Va Loan Foreclosure, Suing Co-borrower For Va Loan Entitlement Reinstatement?

walkin

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May 1, 2012
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Hi, I'm back. Cleaned up a big mess I had made several years back, thanks to a lot of reading in this forum. :) (settled $100k bad debt including a $70k HELOC and $30k on 2 CC's for $15k, mortgage mod on the 1st mortgage, sold house to break even, moved on, cleaned up credit, bought another house with estranged wife...). Have lived a debt-free lifestyle for almost 2 years now.

Now I have a new problem. Well, I don't consider it a problem, but a mess nonetheless. Long story short, I filed for divorce over a year ago, then wife filed a restraining order against me 7 days after she was served, lol. I left the house and haven't been back. She was awarded temporary exclusive use and possession of the home. Litigation has been ongoing for 17 months, very expensive. She is now 8 months past due on the mortgage, and the Lis Pendens and Foreclosure complaint has been filed with the court.

In the settlement proposal for the dissolution of marriage, I offered her the house and all equity in it. This was before she stopped paying, and there was ~$30k equity. She makes more than sufficient income to cover the mortgage, but she is a spendthrift and chooses to spend her income on other things instead. (read my 1st paragraph, lol). My lawyer put in the settlement proposal "The Wife shall indemnify and hold the Husband harmless from all expenses associated with the marital home." He explained to me that it means she would be responsible for paying me back, or that I could sue her, if there was any expense to me if she screws up the mortgage.... Unfortunately, my divorce lawyer isn't familiar with VA Loans.

As I understand it, if/when the foreclosure is done, VA will make the bank whole, and pay them whatever amount is short, so I won't be sued by the bank for any deficiency. VA does not come after the veteran (me), so basically I'm off the hook (except for the damage to my credit for a while). However, I will lose my VA Loan entitlement until/unless I pay VA back the amount they were out of pocket. I have no desire to fight the foreclosure, or spend $1 trying to stall it because I don't live in the house.

So, my question is- In the future, after the divorce is complete, and after the foreclosure is done, can I sue my ex-wife for the amount needed to reinstate my VA Loan Entitlement?

Thanks!
 

Moe Bedard

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Hello walkin!

I'm glad you found LoanSafe to help you before and now with your new mortgage issues.

OK, here is the problem I see. Your VA mortgage is a contract enforceable by law. The only way for you not to be liable would be for your wife to refinance into a new mortgage, pay the mortgage off and or sell the home. There are no other ways that I know a lender will let you out of a mortgage contract.

Your proposal for the dissolution of marriage by offering the home and equity does not negate and or eliminate the fact that you have a mortgage contract between you, your wife and the lender. My understanding is that you will still be liable no matter what your divorce states.
 
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walkin

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May 1, 2012
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Hi Maurice,
Thanks for the reply. In the settlement proposal, I give her 6 months to refi to get my name off the mortgage, or the house sells. Realistically, that won't happen, as she has ruined her credit and maxed out her $40k worth of CC's last year. I haven't seen her financials in 12 months (we've recently demanded updated financials from her), but it is possible that she has been paying her CC's down instead of paying down the mortgage. Brilliant move, throwing away $35k worth of equity to pay down CC's so she can continue to shop. (I know her thinking very well).

It is my understanding that BB&T will foreclose, then sell (likely to themselves). The difference between foreclosure sale price and amount owed will be covered by the VA insurance, so BB&T will walk away fat and happy. Now, in theory, I'd owe VA the amount they were out of pocket to pay off BB&T for their losses. In all the research I have done, VA does not come after or sue the veteran for the amount owed to them (that they give the bank). I would just lose the VA Loan entitlement unless I do pay them back.

So, basically, I guess my question is if the indemnity clause in the divorce settlement (if she signs) will allow me to sue the ex for the amount I'd owe VA.
Thanks.
 
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Moe Bedard

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You are welcome.

Yes, I believe that you would be able to sue her for breaking the contract. This may fall under that the veteran's spouse may be liable on the theory of subrogation which may fall under your divorce settlement and her acting in bad faith. You will need to speak to your lawyer about this.

Here is some information from the .Gov.

VA Loan Claims - Veterans who default on VA insured or guaranteed loans remain liable for any deficiency, after foreclosure by the lending institution, by virtue of 38 C.F.R. § 36.4323(e). The VA indemnity regulation permits recovery notwithstanding state anti-deficiency judgment statutes. See United States v. Shimer, 367 U.S. 374 (1961). When suit is brought on the indemnity regulation, only the veteran is liable. However, the veteran's spouse may be liable on the theory of subrogation. Thus, if there is no state anti-deficiency judgment statute, a second count on the subrogation theory is desirable, particularly in states recognizing estates by the entirety, and in community property states.
[cited in USAM 4-4.520]

http://www.justice.gov/usao/eousa/foia_reading_room/usam/title4/civ00087.htm
 
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walkin

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May 1, 2012
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Hello Moe, peanut gallery, genius contributors, et al.,

I found myself lurking this fabulous forum again, seeking answers to new, potential issues (for a friend, very complicated), and felt compelled to provide an update to this thread.

Last year, when a Final Judgment on foreclosure was imminent (hearing on Plaintiff's motion for final judgment was scheduled), I made the decision to try to save the house, for my children, through the divorce court. The Court (essentially) granted my request (order granting was initially set aside, then a stipulated order was entered), I was awarded exclusive use and possession of the house, quickly reinstated the loan by paying the 2 years of accumulated arrears, foreclosure complaint was dismissed, and co-borrower executed a quit claim deed.

It was a terrible business decision- stealing from my retirement in order to reinstate the mortgage- but I believe it to be an impeccable moral/parenting decision, in that I have prevented my children from having to be displaced from their known home, neighborhood, and friends, which would have resulted from the anticipated eviction post-foreclosure judgment. :)

So, that is that, and I've been successfully and happily divorced now for a month, which, unfortunately was a very expensive and nasty three year SNAFU. It will take me twice that long to recover financially, and I'll never recoup the lost compounding, but the ongoing happiness that I found a couple years back continues to pay dividends greater than any dollar amount could possibly generate.
 

Erik Sandstrom

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Wow! For you to come back this many years later and let us know the outcome of your situation is truly priceless to our community here at LoanSafe. I'm glad you're finally at peace and can now move forward with your life. The decision you made sounds like it was the right one for you and your kids.