Home Loans and Support

SS vs DIL vs FC Comparison

Discussion in 'Short Sale Outpost' started by TomEason, Sep 20, 2011.

  1. Tjeans

    Tjeans LoanSafe Member

    All This Now What?

    Hi TomEason,

    This blog is amazing - WOW I'm not the only one out there trying to do the right thing first, but all attempts have come short of any help. After reading several of your responses to other homeowners, it appears your honesty, insight and knowledge has helped many make conscious decisions in this market crisis.

    I know this is a bit much to read, but I wanted to thoroughly explain the steps my wife and I have taken. I thank you for your time in advance. Any insight or advice you can share on my situation and details below will be greatly appreciated. I look forward to hearing from you.


    My situation:

    My wife and I recently had our first baby and our family income has been reduced to a single salary - we're dipping into our savings to make it each month. Knowing this and the plummeting housing market we're not sure how much longer we can hang on to our home. It seems rather irrational to continue investing most of our money into our home that is worth nothing.

    - Live in CA
    - Purchased condo October 2006 at 265K 80/20 (2 mortgages) 5/1ARM
    - 1st Mortgage (80%) $212K - Owned by Freddie Mac, serviced by Cenlar
    - 2nd Mortgage (20%) $53K - Owned by 21st Mortgage
    - Current Value $90-110K

    We've lived in this condo for 6 years. We knew our property had depreciated, therefore our 1st attempt a couple years ago was to try and refinance. We found out quickly that no one was willing to help with a refi if our 'loan to value' was over 125% - at the time our 1st mortgage had a loan to value of 187%. We were trying to lock in a lower fixed interest rate, because our 5/1 ARM would be expiring soon and our interest rate would be adjusting every 6 months moving forward. The uncertainty of our interest rate and mortgage payment changing every 6 months left us terrified.

    Reaching out to the lenders directly was our 2nd attempt. This was a learning experience and a big joke to say the least. Cenlar (1st mortgage lender) basically told us they are only the servicer of the loan and can't do anything for us when it comes to refinancing or modifying the loan. They also requested that a specific hardship is required before refi or modify can be considered. We also thought it was worthwhile to reach out to 21st Mortgage (2nd mortgage lender) to try and discuss refi or modify options. They told us nothing could be done unless the 1st mortgage lender contacted them with documents stating a refi or loan modify had been approved.

    Really…? So basically my lenders told me there's nothing they can do to help keep us in our house and potentially avoid foreclosure. We just wanted a fixed interest rate, knowing a portion of our payment would start chipping away at our principle.

    Knowing our lenders weren't willing to help, as a 3rd attempt, we looked into 'Mortgage Assistance' provided by the government. We were put in contact with a mortgage counselor who confirmed our monthly deficit of $352 and our income information provided didn't allow us to qualify for any government assistance in restructuring our loan. They also confirmed our debt to income ratio didn't meet the 31% standard to qualify for government assistance. The mortgage counselor suggested the following alternatives to refinancing - 1. We could 'Transition out of Home': requires 'Short Sale' (selling home within 90 days) and/or 'Deed in Lieu of Foreclosure'. 2. 'Hardest Hit Fund' (by KeepYourHomeCalifornia.org) the federal grant that provides assistance and up to $100K towards reducing the current principal of the primary loan - funded only in CA.

    Excited about the 'Hardest Hit Fund' we contacted Keep Your Home California representatives and they went through the qualifying process. We soon found out the our primary lender, Freddie Mac, didn't support/approve of this fund. So again we were stopped dead in our tracks.

    Not knowing where to go or what to do from here we put our efforts on hold for a while. We were once excited to know there were specific funds and programs out there that would help homeowners like us, but after all we were left feeling like no one really cared - we felt defeated.

    About 2 months ago we received a letter from an investor saying she wanted to purchase our property at market value ($90-110K). She claims to be a local investor in the Long Beach area who wants to expand upon her rental properties. I didn't know whether to believe this or not, but I reached out giving her a call. She informed me that the purchase of our condo would be considered a 'Short Sale', but she would have the full cash amount to close the transaction. Whereas a typical Short Sale I would have to put it on the market with a realtor hoping someone would be interested to buy. Her offer seems promising, does this sound true or legit? She went on to tell me the transaction would be handled the same as a purchase transaction. She would use escrow and title companies. The sale is under the same purchase contract forms as I used at acquisition. She said, there is no difference from a regular sale. Is this true?

    I also asked her: If we move forward with a Short Sale (her purchase offer) do we have to disclose and release our assets/savings information to the lenders? From my understanding lenders can garnish your assets/savings for what is still owed on the property. Her response: Generally, loans on primary residences are non-recourse loans in California. Unless you signed a personal guaranty, the lender is only entitled to the collateral (the condo in this case) to satisfy the loan. Once they agree to accept less as payment in full, the debt is wiped out. They cannot come after your other assets.

    Lastly I asked her: Since debt forgiveness isn't a guarantee, how and when in the Short Sale process will we know if our debt is forgiven? Her response: In 2012, debt forgiveness is guaranteed. It is a federal law. The extension of the debt forgiveness act has passed Congress. I'm not sure if President Obama signed it yet.

    Thank you again for your time.

    Travis
  2. TomEason

    TomEason LoanSafe Guide

    Travis

    Thanks for your post and your gracious comment. Welcome to the community. You've clearly described the situation, which is good that enables me to assess the situation and make recommednations.

    The investor interested in buying your condo either is full of it and doesn't know what she's doing, or else she intends to use creative financing where she buys the property subject to the existing loans (doesn't pay them off), and at nothing down.

    FYI, in a short sale the lender must agree to a short payoff. And lenders require the borrower to submit financials in order to be admitted to the program. The lender further requires that the property be listed for sale with a RE broker.

    In either a short sale or a "normal" sale, the ecrow officer will submit a payoff demand requests to the lenders. The loans would then be paid off with funds from the purchase (usually a combination of cash and new purchase loan proceeds). If there's insufficient funds to pay off those lenders, it will of necessity be a short sale where permission of the lenders is required. In either case, if the existing loans aren't paid off, the lenders won't reconvey the trust deeds.

    Based on those facts, I surmise her idea is to not pay off either loan, but buy the property subject to the exisiting loans. And at nothing down (no cash down payment). Then she'll rent the property, collect rent payments and not pay the mortgages, property taxes, etc. She would realize immediate positive cash flow and would likely enjoy that recurring revenue stream for many months.

    Eventually the lender will FC but she will have made enough $$ to make it worth her while. Since the loans were purchase money on your primary residence, they're both non-recourse and the lenders are legally barred from pursuing you. But, needless to say, since your name will still be on the loans, the FC will negatively impact your credit.

    If you were going to sell under that kind of arrangement, you could sell it to any savvy investor.

    As you might know, since your 2nd is underwater, they won't FC. I recommend not ever paying that lender again, regardless whether you sell or not. In addition, if you're unable to stay current on the 1st, I'd also discontinue paying that. Yes, the 1st will eventually FC, but you will have lived rent free for many months.

    About the value of your house, how did you arrive at that? Do you have a current CMA or other valuation. If not, I recommend you get a CMA (free) from a RE agent active in your neighborhood.

    Good luck to you and your family Travis.
  3. ncampbell26

    ncampbell26 LoanSafe Member

    Hi TomEason,
    Thanks for the thread, I am starting to understand about the ss process now. I do have some questions though I was wondering if you could help me with? My husband I are currently doing a ss. We are 90 days past due. Our loan is with BOA. No second. We were advised to make payment and only stay 30 days late so BOA won't be able to foreclose in the process. Is it true that after all the hard work that goes into a ss that it will adversely effect our credit the same as a foreclosure?? Are we wasting our time?? Is there an type of attorney I can contact to find out if BOA truly has our original paperwork? (I ask this because we were a former Taylor Bean and Whitaker customer and have been trying to seal the deal on a home mod for about 3 years now) How long do you think we could stay here rent free before we get evicted? Can I buy another property in just my name? This home is currently in my husband's name. How long after foreclosure vs. ss would it take for us to purchase another property?? Just the thought of them going through our financials is gut wrenching. We just want out of this house. What do you advise would be the best thing to do for all parties involved??

    Thanks! :wondering:
  4. TomEason

    TomEason LoanSafe Guide

    Hi ncampgell26

    Thanks for your post. I recommend you forget about a SS and proceed to an eventual FC. Why? In going to FC, you'll have much more time to enjoy living rent free in your home. That time frame could be as long as several years. You might visit the HAMPster Wheel Game thread for ideas. http://www.loansafe.org/forum/chase-mortgage-tell-us-your-chase-story/39095-hampster-wheel-game.html
  5. ncampbell26

    ncampbell26 LoanSafe Member

    Hi TomEaston;
    Thanks for the reply. Do you have any advice on how I can talk my husband into something like this? I agree that we should not deal with the issues of a ss. He is afraid that we won't be able to buy for 7 years oppose to 2-3 years? Also, how can I find out if BOA actually has our original paperwork? Should I hire a lawyer??
    Thanks so much!
  6. TomEason

    TomEason LoanSafe Guide

    Hi ncampgell26

    Thanks for your post. Convincing one's spousal unit is way outside my area of expertise. I do realize this is indeed a challenge. You might consider visiting an experienced loan broker together. I believe lenders / loan servicers are required to disclose the investor's name upon request. However I don't know any requirement that the lender disclose the location of the original note (if BOA even knows)? You might send a QWR asking that question. If it were me, I wouldn't get a lawyer attached to my wallet. Good luck!
  7. ncampbell26

    ncampbell26 LoanSafe Member

    Thanks TomEason,
    I actually spoke with our bankruptcy lawyer tonight. Turns out when we claimed bankruptcy back in 2008 we included the mortgage therefore, BOA can't do anymore damage to our credit report whether or not we short sale or foreclose. He recommend we live here rent free as long as we can and bank so money to put down on another house in the future. It turns out that BOA has probably not been fixing our mod because they know there is nothing that can happen except take the actual property. They can have it for all I care. I plan on doing the hamster wheel game as long as we can now! Thanks for all the advice! I think I may actually sleep tonight! :bigsmile:
  8. kman-uw

    kman-uw LoanSafe Member

    I am very thankful to TomEason and other members on this forum.Really this forum changed my thought process and gave me a confidence.How long it will take for BOA/BOFA to complete FC process in NY area?. if you are in the process of SS and already 2 months behind on the loan payments and if for any reason SS attempt is failed and FC is inevitable.?. I would like to stay at least 5/6 months before i moved to different job/state.
    Last edited: Jan 10, 2013
  9. TomEason

    TomEason LoanSafe Guide

    Hi kman-uw

    Thanks for your gracious remark. You are indeed fortunate to be in NY because the FC timeline in your state is the longest of all 50 states. I believe FC will take about 2 years or more from the filing of the FC complaint by your lender. Thus, you have plenty of time. If I were you I'd hope the SS deal drags on for a long time (for delay purposes). As long as you're attempting to sell, your lender will likely not commence FC proceedings. After you/ve marketed the property for at least 90 days and the lender wants to kick you out of the SS program, then you might ask the lender to do a DIL. You might visit the HAMPster Wheel Game thread for more ideas on how to delay. Good luck!
  10. kman-uw

    kman-uw LoanSafe Member

    TomEason,
    Thanks for your generious response. As i came across couple of threads on this forum on this topic, I am thinking that DIL is not possible if you have two mortgage loans.Is that true?..


    Here is my situation ..


    I have two loans


    1st loan (BOA) - 315K
    2nd loan (CreditUnion) - 50K - HELOC Loan refinanced and cashed-out 4 yr's back.
    Location : NY


    Currently house is under SS contract @310K. So 2nd loans is the one which is 50K underwater and first looks better if SS goes thru.


    So what are my options here still i can do DIL in this situation?.
  11. TomEason

    TomEason LoanSafe Guide

    kman-uw

    Thanks for your post. It's true doing a "real" DIL is a pain in the ***. Lenders don't like doing them, and, as you mention, there are restrictions on having other liens on the property. But as you won't be doing a "real" DIL, tell the lender whatever you wish. It'll take time for the lender to figure out your property isn't eligible. Thus, this ploy will further confound your lender and add to the delay. Good luck.
  12. kman-uw

    kman-uw LoanSafe Member

    TomEason,

    I don't know weather i can ask this question in this context or not.Currently I have an attorney who is dealing with my SC process who collected all my financials & expenses when i gave my case initially. As I went thru your "Strategy for Settling Your 2nd" thread and i am thinking that not to share your finals to lenders.Do i need to worry about anything at this point or do i need to inform my attorney?. In my case 2nd is the one which is under water and i know attorney haven't initiated anything conversation with 2nd lender yet.Mostly attorney might share my financials with 1st lender in-order to send a SC applications package..Is that okay..Any advise?
    Last edited: Jan 12, 2013
  13. TomEason

    TomEason LoanSafe Guide

    kman-uw

    Thanks for your post. Sorry but I don't know what "SC" means. Could you clarify? Thanks.
  14. kman-uw

    kman-uw LoanSafe Member

    Sorry..It's SS-ShortSale.
  15. TomEason

    TomEason LoanSafe Guide

    kman-uw

    Thanks for that. Lenders require a borrower to submit financial info before being admitted into their SS program. If it were me, I'd cashier your lawyer and cancel your SS listing. By doing so you'll be able to remain in your home rent free for a much longer time. That time period will likely be many many months to well over a year.
  16. kman-uw

    kman-uw LoanSafe Member

    TomEason, Can you pl's clarify this for me "I'd cashier your lawyer and cancel your SS listing". U mean to cancel the the whole SS process?.

    Actually i am under contract and it's kind of out my hands now i feel, Cancelling might complicate the things at this stage with buyer..Any ways as i am assuming that my 2nd lender wont accept and eventually SS will fall apart, b'cos as i know credit unions are kind of tough to deal...
  17. underwaterinva

    underwaterinva LoanSafe Member

    Hi TomEason,

    I see your point of going through FC instead of an SS. My question is I live in virginia which is a recourse state. Both 1st & 2nd loans now belong to citi after it got transferred from American home mortgage 7 yrs ago. After reading your post I feel reluctant providing citi my financial info if I go the SS route per suggestion of my real estate agent. But if I walk away to have it FC, wouldn't I have to provide financial info anyway when they suit me for deficiency? I also don't want to prolong the process of holding onto this house especially the debt forgiveness act is only good up to the end of this year. It is my understanding virginia is non-judicial, the FC would not take long to get process. Even though I have seen the house in front of us abandoned for almost a year before it got sold.
  18. TomEason

    TomEason LoanSafe Guide

    Hi underwaterinva

    Thanks for your post. Your concern about disclosing financials is certainly understandable. If you were to choose FC and post FC the lender were to sue you for a deficiency, you wouldn't be required to disclose your financials. In a deficiency lawsuit, the most critical item for the court to decide is the value of the property. And you would no doubt have an experience lawyer on your side.
  19. simma

    simma LoanSafe Member

    Love this forum.
    Here is my situation, my wife bought home in 2006 for $260k, (owe 250K) house is now worth $102 according to zillow, a lot of the homes have been a short sale or foreclosure. Our situation is a little complex, the reason we did not walk earlier is we were trying to open a business, so could not affect credit. Business opened and running well. I am about to start the process of letting the house go. My original mortgager was flagstar bank who was shut down by the feds. Wife re-finance once then the loan was sold a few times and now the servicer is Chase. We tried a re-finance with chase 2 years ago and they said didn't qualify due being upside down. We have a high intersest rate 7%, bank will not re-finance, we cannot sell, and homes around us are selling for $150k less than what we how. We have a good amount of savings so sending in my finances will probably not benefit us.

    Q. Can the bank go after business accounts (business is not a sole prop. It is a LLC)
    Q. I was thinking short sale due to the extension of the mortgage act of 2007 where any deficient balance on a primary home will be forgiven if sold by 12/31/2013 is this the same for foreclosures?
    Q. I have a business Credit card with Chase, if I start missing payments will they shut down my access to business credit.

    Notes: I am in Florida
    Notes: I am not on the mortgage.(we try to not have our credit tied to each other so if something likes this happens the other credit is not affected)
    Notes: Builder never finished community went bankrupt.

    Thanks
  20. TomEason

    TomEason LoanSafe Guide

    Thanks for your post. Here are the answers to your questions. Please bear in mind I'm no expert on FL's mortgage and FC laws.1) As you know FCs in FL are judicial, and deficiency judgments are permitted. It's possible the lender might FC and subsequently obtain a deficiency judgment against your wife. The lender would likely then attempt to enforce that judgment. In so doing, if that lender somehow discovers your wife is a member of the business LLC, they could attempt to pierce the "veil" of limited personal liability provided by a LLC, and subject the LLC members to personal liability. This is a complex asset protection issue.2) FCed homes are covered under the provisions of the MFDRA. However. I don't believe your loan would be afforded protection pursuant to the Act because it was refinanced (unless the proceeds of the refi were used to substantially improve your home). This is a complex question which warrants further research.3) By this question, I presume you mean if your wife stops making payments on the Chase mortgage. I doubt that would affect your Chase business card unless your wife personally guaranteed the card's contract.

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