ProfessorShays LoanSafe Member

    What state is the property located in?

    Daniel
  4. malikeye

    malikeye LoanSafe Member

    It's located in NC. I contacted a couple of attorneys today, it's so hard to get a hold of one on the phone. Looks like we might be in a state that they can pull a deficiency balance on us. I can't get a straight answer really.

    I also contacted a short-sale realtor today, and he is going to do a market analysis and come look at the house tomorrow. He seems like a nice enough guy, but at this point, I don't trust anybody.

    The condo I was going to rent might fall through, they are doing a VERY thorough background check, it's taking days and it's driving me nuts. So I might have the option to pick this place back up, and maybe keep making payments. It will completely consume my monetary resources. I really don't want to live in a 3000 sq ft house by myself. All my bills, plus utilities would leave me with $~95 a month for food.

    This all brings up the question, would the bank even accept a short-sale if I can "technically" afford the house.

    Ugh :(

    At this point I really don't know what to do. My wife is definitely leaving. She is buying a new car right now as I type this, she has an apartment all ready for a signature. She will be seeing an attorney tomorrow to draw up the separation papers. I need to figure out what to do quick.

    Edit : I didn't even count car insurance and health insurance in those numbers... that's another $300 a month. I would be in the red by $200 easily.

    I couldn't rent the house for what the mortgage is. I haven't looked into that too much. I really don't want to be a landlord. I've read so many horror stories about renting to save yourself and it goes bad.

    Just want the place to go away so we/I can start over :(. I've never done anything to hurt anybody, never missed payments, always cringed when I saw people "taking advantage" of the system, and here I am, trying to bail on a mortgage. It doesn't make me feel that great, but at least now I truly understand what it's like to have to rely on other people for support.

    Thanks for any info...
  5. malikeye

    malikeye LoanSafe Member

    I just put an ad up on craigslist. If I can grab maybe $800+utilities I could survive with one tenant. Still don't wanna be a landlord. I should know about the condo tomorrow. If it falls through, I'll pursue this avenue.
  6. ProfessorShays

    ProfessorShays LoanSafe Member

    Malikeye said, "Looks like we might be in a state that they can pull a deficiency balance on us. I can't get a straight answer really."

    One approach in an attempt to get a straight answer is to look at the laws of North Carolina. A good place to start may be North Carolina General Statutes Article 2B, Section 45-21.38, quoted below. It appears to suggest that if your mortgage represents part of the purchase price, your lender cannot get a deficiency judgment. You have not provided enough information on your loan to ascertain whether that is your situation. Was the loan created at the time you purchased the property?

    Daniel


    § 45‑21.38. Deficiency judgments abolished where mortgage represents part of purchase price.

    In all sales of real property by mortgagees and/or trustees under powers of sale contained in any mortgage or deed of trust executed after February 6, 1933, or where judgment or decree is given for the foreclosure of any mortgage executed after February 6, 1933, to secure to the seller the payment of the balance of the purchase price of real property, the mortgagee or trustee or holder of the notes secured by such mortgage or deed of trust shall not be entitled to a deficiency judgment on account of such mortgage, deed of trust or obligation secured by the same: Provided, said evidence of indebtedness shows upon the face that it is for balance of purchase money for real estate: Provided, further, that when said note or notes are prepared under the direction and supervision of the seller or sellers, he, it, or they shall cause a provision to be inserted in said note disclosing that it is for purchase money of real estate; in default of which the seller or sellers shall be liable to purchaser for any loss which he might sustain by reason of the failure to insert said provisions as herein set out. (1933, c. 36; 1949, c. 720, s. 3; c. 856; 1961, c. 604; 1967, c. 562, s. 2.)
  7. ProfessorShays

    ProfessorShays LoanSafe Member

    A more careful reading of the statute suggests to me that as to non-seller financing, if the lender proceeds with a non-judicial foreclosure, they lose their right to a deficiency judgment. Based upon your situation, if I were going to bet, I think it is reasonable to conclude they would follow a non-judicial path given the quickness and the elimination of the post-foreclosure right of redemption.

    Daniel
  8. malikeye

    malikeye LoanSafe Member

    So what you are saying is that they would choose the quick path, which would void their right for a judgment?

    It is a first mortgage taken out to buy the property. There is no second, there is nothing else "attached" to the house. It's a straight 100% financed primary residence.

    I tried to read that legal stuff, and to be honest, I'm a pretty smart guy, but I can't keep up with all the twists and turns.

    The right to redemption means that, they can spend all their time trying to foreclose, but at the time of the "final" process, I can come back and possibly pay for the house?

    That part confuses me. Which note? The original note? Who is the seller, me?

    Thanks for your help. It's greatly appreciated. I know your busy with school.
  9. ProfessorShays

    ProfessorShays LoanSafe Member

    In virtually all of the individual states, where the foreclosure process is handled by a court (we call that a judicial foreclosure), after the sheriff (or other designated official) sells the real property at a public sale, the former owner has the right to repurchase the property by paying amounts owed (principal, interest, and foreclosure costs) for a period of time. This right is referred to as a "right of redemption. It can last for a long time (typically a year). What this does is to effectively make the property unmarketable because the purchaser at the foreclosure sale (usually the foreclosing lender) can't convey marketable title until the redemption period ends.

    This delay in being able to sell the property to a third party, coupled with the fact that judicial foreclosures are typically more expensive and take longer to complete (because the wheels of justice move slow), means there are reasons a lender might proceed down a non-judicial path that provides for an non-judicially supervised foreclosure process. The downside for the lender in many states is it cuts off their right to obtain a post-foreclosure deficiency judgment. That is, based upon my reading of the North Carolina law, what appears to be the case.

    But my reading may not be correct. You need to retain the services of a North Carolina attorney skilled in real estate law and debt collection practices. Share what we've discussed, including the reference to the law I've provided, and get their opinion.

    As to the law's discussion of "seller" financing, that appears inapplicable in your case since your deal doesn't have seller financing but third party financing so I wouldn't worry about it.

    Daniel
  10. malikeye

    malikeye LoanSafe Member

    Thanks Professor. You've made things much easier on us. In a hard time like this, it's good to know there are good people out there looking to help others when they need it.

    I'll consult a lawyer when we get to that point.
  11. malikeye

    malikeye LoanSafe Member

    So this is interesting....

    So we had a realtor stop by last night. Turns out our house is worth easily $50k less than what we owe. That is what comparables are selling for, if they sell at all. There is like 15 houses in our development alone. I'd say maybe half are spec houses that the developer has put on the market for "short-sale". So the developer claims bankruptcy, abandons our neighborhood, and then proceeds to destroy everybody that lives inside it. There should be an award for that.

    Bottom line, we are WAY under water here.

    In comes realtor ideas.... He has this "investor friend" that would make a lowball offer of say, maybe, $180k. He is trying to say that this would open the door to the bank quicker, in order for them to accept a short sale. This sounds kinda like a scam to me.

    So we list at $225 ( $75k less than what we owe ), leave it on the market for a week, this "investor friend" makes an offer for $180k, which the bank will refuse, which at least lets them know we are looking to short sale. Then we just keep lowering the price every couple weeks till we find a buyer.

    This sounds a lot like this guy is looking to scoop this brand new house up way under what it's worth so he can maybe rent it out or something, which is fine if it alleviates us and doesn't leave us holding the bag. I don't know yet. We are gonna meet the "investor friend" on Friday.

    This all just doesn't sit well with us. We are still current, and I don't think we wanna get into a situation where some guy comes in, scoops up the house, and leaves us with a bill.

    We'll see. Just wanted to update.
  12. nitag

    nitag LoanSafe Member

    Malik, Find a realtor that specializes in short sales. That one that came by offered you some advise that I wouldn't go with. My sister owed 435,000 on their house and they sold it on the day it was supposed to Foreclose December 24th for 265,000 - they were with Litton and they had a great realtor. Just my 2 cents for what its worth..
  13. malikeye

    malikeye LoanSafe Member

    We just got a letter from our bank stating that they think we might be under a hardship and a bunch of other stuff. It states there are options, and a DiL was one of them. Very interesting. This must be because we have been calling and asking them to work on something with the "Making Homes Affordable Plan".

    The realtor we spoke to supposedly is a "short sale" realtor. He wanted way too much information for my tastes. He wanted pay stubs and bank statements, etc, etc. I don't think he needs that info. That info is for us and our bank to work out. He should only be a negotiator once we get an offer, or so I think.

    Anyway, he and his investor friend are coming over tonite to explain some stuff. The wife and I have already agreed we are not signing anything today, so at least we have a fighting chance :eek:
  14. malikeye

    malikeye LoanSafe Member

    My head is spinning here, but if the bank is actually offering us a DiL, should we try to proceed with that, based on the NC laws we have seen in this thread? It sounds like if we accept it, they will waive the judgment and just take back the house?

    We had originally ruled this out, as I was under the impression that it would never happen, but the bank is actually making reference to it. Just wondering if this might be the "best" course of action.

    We have yet to miss a payment, and are not planning on making the June payment. Also wondering how this will impact it. I'm pretty sure that nothing can be done until we at least start missing payments.
  15. malikeye

    malikeye LoanSafe Member

    And one more post to add ...

    The part about us both not living in the house because neither of us can afford the mortgage on our own is kind of scaring me. When she leaves, I won't be able to afford the mortgage on my own, because I will be incurring new costs ( 10k pay cut for benefits, health insurance, all food bills, etc, etc ). Most likely I will be under a few hundred a month. Is it ok that neither of us actually live in the property during this whole thing? We will be close and I plan on checking on it a couple times a week, mowing the lawn, etc, etc...

    Is a hardship alone, enough to convince them to work with us? This hardship will essentially bankrupt me if I needed to keep it up. Is the fact that we are separated, neither of us could afford the mortgage on our own, and the fact that I don't want to even live in a 3000sq ft house by myself anyway good enough? I'd rather be able to work with them, but I really don't wanna go through an inquisition, it's hard enough as it is. I don't think I can even document what "will" happen when we actually separate.

    This is really starting to take it's toll.
  16. ProfessorShays

    ProfessorShays LoanSafe Member

    You need to step back and take a look at your situation from a business perspective. Understandably, the personal situations going on in your life are clouding your judgment.

    Daniel
  17. malikeye

    malikeye LoanSafe Member

    So the realtor came over with his "investor friend" which happens to work in the same building, I believe. Anyway here is the deal :

    - We sign an option with "investor friend" that he has the ability buy the house exclusively
    - We then sign a listing agreement with the realtor which will entitle the "investor friend" to make negotiations on behalf of all parties
    - They make an initial lowball offer to get the bank to lock the account into loss mitigation, which will keep it out of foreclosure
    - They price the house right around fair market value, then we will eventually lower the price weekly or so, until we find a buyer
    - The "investor friend", at the table, buys the house with "hard money" ( which I believe to be a very expensive short term large sum loan ), then the real buyer would purchase it from him

    The "investor friend" says he will not make the deal unless we a get a free-and-clear letter, but nowhere in the documentation does it say this. He implies that it can't, because all the documents need to be seen by the bank for this to work. This will be non-judicial and a "short-sale", so the bank can't get a deficency judgement anyway. They could mark our credit, but wouldn't be able to add a foreclosure. I think.

    His goal is to get this property into a "short-sale" situation before we get a late payment in order to minimize the impact to credit. Which sounds great to us. If he offers a "short-sale" to the bank, they are required to move it into the loss mitigation department.

    His modus operandi is to get the closing costs out of the bank for the realtor, and then squeeze some cash out from his lowball offer(s) and the difference from the real sale. I believe he will slowly bid upwards until he finds were the bank will be accepting of the lowest offer, and then he will stop and let the realtor finish up.

    There are 2 documents involved. One is a disclosure agreement, that allows him to talk to the bank on our behalf. This document requires that we give him all documentation that is needed. Original loan papers, pay stubs, bank statements, tax returns, etc, etc. Basically our whole life.

    The second is an "option for a real estate purchase and sale" or something of that nature. This document just basically locks us into working with him for 1 year. It protects him from title blemishes, liens, and other pretty normal stuff. It's a straight forward doc. There were some things that kinda looped me a bit, but mostly we understood the whole thing. He read it from start to finish and explained each section.

    Both documents have a 3 day back out section. We have a lawyer on retainer, so we are thinking we verify that these 2 sections are indeed legit, and aren't negated elsewhere in the docs, which they weren't at first read, and have the attorney look them over as soon as we get them, so that would give us an option to back out.

    Either way, the house is going on the market, and we are not making any more payments.

    When he saw that he we had a 100% mortgage with no PMI he almost flipped because he thought that the bank should have NEVER made that transaction. Now that I think about it, he is absolutely correct. Lesson learned.

    He seemed legit, and very concerned that we understood that this was legit and that he had no interest in being prosecuted for this activity. He stated he has actually fired people for trying to do some less than legit things. I tend to agree, ultimately what does he gain from owning a house that can't sell, and that can't rent for the price that he would be buying it for anyway. I don't see anywhere in the doc where he can "steal" the house anyway. If something did go south and he decided to sue, we would just declare bankruptcy anyway, and he wouldn't get anything.

    I can say one thing, I am going to think long and hard before I get married and buy another house ( if I even can buy another house ). This life trauma is not worth it. I'm not trying to push this off on other people, I take full responsibility for what I do and what I am attempting to do, but there really is a lack of honesty in this world. It's hard to trust people, it's hard to NOT get screwed by banks, it's hard to live. Maybe I'm just jaded right now, but jeez, I am really thinking hard about a lot of things that are supposed to be "easy" and we are "entitled" to that really shouldn't be.
  18. snapple candy

    snapple candy LoanSafe Member

    mailkey,
    I agree with Professor, you may need to step back from this. Going thru separation and all is heavy stuff to deal with emotionally and these are very big decisions to make without professional advice or counseling. Have you seen a real estate attorney to speak with about this business?
  19. malikeye

    malikeye LoanSafe Member

    We haven't talked to a real estate attorney yet. Right now, we are both moving out and getting separated. Once that happens, which it it will in a week or two, we won't be able to afford the mortgage. So we will need to stop making payments. We have both signed new leases at our respective new dwellings. Might not have been the smartest thing to do, but, it is what it is. There is no way that the mortgage payments would be able to be made.

    In my experience so far, the attorney won't do anything until the separation is finalized. That will happen next week. I guess I just need to keep looking for an attorney. I called about a dozen and most were not interested in doing foreclosure work.

    I was hoping to get this stuff with the house started quickly in order to potentially limit the impact to our credit. I don't really know if quickly even matters at this point.

    We were going to have my wifes attorney look at the paperwork, but I think it might be better to get a real estate attorney to look at it, from a perspective of helping both of us.

    It doesn't help that work is pretty hectic right now for both of us. I'm trying to survive as best I can, but it is all just really overwhelming. I'm trying to save us from going bankrupt as well. Attorneys are expensive, but I guess it is a necessary thing.

    Confused :(
  20. snapple candy

    snapple candy LoanSafe Member

    Hang in their mailkey,
    Having been thru many years of divorce litigation, I do not think having wife's attorney look at papers is in your best interest. YOu may want to call legal aid to get referral for a good real estate attorney. Call mortgage brokers, they know where the goods are. State bars are the greatest in what I have found for referrals but also worth a shot.
    Take time out for yourself to find some peace in all this and reflect. See a counselor if you can to help sort out all the confusion. BK actually might be a good option to consider. Look at all your options. I was overwhlmed myself a few years ago with debt,etc and had not considered BK. I met with a counselor who suggested I consider it. I saw a BK attorney and it was the best advice I got. It took such a big load off my shoulders so dont rule anything out.

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