Heloc Foreclosed On Home, New Owner Wants Our Mortgage Info

[bkakca]

Hello all, I posted the outcome of our saga in other threads, but basically, the bank foreclosed on our Heloc loan in April. It was much larger than our First Mtg. We had stopped paying in 2014, offered a 7% settlement last November, 2015 and they wanted all our financials to see if they could "help" in any way. We did not provide any.

So, house was sold at Trustees's Sale, and we were already in the process of moving out. I actually found an email address online for the Real Estate Investment Co. that had the winning (and only) bid on the Heloc lien. The other 2 investors at our home that morning were shocked when I told them the lien they were bidding on was a Heloc, and they would need to take care of the First Mtg if they won the auction.

So, sent an email informing new owner that they won the house subject to the First Mtg., and pool was green. Also, we were now behind 2 months on the First Mtg. and lender could do another Trustee's Sale on the lst Mtg and he would lose the $143K he paid at auction on the Heloc.

Heard back a week later, he asked for our keys and our First Mtg. info.

Emailed him back, asking their intentions on the home, and saying we may be able to negotiate C4K if they wanted keys and our Mortgage Info. They promptly changed the locks, vacuumed the carpet and rented it out.

Six weeks later, this morning, we get an email saying yes, they had no idea there was a lst Mtg. on the home when they bid at auction, and what would we want from them for us to fork over our mortgage info so they can do something.

Requesting a Payoff Statement from a lender is no easy task, even for a title company. They need borrowers names, Bank Info, Loan Number, SS numbers, and often a signed authorization from the borrower to provide the payoff info to the title company.

Kinda knew they were screwed and the clock is ticking as no payments are being made and the home is now clearly in the money.

So, what do we ask these guys for, and how do we do this?

Thoughts are....ask a Title Company to handle the Payoff Request with instructions that the other party is not to have any access to the loan information, but only be told what the Payoff Amount is and to bring it into the Title company to make the payoff.

We would add what amount as C4K, (or "cash for your mortgage info, so we don't lose this house" haha).

C4K on a $370K home .....they'll have about $70K equity after paying off our lst Mtg., so maybe $5k?

We're kind of in a no lose situation here....they need this info or they are pretty screwed.

 

[Moe Bedard]

Hey bkakcca.

They should have worked with you before. My thoughts are that they need to pay from that information and for you to help. Like cash keys, but cash for help.

This is business. They understand this.

You are under no obligation to help as well.

 

[bkakca]

Hey bkakcca.

They should have worked with you before. My thoughts are that they need to pay from that information and for you to help. Like cash keys, but cash for help.

This is business. They understand this.

You are under no obligation to help as well.

Thanks Moe. If we can't figure out how to do this, (have a 3rd party make the payoff), collect some cash for the info, and not provide the info directly to them...we will let it go to foreclosure on the First Mtg.

Contacted a title company yesterday about doing this transaction, and was told their company could not do it.

Not sure if another title company would, may do some looking.

Hope you and yours are doing well, peace and hugs to you all !

 

[Moe Bedard]

You are welcome!

Yeah, I'm not sure how you would go about this. But you are on the right track.

Thanks for the well wishes. Peace, light and love to you and yours as well

 

[bkakca]

You are welcome!

Yeah, I'm not sure how you would go about this. But you are on the right track.

Thanks for the well wishes. Peace, light and love to you and yours as well

Moe, can I get your input on this please?

The investor /RE Agent who bought our home by bidding on the Heloc at the Trustee's Sale, has had an Escrow Officer fax in documents to our lender saying ---the new owner does not have our info and cannot contact us (the previous owners), but would like to pay off the First Mtg.

This a a lie, as I have been in contact with this guy on and off for months; he just doesn't want to pay us our "Fee" for helping him get clear title to our home by giving him our mortgage info and signed authorization to get a payoff stmt.

So, I answered a call from the Lender today, told them:

1. BofA foreclosed on the Heloc and we no longer own the home
2. We have been out of the home since April
3. New owner has put renters in the home

They were very interested to hear all this, and also that we have been in contact with the new owner.
Thy did inform me that they will not be responding to the faxed in info from his Escrow Officer, as she has no info rights on our loan.

So, if this guy does not want to play ball, what does a Deed in Lieu look like for us?

The lst mtg balance is around $160K, and we paid $268K for the house and did around $50K in improvements over the years...pool etc.
Is there a formula somewhere for what you'd owe in taxes, and receive a 1099 for, as I believe Deed In Lieu's are treated as Sales?

Or are we covered through 2016 by the Mortgage Forgiveness Debt Relief Act?
Or by Arizona State Law on Non-Recourse loans, (Primary Residence, but loan was refinanced a few times-no cash out though)

Thanks for any info, best to you all, as ever.

 

[Moe Bedard]

Hello bkakca,

My understanding is that the new owner would have to buy out the first mortgage or bring it current before he gains clear title on the property.

A deed in lieu of foreclosure would be impossible because you technically no longer own the home. You just have the mortgage contract that is no longer backed by the property and the 1st mortgage has the deed. This investors issue is with the first mortgage whom he must work out a deal to get clear title. All parties know this now.

There is no formula persay on what you would owe in taxes, but the amount will be based on the difference of what the home was sold for minus what you owed at the time of foreclosure. With you it will be compicated because the first mortgage is still an issue and you won't really know until this is all handled.

The Mortgage Forgiveness Debt Relief Act of 2007-2016 only applies to forgiven debt or foreclosures that are nonrecourse so you should be good to go. My only concern is the HELOC which I assume was a loan you refinanced after the purchase?

The IRS Publication 4681 says: “Nonrecourse debt” applies to when you have owned a property that was subject to a nonrecourse debt in ex-cess of the FMV of the property, the lender’s foreclosure on the property does not result in ordinary income from the cancellation of debt.”

If you qualify, you can claim a special exclusion by filling out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and attach it to your federal income tax return for the tax year in which the qualified debt was forgiven.

For more on this topic see Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments.

 

[bkakca]

Hello bkakca,

My understanding is that the new owner would have to buy out the first mortgage or bring it current before he gains clear title on the property.

A deed in lieu of foreclosure would be impossible because you technically no longer own the home. You just have the mortgage contract that is no longer backed by the property and the 1st mortgage has the deed. This investors issue is with the first mortgage whom he must work out a deal to get clear title. All parties know this now.

There is no formula per say on what you would owe in taxes, but the amount will be based on the difference of what the home was sold for minus what you owed at the time of foreclosure. With you it will be complicated because the first mortgage is still an issue and you won't really know until this is all handled.

The Mortgage Forgiveness Debt Relief Act of 2007-2016 only applies to forgiven debt or foreclosures that are nonrecourse so you should be good to go. My only concern is the HELOC which I assume was a loan you refinanced after the purchase?

The IRS Publication 4681 says: “Nonrecourse debt” applies to when you have owned a property that was subject to a nonrecourse debt in ex-cess of the FMV of the property, the lender’s foreclosure on the property does not result in ordinary income from the cancellation of debt.”

If you qualify, you can claim a special exclusion by filling out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and attach it to your federal income tax return for the tax year in which the qualified debt was forgiven.

For more on this topic see Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments.

Thanks Moe. We spoke with an attorney & tax accountant on the Heloc, and since BofA chose foreclosure as their "remedy/recourse", they feel the Heloc was then made a non-recourse loan or a one-strike rule applies.... AZ is a non-recourse state, so we should be good on that with no tax consequences.

Am confused on this "You just have the mortgage contract that is no longer backed by the property and the 1st mortgage has the deed."

So, I know in AZ that the lst Mtg lender's "Trustee" can hold a second Trustee's Sale on this lien and sell the house again, and this Investor guy would be out his money spent bidding on the Heloc. And the house is transferred to yet another new bidder.

So if the lst Mtg. lender's Trustee can sell the house again at auction, why could they not take a Deed in Lieu from us instead?

See my utter confusion ?

 

[Moe Bedard]

My pleasure!

Yes, this is confusing and I'm not 100% certain. Just like you, I'm learning something new all the time.

The problem I see that even if you can do a DIL is that they know you are out of the home and not in possession. They are debt collectors and do what is best for them. Normally a deed in lieu is so they do not have to go through the cost and trouble of a foreclosure, so you deed it back to them.

This is more complicated because the new owner/investor. They will most likely work a deal with him and then deal with you later or write the debt off. Also, a DIL is almost impossible to obtain. I have only seen maybe 10 in the last 9 years. Heck, maybe you will be number 11

 

[bkakca]

My pleasure!

Yes, this is confusing and I'm not 100% certain. Just like you, I'm learning something new all the time.

The problem I see that even if you can do a DIL is that they know you are out of the home and not in possession. They are debt collectors and do what is best for them. Normally a deed in lieu is so they do not have to go through the cost and trouble of a foreclosure, so you deed it back to them.

This is more complicated because the new owner/investor. They will most likely work a deal with him and then deal with you later or write the debt off. Also, a DIL is almost impossible to obtain. I have only seen maybe 10 in the last 9 years. Heck, maybe you will be number 11

Thanks Moe, yeah I scoured the forums for other members where the Heloc lender foreclosed, leaving a remaining lst mortgage hanging around. No luck...the info I found was on Bigger Pockets and how this is a rookie mistake by Investors at Trustee Sales, but no info on the homeowner's side of things.

Just blazing trails here left and right, geez. Will keep this thread updated on what goes on.

Have a great evening and thanks as always!

 

[Moe Bedard]

Not a problem and please keep us posted on how this all turns out for you.

You have a great weekend as well!