Answer: -Well, you can try to settle the debt with them and pay them a fraction (5% -10%) of the original loan amount, you can do nothing and hope they issue you a 1099 in which you will have to pay taxes on that money you received, or they will file a deficiency judgment against you in which they can garnish wages and so forth until that amount is paid.  If it goes that far, most people will file bankruptcy and either get it wiped out completely with a Chapter 7 or agree to pay the lender a certain amount (5% – 10%) over a period of time with a Chapter 13.

Is this allowed or legal, can a new servicer attempt to collect on the Heloc since the home has already gone into foreclosure? Should I meet with a lawyer or am I okay ignoring these letters?

Please advise and thanks for your time,

Aaliyah, Gilroy CA

Answer: -This is normal protical and yes since your loan was “sold” to a new servicer, they can try to collect the debt.  So they will send you certified letters in the mail every month telling you how much you owe and that it’s an attemt to collect the debt.  You don’t need to respond unless you are disputing the action and I’m sure they will try to call you every week and threaten you to pay…or else.  By sending these letters, it gives them the right to proceed with foreclosure if they want.  However, we all know they won’t unless there is substancial equity in the property.  More than likely they will just write it off as a loss and 1099 you for the difference.

Answer: -If your home has a first and second with the same lender, Countrywide, it’s almost treated like it’s one loan.  If they send it through foreclosure, they’ll probably start at just what’s owed on the first and hopefully get someone to bid on it…If no one bids then they’ll end up with the property.  Then they’ll probably write off that 2nd in which they could file for a deficiency judgment but more than likely they will 1099 you for that amount they lost and you’ll have to pay taxes on it.  As for the property taxes, they’ll have to pay those in order to sell it to an end buyer.

Answer: -You haven’t made a payment in two years and you own the home outright beside a small line of credit…You are crazy for not making that payment unless the home is not worth what you owe on the home equity line of credit.  No they can’t evict you…yet!  Once they foreclose on the property they can evict you.  I would try to get something worked out quickly especially if you have a great deal of equity in your home.

Answer: –  Yes, the 2nd can and most likely will foreclosure on your home, even if it’s the same lender because you are not meeting your obligation to them.  It’s just a matter of time. You might try to do a Loan Modification especially if your 1st and 2nd mortgages are with the same lender

Answer: –  California may be one of the few states where they don’t come after you for a deficiency judgment.  If your home is foreclosed on, typically they will 1099 the borrower for the amount they lost. However, VA loans have special exceptions. With VA loans, I believe they may have the right to come after you for the deficiency judgment. You may want to check with an attorney in California on this, but it seems like that’s what I remember.

Answer: -Your home equity line of credit (HELOC) gets wiped out if no one bids.  Then, typically your 2nd lien holder will 1099 you or file for a deficiency judgment. It’s more common to receive a 1099.

Answer: -  Even though Arizona is a “anti-deficiency” state, you have to meet certain requirements in order for the lender to NOT sue or file a deficiency judgment.  As with all states, those that have a trust deed as their main security instrument, it is very uncommon for the lender to file a judgment against the homeowner.  Since Arizona’s main security instrument is a “Trust Deed” then automatically deficiency judgments are very unlikely.

Now here is what the law states in Arizona…As outlined in Arizona Revised Statutes, Title 33, Chapter 6.1, a person may not be sued by his or her lender if the property is located on 2.5 acres or less and is a single family residence or duplex. This only applies if the decrease in value is not due to the home owner’s neglect and is not a VA loan.  VA is allowed to file a deficiency judgment against the homeowner, if it’s a VA loan.

Although Arizona’s “anti-deficiency” statutes prevent a lender from suing a person for any losses on a home after foreclosure, it also only applies to “purchase money” mortgages which basically means the money was used to purchase the property and not to pay off other debts.  So if you take out a 2nd mortgage or more commonly a home equity line of credit (HELOC), which is used to pay off debts, or buy personal items, then the lender may file a deficiency judgment or sue a person for any losses on a home after foreclosure.  But like I said before, since Arizona is a “Trust Deed” state it is very unlikely this will happen.  And if by chance it does, many people will file bankruptcy to eliminate the judgment once and for all.  It’s more common that the lender will simply 1099 the homeowner for the difference, however if you qualify, you can have your accountant counter the 1099 and not have to pay anything.

Answer: Yes, if the line of credit is secured by the property in foreclosure. Most homeowners have a home equity line of credit that takes a 2nd lien position on their home.  If the home is foreclosed on by the 1st lien holder and no one bids at the auction, the 2nd is wiped out, and the bank has the option of issuing a 1099 to the homeowner or filing a deficiency judgment against them.  In most deed states, including California, it’s very uncommon for the lender to file a deficiency judgment.  If you know what you are doing, there are things you can do to prevent a deficiency judgment altogether so it’s never an issue.