Home Loans and Support

Looking for Some advice

Discussion in 'Deed in Lieu of Foreclosure - Do You Need Help to ' started by ranallojr, Apr 7, 2009.

  1. ranallojr

    ranallojr LoanSafe Member

    First of all I want to say that this website has been very helpful and has contained alot of information.

    My situation is this: I have a townhome in MN that I am renting out but the tennant has given her notice and not going to renew. The area where the home is located can't support the type of rent I need just to sustain a minimal loss. I had a market analysis done and of course nothing is selling and the listing prices are way below what i owe on the property. My mortgage is a 80/20 with EMC (subsidary of Chase). I called them letting them know my situation. They told me to apply for the home ownership program(obama's plan), but I automatically exempt since it's non owner occupied. I have been looking at options of letting it go back.

    I have thought that maybe by best option would be going with the Deed in Lieu of foreclosure option vs. letting it go back as a foreclosure? Can this be started even though I am current? Has anyone worked with EMC before? Can somebody explain what exactly happens? Credit ramifications? I currently have excellent credit 750+. If I continue to make payments on time with other creditors will they raise my rates, close accounts, etc? If they raise the rates, don't you have the option to opt out and continue at the current rate, but the account is inactive? I was thinking of taking some money out while I can and put it away for down the road (taxes, problems, etc). I am sorry for rambling, but I have so many things going through my mind and don't really know where to start. I want to be proactive and get the ball rolling before I get months behind. Any information would be greatly appreciated. Thanks
  2. maxx233

    maxx233 LoanSafe Member

    Well, I'll try to help out with what I can at least :) From what I gather, I doubt the lender will consider DiL unless you're already behind and they have reason to consider it. Same thing with loan mods, shortsales, etc. I would at least talk to them about loan modifications available, it's worth a shot although it's certainly not what I'm holding out for in my situation. If you let it go or even DiL just forget about credit for 7 years. It's actually really relieving once you accept that and even in my short experience so far you start looking at what's important in life a little differently. It's nice. Don't pay off credit cards, if they raise rates opt out and close the account like you said and slowly pay off- this way you still have debt on file and the lender's less likely to try pursueing a judgement against you I would imagine. Keep options open by making only minimal financial changes, don't rock the boat too much til you've really researched ramifications of any action.

    If you do talk Mods with them, don't accept a BS mod that's just going to prolong the problem with the same type of loan (or worst) that got you in to the situation in the first place - unless you really believe you'll have a way out of it before it's favorable terms expire (which, preserving good credit, you very well may in 4-5 years.. just depends on how upside down you are and how you think the market's going to move.) And if you do DiL/foreclose/shortsale, on the bright side at least taking a huge hit to credit now will be less of an impact than taking it later because for the next couple years the credit market's all screwed up anyway.
  3. ProfessorShays

    ProfessorShays LoanSafe Member

    Clear up a question I have. You indicate 80/20 which today generally means there is a first for 80% of the purchase price and a second for 20% of the purchase price. Is that the case? If so, who are the lenders? If you are talking EMC do you know if the loans have different "investors"?

  4. ranallojr

    ranallojr LoanSafe Member

    Dan, Both the first and second are held be EMC. That's how the original loan was written up. I have no liens or judgements. I talked to EMC and they gave me some papers to fill out for a short sale and for a Deed In Lieu. He mentioned I should fill out both. I am thinking the DIL would be better than a short sale??
  5. ProfessorShays

    ProfessorShays LoanSafe Member

    The consensus here on the forum, based upon published information from credit reporting agencies, is a short sale will have less of an impact on your credit score than either a foreclosure of deed in lieu (both seem to have the same negative impact).

    Problem you face is that EMC may well be the loan servicer for each of your loans and those loans may have different investors which could well gum up the works relative to both a short sale and the acceptance of a deed in lieu.

  6. dealingwithHomeEq

    dealingwithHomeEq Fighting Homeowner

    Professor: This is not directed at you, but I do question the veracity of the consensus on this forum regarding damage to FICO scores and short sales. So many real estate agents are pushing this misleading idea--and apparently quite successfully--that a short sale is so much better on your credit score than just walking away? It is sickening that most of the mainstream media will not come out and tell the truth about this. Instead, they would prefer to help the banks with their corporate terrorism campaign against underwater homeowners.

    . . . .

    When you can't go home again; Last resort: abandonment The Record (Bergen County, NJ) February 1, 2009 Sunday

    Copyright 2009 North Jersey Media Group Inc.,
    All Rights Reserved
    The Record (Bergen County, NJ)

    February 1, 2009 Sunday
    All Editions


    LENGTH: 1500 words

    HEADLINE: When you can't go home again;
    Last resort: abandonment



    Two months ago, Sharon pulled out of the driveway of her Oakland home for the last time. She didn't look back.

    She loved the house where she had lived for 30 years and raised her children. But when she and her second husband, Bob, refinanced the house in 2005 to pay college tuitions and buy out Sharon's ex-husband's stake in the home, they unwittingly set off a chain of circumstances that would lead them to abandon their home and move into a rental little more than three years later. It was a $350,000 adjustable-rate, interest-only loan they had applied for over the phone.

    "We started getting letters that our mortgage payment was going to increase by $600 a month come January of 2008," said Bob, who along with Sharon asked that their last name not be used. "And that payment was going to keep going up and up and up. I tried to refinance, but there wasn't enough equity to refinance."

    They would be paying more than $3,000 a month for a 900-square-foot home.

    Bob tried to get the mortgage terms modified. He was able to push back the extra $600 payment for one year only. But the lender said it couldn't modify the loan until Bob and Sharon were delinquent in their payments, which is why they stopped paying the mortgage in the spring of 2008. When they finally received the loan modification papers, the money and penalties they owed had been added to their loan amount, and their interest rate had risen from 8.5 percent to 9.9 percent.

    Said Sharon: "Bob called a lot of people. We were still in such a bind when we were paying the mortgage and the taxes. Nobody would call us back. We didn't know where to turn."

    Bob said he was ready to get out of the house a year before Sharon was.

    "At this point in my life, I can't do this anymore," he said. "They [the bank] made so much money on me already. They can have the house. I'm done."

    Bob and Sharon's decision to abandon their home is not so extreme as those who walk away from houses worth less than the mortgage and mail the lender the keys. The couple hasn't made a mortgage payment in eight months or so, but the house is listed for sale, and Bob pays to keep the utilities on. He visits once a week to check on things and shovel snow from the drive and walkways.

    But Sharon said, "I haven't gone back. I can't. I have a lot of memories of this house. One son was very emotional when we left. But the other said, 'I can't believe you didn't do this sooner.' "

    There are few statistics on how many people abandon homes when they can no longer afford the mortgage payment and the house is worth less ? often significantly less ? than the mortgage.

    According to Mark Zandi, chief economist at financial research firm Moody's Economy.com, nearly 14 million Americans ? about one in five mortgage holders ? are "underwater" or "upside-down," that is, owe more than the house is worth. Many continue to pay their mortgage nonetheless.

    But if they've fallen behind in payments ? and data from foreclosure specialist RealtyTrac indicates that almost 70,000 New Jerseyans were in some stage of foreclosure proceedings in 2008 ? many people call the lender themselves or hire a lawyer and fight to stay in the house.

    "Walking away doesn't happen a lot, because mostly you're going to stay there until they force you out," said attorney Myron Milch, who represents both lenders and homeowners in mortgage foreclosure proceedings. "The house will keep you out of the rain, ice and snow."

    Milch said legal action may buy delinquent homeowners time. "I was able to help one family who couldn't afford the carrying charges of $25,000 a month to stay in their Saddle River home for four years," he said.

    Jon Maddux, the CEO of the California-based Web site YouWalkAway.com, said, "What we try to do is to make walking away the last choice for people we advise."

    Maddux said abandoning a home and failing to maintain it hurts the whole neighborhood, dragging down property values and making the abandoned home a magnet for criminals.

    "If you're willing to do a short sale [a bank-approved sale for less than the mortgage value], if you're willing to go through that process, you should try it," said Maddux. "But in many cases, a short sale is not going to work: If there are four or five other homes on the street not selling, if you are 'upside-down' $100,000 to $200,000, and you're in misery."

    That is when a struggling homeowner might consider walking away.

    "People try to talk about the homeowner's ethical decision and moral responsibility [to pay what he owes]," said Maddux. "But banks look at it as a business decision. You have to do what's best for the survival of your family."

    Bob and Sharon's real estate agent Dianna Ivanov, a foreclosure expert, said the couple helped themselves by having her advocate for them with the lender and by hiring a lawyer who specializes in short sales and bank-owned properties.

    "On their own, they had a terrible time trying to get a straight answer from the bank or anyone," Ivanov said.

    Had they simply walked away without dealing with the bank and trying to sell the house, they might have faced a deficiency judgment, in which a bank pursues the debtor for the difference between the eventual sales price of the home and the mortgage owed, Ivanov said.

    "They could have been stuck with quite an expensive problem that would follow them for 20-plus years," Ivanov said.

    Nonetheless, attorney Milch said, "Deficiency suits don't often happen in residential foreclosures in New Jersey."

    And some lenders who accept short sales ask the mortgage-holders to sign a promissory note for the difference between the short sale price and the mortgage.

    The biggest problem with walking away from your home and hastening foreclosure is that foreclosure is a huge blight on your credit score: a drop of perhaps 200 or more points on your FICO credit score. (A strong FICO score is around 700 and above.)

    Still, if you have already missed a half-dozen or more mortgage payments as Bob and Sharon have, your credit score has probably already taken a big hit.

    "Anybody that I talk to who even contemplates walking away from his home, I lay out a number of reasons they shouldn't," said Re/Max real estate agent Sal Poliandro. "A short sale is a way to get you out of your predicament with dignity. It helps the bank get rid of an asset before they come and collect it. When we talk about foreclosure, it's not just a financial thing. As far as credit goes, nothing will ever cost you the same. You're going to have to pay $600 a month for a car, rather than $300 a month. And, with a foreclosure, your name will be in the paper."

    And foreclosure can be postponed, Poliandro said, while short sale negotiations are under way.

    However, short sales may show up on credit reports as "pre-foreclosure in redemption status," which can seriously hurt the seller's credit score as well.

    Craig Watts, public relations director for Fair Isaac Corporation, which created the FICO scoring system, said in an e-mail: "The effect on a FICO score is likely to be very similar for both actions [foreclosure and short sale]. The impact depends on how the lender chooses to report the foreclosure or the short sale to the credit bureaus."

    A foreclosure remains on a mortgage-holder's credit report for seven years. But the FICO Web site says, "While a foreclosure is considered a very negative event by your FICO score, it's a common misconception that it will ruin your score for a very long time. In fact, if you keep all of your other credit obligations in good standing, your FICO score can begin to rebound in as little as two years."

    Bob and Sharon were very upbeat when they received a short sale offer of about $340,000 in the second half of 2008. They thought this sorry chapter in their lives would soon be over. But the buyers withdrew, nervous after receiving the home inspection report. Bob and Sharon said they had always made it clear that the home needed a new septic system.

    Now, their Realtor Ivanov reports, there is another offer on the house. Of course, today, with so many short sales, so much paperwork and so many different entities that need to approve a short sale, it may take five or six months to complete a short sale and close on the home.

    Bob and Sharon are relieved to be in their new home. They are paying their bills on time, and working to rebuild their credit. Sharon treasures a birdhouse, made by a friend's father, that is a replica of the home where she lived for three decades. Bob worries that there could still be financial repercussions, that someone might come and garnishee part of his paycheck to pay down the unpaid mortgage.

    Said Sharon: "We're very happy on one hand, and on the other hand, we're waiting for the bottom to fall out."


    LOAD-DATE: February 3, 2009
  7. ProfessorShays

    ProfessorShays LoanSafe Member


    Short sales in my mind have two primary reasons that support their utilization. They are:

    1. In a state that does not provide protection against post-foreclosure liability for secured loans (effectively making it recourse debt), this may be a way to negotiate away that liability or reduce it by cooperating in a short sale.

    2. I sense that it is more palatable for forum participants given it is a sale involving their participation.

    Were I in the position of a forum participant with non-recourse debt in place, there is no question I'd hold out until the "cash for keys exchange." But I have to remember that speaking from the position of an armchair quarterback makes the decision making process much easier for me. Not so true for the nephew I visited this past weekend in San Diego who just lost his job and has seen his home slip in value from something like $800K to $350K and has a current level of debt at $450K.

  8. ranallojr

    ranallojr LoanSafe Member

    Daniel, I just want to get this straight. If you were in my shoes you would let them take the house? I still have two more rent payments, but to be honest I was thinking of not paying the months mortgage? It seems like they won't do anything unless you are behind. I am sending over my DIL paperwork today. I suppose I should send over the Short sale paperwork as well? I know it won't sell. I believe in MN that they can't come after my primary property. I honestly feel real bad about the situation, but an attorney at my work advised me not to but yourself farther in debt to try and save the place.
  9. ProfessorShays

    ProfessorShays LoanSafe Member

    The key to the discussion I was having related to an assumption that there would be no post-foreclosure liability for the secured debt on the home. That is possible in states like California (where I reside) because of the "non-recourse" nature of purchase money secured loans on residences. Most states do not provide borrowers with this protection. If that is the case in your state, then I would not follow what I've suggested but do a more detailed analysis on what the lender(s) can be expected to do if you decide to walk.

  10. ProfessorShays

    ProfessorShays LoanSafe Member

    I was able to find what follows that may help you in your analysis. What may well be troubling from your indicated situation is the fact that you have a second loan. If the first loan forecloses, the likely result may be that the second loan becomes unsecured and is able to chase you as an unsecured lender.


    Minnesota Foreclosure Laws

    <!-- View the foreclosure laws for another state

    <form name="state_selector" id="state_selector"><select name="states" onchange="MM_jumpMenu('parent',this,0)"><option></option><option value="alabama.php">Alabama</option><option value="alaska.php">Alaska</option><option value="arizona.php">Arizona</option><option value="arkansas.php">Arkansas</option><option value="california.php">California</option><option value="colorado.php">Colorado</option><option value="connecticut.php">Connecticut</option><option value="delaware.php">Delaware</option><option value="florida.php">Florida</option><option value="georgia.php">Georgia</option><option value="hawaii.php">Hawaii</option><option value="iowa.php">Iowa</option><option value="idaho.php">Idaho</option><option value="illinois.php">Illinois</option><option value="indiana.php">Indiana</option><option value="kansas.php">Kansas</option><option value="kentucky.php">Kentucky</option><option value="louisiana.php">Louisiana</option><option value="maine.php">Maine</option><option value="maryland.php">Maryland</option><option value="massachusetts.php">Massachusetts</option><option value="michigan.php">Michigan</option><option value="minnesota.php">Minnesota</option><option value="mississippi.php">Mississippi</option><option value="missouri.php">Missouri</option><option value="montana.php">Montana</option><option value="nebraska.php">Nebraska</option><option value="nevada.php">Nevada</option><option value="new_hampshire.php">New Hampshire</option><option value="new_jersey.php">New Jersey</option><option value="new_mexico.php">New Mexico</option><option value="new_york.php">New York</option><option value="north_carolina.php">North Carolina</option><option value="north_dakota.php">North Dakota</option><option value="ohio.php">Ohio</option><option value="oklahoma.php">Oklahoma</option><option value="oregon.php">Oregon</option><option value="pennsylvania.php">Pennsylvania</option><option value="rhode_island.php">Rhode Island</option><option value="south_carolina.php">South Carolina</option><option value="south_dakota.php">South Dakota</option><option value="tennessee.php">Tennessee</option><option value="texas.php">Texas</option><option value="utah.php">Utah</option><option value="vermont.php">Vermont</option><option value="virginia.php">Virginia</option><option value="washington.php">Washington</option><option value="west_virginia.php">West Virginia</option><option value="wisconsin.php">Wisconsin</option><option value="wyoming.php">Wyoming</option></select></form>
    -->Minnesota Foreclosure is Non-Judicial.

    Non-Judicial Foreclosure:

    A thirty-day demand letter must be sent on conventional loans prior to the commencement of a Minnesota foreclosure.
    Minnesota Foreclosure Timeline

    <TABLE cellSpacing=0 border=1><TBODY><TR><TH width=130>Day 1-17</TH><TH width=130>Day 17-39</TH><TH width=130>Day 45-90</TH></TR><TR vAlign=top><TD width=130>Receive file, order title report, and send debt validation notice; Draft Power of Attorney and forward to client.</TD><TD width=130>Prepare Notice of Sale; Publication commences - six weeks.</TD><TD width=130>Deadline for Service of Notice of Sale; Sheriff issues Certificate of Sale.</TD></TR></TBODY></TABLE>
    Minnesota provides for non-judicial foreclosure when the mortgage deed contains a power of sale. A Power of Attorney authorizing an attorney to conduct the foreclosure along with a notice of pendency of the foreclosure must be filed of record prior to the commencement of foreclosure action. The Notice of Minnesota Foreclosure Sale must be published for six weeks. The Notice of Mortgage Foreclosure Sale must be served on the occupants of the mortgaged premises at least four weeks prior to the mortgage foreclosure sale. Minnesota foreclosure law states that all junior lien holders and parties with an interest in the property may file a request for Notice of Mortgage Foreclosure Proceeding. Notice is served on any requesting party by mail. Foreclosure sales are conducted by the Sheriff of the county where the property is located. The Sheriff issues a Certificate of Sale to the successful bidder. Outside bidder’s must have cash or certified funds sufficient to outbid the foreclosing lender.
    A Minnesota foreclosure is subject to a statutory redemption period of six months. In a limited number of circumstances there is a twelve month redemption period. The twelve month period applies when the amount due as of the date of the Notice of Foreclosure Sale is less than 2/3 of the original principal amount; the mortgage premises exceed 10 acres in size with additional limitation; or the mortgage premises exceeds 40 acres in size. For mortgages executed after December 31, 1989 a court order may be obtained which reduces the redemption period to five weeks if the property has been abandoned.
    During the redemption period an affidavit must be filed which details expenses advanced during the redemption period for taxes, insurance, and property preservation. The advances may not be collectable if the affidavit is not filed at least ten days prior to the expiration of redemption.
    Judicial Foreclosure:

    In order to obtain a deficiency judgment, the mortgage must be foreclosed by judicial action. Judicial foreclosure can also be used to cure title defects or if in a Minnesota Foreclosure by Advertisement the occupants of the property are avoiding service. This involves the filing and service of a summons and complaint and obtaining a judgment. After judgment has been entered, the matter is scheduled for a judgment and decree sale with the Sheriff. The Notice of Sheriff’s Sale under judgment and decree must be published and posted for six weeks. The difference between the amount of the debt and the bid will establish the deficiency. After completion of the sale, the court must confirm the sale results. Redemption will run from the date of confirmation. Collection of the deficiency can be commenced after confirmation of the sale.

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