Settle 2nd Mortgage with Equity? - Part 2

#1
My previous thread from 2013: https://www.loansafe.org/forum/threads/settle-2nd-mortgage-with-equity.85673/

Cut to: 5 years later. Re-evaluating potential risk of 2nd mortgagee proceeding with foreclosure at some point as is warned about here: http://blog.credit.com/2015/10/the-new-foreclosure-threat-troubled-helocs-second-mortgages-127436/

Update:
1st mtg (BOA): $117K - still current
2nd mtg/HELOC (CCO) : $115K - defaulted 04-10; charged off; no further actions taken
Total loans: $232K
Current market value of property: $285K


Est. foreclosure analysis:
- Selling costs of 7%: $20K
- Foreclosure/trustee/legal fees: $30-50K
- Total: $50-70K
- Net equity: $3 to ($17K)


CCO mortgage mentioned back in 2013 that they were "not going to pursue foreclosure", however, that was then, this is now.

Possible strategies:
1) attempt direct settlement. I think I would take a 30% offer (I see that they have offered others this before) now that I have the means to do so.
2) offer via 3rd party 'friendly buyer' (i.e. attorney) to buy the non-performing note and cash them out of. Re-performing the note would only be an option if they accepted it as part a of discount of face or settlement.
3) Try to do a 'friendly short sale' at a reduced quick sale price to force them to settle. 1st loan would be paid off.
4) Do nothing/status quo since they're doing nothing.
5) Sell before they threaten foreclosure; but with no equity left for me, why bother? Why not just default on the 1st and then proceed with a stronger friendly short sale, forcing a settlement?

In all these cases except #4, I'm afraid I would wake a sleeping dog.

Some of you may ask - why didn't I settle then. Answer: a) didn't have the cash to throw at this, and b) refused to settle @ 50% of the balance.

Any and all advice greatly appreciated!
 

Erik Sandstrom

Mortgage Expert - Call 1-619-379-8999
Staff member
#4
That's a really hard decision and what I've been seeing a lot of lately. I'm not sure what I would do but it would be between #1 and #4 for me if I wanted to keep the home. If not then it would be the others.
 

OneHugeMess

LoanSafe Member
#5
Okay.
My previous thread from 2013: https://www.loansafe.org/forum/threads/settle-2nd-mortgage-with-equity.85673/

Cut to: 5 years later. Re-evaluating potential risk of 2nd mortgagee proceeding with foreclosure at some point as is warned about here: http://blog.credit.com/2015/10/the-new-foreclosure-threat-troubled-helocs-second-mortgages-127436/

Update:
1st mtg (BOA): $117K - still current
2nd mtg/HELOC (CCO) : $115K - defaulted 04-10; charged off; no further actions taken
Total loans: $232K
Current market value of property: $285K


Est. foreclosure analysis:
- Selling costs of 7%: $20K
- Foreclosure/trustee/legal fees: $30-50K
- Total: $50-70K
- Net equity: $3 to ($17K)


CCO mortgage mentioned back in 2013 that they were "not going to pursue foreclosure", however, that was then, this is now.

Possible strategies:
1) attempt direct settlement. I think I would take a 30% offer (I see that they have offered others this before) now that I have the means to do so.
2) offer via 3rd party 'friendly buyer' (i.e. attorney) to buy the non-performing note and cash them out of. Re-performing the note would only be an option if they accepted it as part a of discount of face or settlement.
3) Try to do a 'friendly short sale' at a reduced quick sale price to force them to settle. 1st loan would be paid off.
4) Do nothing/status quo since they're doing nothing.
5) Sell before they threaten foreclosure; but with no equity left for me, why bother? Why not just default on the 1st and then proceed with a stronger friendly short sale, forcing a settlement?

In all these cases except #4, I'm afraid I would wake a sleeping dog.

Some of you may ask - why didn't I settle then. Answer: a) didn't have the cash to throw at this, and b) refused to settle @ 50% of the balance.

Any and all advice greatly appreciated!
#2 is not going to work. Curious - is your first owned by Fannie or Freddie? If it's not, and it's a purchase money loan, it's probably owned by the same RMBS trust that owns your first. If it's a refinance there's like a 50% chance it's owned by some random bank / or a private RMBS Trust.

#3 is only good if you want to move. Can you find a cheaper rental for less than your paying on your first now? Is your First Lien modified/good deal? You might be better off just continuing to pay your first, and pretending like nothing is wrong. Kinda like Option 4.

#4 might be your best option.

#5 Only works if your willing to come up with the money/difference to pay the realtors commision, and the balance owed on the 2nd vs market value.

Short Sale is okay -- but it's almost as bad as a foreclosure credit wise. And your almost better off letting the place get foreclosed on -- while trying to extend it out as long as possible. Taking that money saved, building up savings, and finding a nice place to rent when the formal eviction finally commences.

Honestly, in your case, you could probably pull off a formal sale and get enough money to almost pay off the entire loan balance.

CCO Mortgage - are they still sending statements monthly? Is Interest still accruing monthly? When was the last time they contacted you? Technically a charged-off loan should no longer collect interest. So whatever balance you had in 2010, would be the amount owed. However - every case is different, and I've seen 2nd Liens where the loan continued to accrue interest, and it just kept compounding. So a $90k loan that is delinquent, could now total $140k and so forth.

You technically have enough equity - you could almost refinance this mess, and bring the 2nd loan current. Which is why I ask if your first is modified. If it's a good enough deal, you almost might be better off trying to open a new HELOC and rolling in the charged-off balance. If you really wanted to take charge of this.

All of this really depends on how much you like the house? And if Interest is still accruing daily on the loan.

If I were in your shoes, I'd deeply consider just waiting things out and watching what happens. If they finally come after you, then I would consider refinancing and taking care of it then. Technically - they could do this at any time, and should to recover that loan balance, even partially... but it's a game of poker. You never know what they are going to do.


Also worth a note - in a lot of states. Esp NY, but in others as well, Statue of Limitations are going to come into play with a lot of these really delinquent second mortgages. Research & See what you can find in your state, and what the limitations are. There's a chance you may no longer owe them any money at all. You'd never be able to fully sale the house, without a Quiet Title - But they would not be able to enforce the lien. You could pass it onto family and the title would be clouded, but no one would be able to come after the house as long as the first is paid off.

Check out my other thread where I discussed a very similar situation.
https://www.loansafe.org/forum/thre...help-with-settlement.82829/page-4#post-545884
 
#6
Replies in red below:

Okay.


#2 is not going to work. Curious - is your first owned by Fannie or Freddie? If it's not, and it's a purchase money loan, it's probably owned by the same RMBS trust that owns your first. If it's a refinance there's like a 50% chance it's owned by some random bank / or a private RMBS Trust.
The 1st is with Bank of America (formerly CountryWide); don't know if Fannie or Freddie; was a purchase money loan. I think you were asking in reference to the second. I know trying to buy a one-off note from a large institution is a long shot and will probably reach a dead end, but worth a try.

#3 is only good if you want to move. Can you find a cheaper rental for less than your paying on your first now? Is your First Lien modified/good deal? You might be better off just continuing to pay your first, and pretending like nothing is wrong. Kinda like Option 4.
The whole reason I didn't default on the 1st is exactly because the payment (which includes taxes, insurance) is actually less than the fair market rent, so, no, I couldn't find a cheaper rental for an equivalent quality property. The 1st is unmodded and an ARM and will adjust again in July for about $60/mo, so still a good deal.

#4 might be your best option. Which is why I did nothing up to this point (let sleeping dogs lie), BUT, got spooked with reading that article I linked above.

#5 Only works if your willing to come up with the money/difference to pay the realtors commision, and the balance owed on the 2nd vs market value.

Short Sale is okay -- but it's almost as bad as a foreclosure credit wise. And your almost better off letting the place get foreclosed on -- while trying to extend it out as long as possible. Taking that money saved, building up savings, and finding a nice place to rent when the formal eviction finally commences.

I could care less about credit at this point (on paper I'm insolvent, judgment-proof and credit is shot) which makes me ripe for negotiation of some kind I would think. I thought about doing a strategic default on the first as well, but refrained because it has been such a cheap loan thus far.

Honestly, in your case, you could probably pull off a formal sale and get enough money to almost pay off the entire loan balance. True but where's the incentive in that? I'd rather try and do a "friendly" short sale and force the 2nd to settle, thus leaving "my friend" with some equity.

CCO Mortgage - are they still sending statements monthly? Is Interest still accruing monthly? When was the last time they contacted you? Technically a charged-off loan should no longer collect interest. So whatever balance you had in 2010, would be the amount owed. However - every case is different, and I've seen 2nd Liens where the loan continued to accrue interest, and it just kept compounding. So a $90k loan that is delinquent, could now total $140k and so forth.
Haven't heard from CCO for at least 5-6 years nor have I received any correspondence.

You technically have enough equity - you could almost refinance this mess, and bring the 2nd loan current. Which is why I ask if your first is modified. If it's a good enough deal, you almost might be better off trying to open a new HELOC and rolling in the charged-off balance. If you really wanted to take charge of this.
Yep, but I see no sense in throwing good money after bad if I can't get CCO to agree to a settlement thus gaining some equity for myself, otherwise better off sitting tight and doing nothing, and with values on the rise, worst case, waiting until there's enough equity to cover both loans (worst case being they demand full payment of bal/no settlement accepted) but then with some extra left over for me.

All of this really depends on how much you like the house? And if Interest is still accruing daily on the loan.
I like the house but what's more important is that it makes sense from a monthly cost standpoint and paying more (unless part of an installment settlement to eventually rid the 2nd) just doesn't make sense. Will need to find out about the accruing! If so, then, all I'll basically doing is leasing until I walk away - or unless they're willing to abate the interest as part of a settlement.

If I were in your shoes, I'd deeply consider just waiting things out and watching what happens. If they finally come after you, then I would consider refinancing and taking care of it then. Technically - they could do this at any time, and should to recover that loan balance, even partially... but it's a game of poker. You never know what they are going to do.
Yes, that's the way I played it all this time. I would consider an installment settlement or loan mod if the numbers made sense.

Also worth a note - in a lot of states. Esp NY, but in others as well, Statue of Limitations are going to come into play with a lot of these really delinquent second mortgages. Research & See what you can find in your state, and what the limitations are. There's a chance you may no longer owe them any money at all. You'd never be able to fully sale the house, without a Quiet Title - But they would not be able to enforce the lien. You could pass it onto family and the title would be clouded, but no one would be able to come after the house as long as the first is paid off.
Unless I am missing something or it's my lucky day, everything I've researched has indicated that a chargeoff does not void a lender's secured lien against the property nor does a statute of limitations apply since there was no foreclosure to strip the lien (assuming negative equity which is now not the case) to unsecured status in which the statute would start running for the remaining balance owed. Thus, AFAIK, there is no statute of limitations for active property liens. All of the rights associated with that lien remain whether or not in default, and without regard to any limitation on duration. So it doesn’t matter if I haven’t paid the second mortgage in 8 years and my state has a 6 year statute of limitations. The lender still has a right to foreclose. Believe me, I would love to be in this position of an expired SOL.


Check out my other thread where I discussed a very similar situation.
https://www.loansafe.org/forum/thre...help-with-settlement.82829/page-4#post-545884
Thanks! :)
 

OneHugeMess

LoanSafe Member
#7
I know trying to buy a one-off note from a large institution is a long shot and will probably reach a dead end, but worth a try.
Don't even bother with this. They will not do it.


#3 is only good if you want to move. Can you find a cheaper rental for less than your paying on your first now? Is your First Lien modified/good deal? You might be better off just continuing to pay your first, and pretending like nothing is wrong. Kinda like Option 4.

The whole reason I didn't default on the 1st is exactly because the payment (which includes taxes, insurance) is actually less than the fair market rent, so, no, I couldn't find a cheaper rental for an equivalent quality property. The 1st is unmodded and an ARM and will adjust again in July for about $60/mo, so still a good deal.
Do you have a LIBOR ARM? Payments fell in 2009/2010 and have been low for quite a while? Depending on the margin, 2.25/2.75... you may be in for quite a surprise later this year/next year. LIBOR has shot up, and most people who were in the low 3's... are going to be resetting into high 4's or low 5's. What's more interesting is those with Interest-Only Period's which are finally ending after a Decade... they are in for some Payment Shock.

Honestly - I'd seek out a Loan Modification if the payments jump a lot. A lot of people are going to see their ARM payments go up by 30-40%.


#4 might be your best option. Which is why I did nothing up to this point (let sleeping dogs lie), BUT, got spooked with reading that article I linked above.
While that article is detailed - I wouldn't let it keep you up at night. Just let the sleeping dogs lie.

I could care less about credit at this point (on paper I'm insolvent, judgment-proof and credit is shot) which makes me ripe for negotiation of some kind I would think. I thought about doing a strategic default on the first as well, but refrained because it has been such a cheap loan thus far.
In that case - there's no point in a Short Sale. Just walk away if things blow up, and try to stall things as long as possible. See the HAMPster Wheel Thread.

Haven't heard from CCO for at least 5-6 years nor have I received any correspondence.
The loan may very well be considered charged-off than. Although, you still need to figure out at some point if Interest is still accruing.

Thus, AFAIK, there is no statute of limitations for active property liens. All of the rights associated with that lien remain whether or not in default, and without regard to any limitation on duration. So it doesn’t matter if I haven’t paid the second mortgage in 8 years and my state has a 6 year statute of limitations. The lender still has a right to foreclose. Believe me, I would love to be in this position of an expired SOL.
A chargeoff doesn't make the lien unenforceable, but in some states like NY... lenders are required to initiate foreclosure actions within 5 years of the DOFD (Date of First Default). In almost every case like yours.... the 2nd Lien holder has not initiated foreclosure proceedings. Meaning... a lot of these loans couldn't be enforced through a foreclosure sale, and the lien holder would be counting on an actual home sale for a payoff. You could live forever with a clouded title, and just continue paying on your first if everything fell into place.

Just look up SOL Statues in your state. See what a cursory Google Search turns up.
 

OneHugeMess

LoanSafe Member
#8
Also - Foreclosure Fees are much less than you've been told. Most Servicers are given a budget of about $2,800 to $3,500 by the investor. Some will allow for an expanded budget if special approval, but it definitely doesn't cost anywhere near $50k to foreclose on a home.

In your case though - Just sit there. I would pretend nothing is wrong, until someone told me otherwise ;)
 
#10
Replies in red:

Don't even bother with this. They will not do it.

Do you have a LIBOR ARM? Payments fell in 2009/2010 and have been low for quite a while? Depending on the margin, 2.25/2.75... you may be in for quite a surprise later this year/next year. LIBOR has shot up, and most people who were in the low 3's... are going to be resetting into high 4's or low 5's. What's more interesting is those with Interest-Only Period's which are finally ending after a Decade... they are in for some Payment Shock.

It is a LIBOR ARM. Margin is 2.25. Is resetting in June to 5.00% which keeps my mo. payment where it still makes sense (only $60 more). The loan is about halfway through its term and more than 50% of the payment is principal now.

Honestly - I'd seek out a Loan Modification if the payments jump a lot. A lot of people are going to see their ARM payments go up by 30-40%.

Right. If it goes up much higher, then will definitely start looking into a loan mod, but I'd have to default on it for at least 3 mos. or so. before they'd even consider and then the issue is the lack of income (at least what shows on tax returns).


While that article is detailed - I wouldn't let it keep you up at night. Just let the sleeping dogs lie.


In that case - there's no point in a Short Sale. Just walk away if things blow up, and try to stall things as long as possible. See the HAMPster Wheel Thread.
If values keep rising which I expect they will, would not want to leave equity on the table, so if CCO makes a move, I would just sell it and take whatever net proceeds from the sale.

The loan may very well be considered charged-off than. Although, you still need to figure out at some point if Interest is still accruing.
Yes, it was definitely charged off years ago. And no - I confirmed the other day that once charged off, the loan does not accrue any interest or penalties. They also stated that they have never taken action to foreclose on charged off 2nds to date nor do they intend to in the foreseeable future. They did state that they'd decline any offer to settle in which there is enough equity to satisfy the balance.

A chargeoff doesn't make the lien unenforceable, but in some states like NY... lenders are required to initiate foreclosure actions within 5 years of the DOFD (Date of First Default). In almost every case like yours.... the 2nd Lien holder has not initiated foreclosure proceedings. Meaning... a lot of these loans couldn't be enforced through a foreclosure sale, and the lien holder would be counting on an actual home sale for a payoff. You could live forever with a clouded title, and just continue paying on your first if everything fell into place.

Just look up SOL Statues in your state. See what a cursory Google Search turns up.
Will need to research this and report back. Not holding my breath!

Thanks again for your input!
 
#12
A chargeoff doesn't make the lien unenforceable, but in some states like NY... lenders are required to initiate foreclosure actions within 5 years of the DOFD (Date of First Default). In almost every case like yours.... the 2nd Lien holder has not initiated foreclosure proceedings. Meaning... a lot of these loans couldn't be enforced through a foreclosure sale, and the lien holder would be counting on an actual home sale for a payoff. You could live forever with a clouded title, and just continue paying on your first if everything fell into place.

Just look up SOL Statues in your state. See what a cursory Google Search turns up.
Ok, looks like the SOL in my state is 6 years which has long since passed (DOFD 2010). So I have an affirmative defense that would bar them from foreclosing. Question now is whether an attorney can aside the lien via perhaps a quiet title action. Even the rep I spoke to mentioned that some borrowers have had their liens removed due to the SOL having expired. But I wonder if that's under different circumstances.
 
#13
Ok, looks like the SOL in my state is 6 years which has long since passed (DOFD 2010). So I have an affirmative defense that would bar them from foreclosing. Question now is whether an attorney can aside the lien via perhaps a quiet title action. Even the rep I spoke to mentioned that some borrowers have had their liens removed due to the SOL having expired. But I wonder if that's under different circumstances.
Technically, I don't think they have willingly released a lien for a Charged-Off HELOC or Home Equity Loan. This is mostly because it costs them at least $50 - $130 to do so. They are not going to spend the money to do voluntarily when there is a small possibility of collecting the balance down the road, not to mention... they do not want to incur any extra costs on a huge loss already.

I'd wait until 2020, Personally. And file for Quiet Title to strip the 2nd Mortgage, then. It's not guaranteed, but I'd say you have a decent chance of accomplishing it.
 
#14
Technically, I don't think they have willingly released a lien for a Charged-Off HELOC or Home Equity Loan. This is mostly because it costs them at least $50 - $130 to do so. They are not going to spend the money to do voluntarily when there is a small possibility of collecting the balance down the road, not to mention... they do not want to incur any extra costs on a huge loss already.

I'd wait until 2020, Personally. And file for Quiet Title to strip the 2nd Mortgage, then. It's not guaranteed, but I'd say you have a decent chance of accomplishing it.
Sounds like a good plan. If my attempts to quiet the title prior to the SOL on the lien itself fail, then worst case scenario is I wait it out (10 years from the date of maturity of note in my state). What I need to do is get a copy of the note to find out when it matures. I'm thinking for a HELOC, they're usually shorter term like 15-20 years and the HELOC is already 13 years old (started 2005). It's a long haul, but eventually worth holding the property so long as the 1st mortgage payment doesn't go up much more. If so, would have to look into doing a refi bringing in a co-borrower or maybe loan mod.
 
#15
Check the Security Instrument for the HELOC recorded against your house. It should be in your county's records, and with your closing papers if you still have them. On the first or second sheet, it'll say something like... "Borrower has promised to pay this debt in regular periodic payments, and to pay the debt in full no later than May 1, 2025."

After that date, even without a recorded Satisfaction, many Title Agencies will consider the lien as being expired, and will happily ignore it during a sale.

As for doing a Refinance - Have you tried soliciting a Loan Modification. That's a way to go when you can't get a subordination.
Your HELOC probably has a 25, 20 or 15 year period. It's rare to see one for 30 years. Look up your counties Register of Deeds or Clerk of Court website and see if you can pull the records.
 
#16
Technically, I don't think they have willingly released a lien for a Charged-Off HELOC or Home Equity Loan. This is mostly because it costs them at least $50 - $130 to do so. They are not going to spend the money to do voluntarily when there is a small possibility of collecting the balance down the road, not to mention... they do not want to incur any extra costs on a huge loss already.

I'd wait until 2020, Personally. And file for Quiet Title to strip the 2nd Mortgage, then. It's not guaranteed, but I'd say you have a decent chance of accomplishing it.
Well, now we have a monkey wrench thrown in the mix. Just got this reply from an attorney:

" When you are obligated under an "installment contract," which is what your promissory note is, none of the future payments are due yet, so they can't be considered to have gone six years without payment (unless the Note was accelerated).

In other words, let's say you stop paying 5 years into a 30 year mortgage, and ten years after you stop paying, the bank sues you: You would rightfully raise the Statute of Limitations issue, but it would not apply to the entire debt. The first four years of the ten years of missed payments are properly barred by the SOL, but the six years of missed payments immediately prior to filing the complaint would still be valid --- and, of course, the 15 years remaining on the loan, which are not even due yet, could not possibly have expired.

However, all institutional lenders have an acceleration clause written into their promissory notes. When the lender exercises this clause, which necessarily must do as part of the foreclosure process, all the future installment payments become "due and payable immediately." They are required to give you notice of acceleration before they do it -- but if they give you a Notice of Default, it is inherently included (otherwise, they could only foreclose for the amounts in arrears -- so they must accelerate the debt for practical purposes when they foreclose). So acceleration will cause the statute of limitations to begin running on all the remaining debt that was not due prior to acceleration.

If the lender accelerated the debt 6 years ago, then you could argue that the loan is no longer a personal obligation for anyone: The loan would be "non-recourse" as to personal liability. However, that only means that they can't sue you personally: They can still foreclose on the lien as long as the lien is valid. The personal liability SOL does not affect perfected valid liens. This is why the bank can still foreclose even after a person discharges their personal liability for the mortgage in a Ch7 bankruptcy. The bankruptcy discharge has no effect on the bank's lien: All the bank needs to do is wait until after the discharge or, if they want to foreclose sooner, they can file a motion with the court for relief from the automatic stay (all creditors get a minimum 2 months automatic stay from creditor collection activities).

So in the end, your options are limited, especially when there is equity."


I understand what he's saying, but it runs counter to everything else I've research thus far. Thoughts???
 
#17
I've not forgotten you. I'm waiting for a response from a friend of mine before I reply. Some of what your Attorney has said would seem correct, but... I think he is missing something crucial.
 
#19
I still don't have a lot to report. I've been looking into it myself as well.

Technically, the SOL would apply to some degree, even if the Acceleration Notice was not sent. But to what degree, I couldn't fully tell you. With that said, you're more protected than you think - because of the Charge off.


Whenever the account went into ChargeOff the full account balance would have become due, and the SOL would run from that.
 
#20
Also - even though the lien is still "valid"... some states (unsure about NV) have laws regarding timelines on Foreclosure Suits.


In the state of NY, it's not just personal liability for the debt, but the actual timeline that is enforced. Once the loan becomes due in full through an acceleration notice or similar activity... they have six years to begin the suit. After that... if you bother to respond to the foreclosure complaint (so they do not win default judgement) ... you can bring up the statue and get the case dismissed.

I have no idea... like I said, about NV's law.