Foreclosure University Mortgages

Question: Are there any remedies for people who own a second home? I see a lot of help for primary home owners only. What about for people who use their own life savings to invest on real estate? Is anyone out there on the same situation with a good solution? Please HELP!!!!!

Answer: -Well, I’m sure you’re not the only one out there feeling the pain and have spent all their savings on buying homes either as investments or for themselves.  The best thing you can do is work closely with your lender to see if you can do a loan modification, or try to do a lease option or even rent it out temporarily until the market turns around.  At least that way you have some income coming in to pay part or all of the mortgage.

Question: We own property in Idaho through an interest only loan. We had planned to sell our home in California this year and pay off the land in Idaho with the money from the sale. Now the California house is worth less than we owe on it and we are stuck with an interest only loan on property in Idaho. If we “walk away” from the Idaho property, can they garnish our wages for the amount of the loan?

Question: We have an interest only mortgage on a house that is now worth about half of what the the mortgage is. We have not missed a payment and there is a penalty to refinance. What is the best way to handle this situation.
Frank in Florida.

Answer: This seems to be the ongoing trend these days…houses worth a lot less then the mortgage.  Unfortunately, even if you threaten them you’re going to foreclose, they typically want you to “prove it” or show them your hardships for needing help.  Only after you stop making payments to they become motivated to do something.  But then your credit has been hit and refinancing becomes very tough to do.  So then you try a loan modification and still it’s not 100% your lender will do a modification.  So I guess you need to weight out what it’s going to cost you in penalties and fees to refinance and see how long you need to stay in your home at the new interest rate to make it worth your while.  My guess is that it could be 6 -10 years before you even hit a break-even point depending on your penalties.

Question: I own a home in Southern California. I bought the home using my VA benefits. I am 3 months behind in my mortgage. It doesn’t look like the mortgage co. (Countrywide) is going to modify the loan so that I may keep it, already contacted HUD and they sent a modification proposal to Countrywide 30 days ago but Countrywide has yet to receive it. My question is, I owe $64,000 on a Home Equity Line of Credit I got through Washington Mutual Bank on the house. If Countrywide forecloses, do I still owe the Equity Line of Credit? Will Washington Mutual come after me for the money? I owe $220,000 on the house, it was just appraised at $175,000. Thank you.

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.

Question: I have an interesting situation, the house I want to invest in appears to have a first and second mortgage. It appears the owners have already left. The second mortgage has already foreclosed and the 1st mortgage doesn’t go to auction until later. The bank for the second mortgage is listed as the owner of the home. How is this possible?

Also, since the first mortgage hasn’t foreclosed yet and the second mortgage has is it possible to make an offer to the first mortgage and if accepted own the property even though the 2nd is shown as owning the house on the county assesor website?
Thank you

Question: I have a home in Arizona [anti-deficiency state] that was purchased with an 80/20 loan. I have never refinanced the loans. We were in the process of negotiating a short sale, got approval from the first [with Country Wide] and they agreed to pay the 2nd [Citi] $3k, when we went back to Citi to get final approval we discovered that they charged off the 2nd and sold the loan to a subsidiary which has now turned it over to an attorney that claims they are going to file a deficiency judgement against me and collect the debt. They claim that since it was a second mortgage and it was charged off that they can do this. It was a second but it was a “purchase money” loan. Can they come after me for the deficiency?

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.

Question: Who is responsible for the difference of the original loan amount if the property is redeemed by the mortgagor, or if the property is sold in a short sale? Who is responsible for the difference? The money lost on the original loan?

Answer: -The individual(s) who signed on the dotted lines and promised to pay the loan back are responsible for the difference. The lender has the option of doing nothing and counts it as a loss, or they can 1099 the homeowner for the difference, or they can file a deficiency judgment against you for the whole amount. If they file a deficiency judgment against you, the only way to get rid of it is to file bankruptcy or pay it off. If they 1099 you for the difference and count it as income, you can fill out a form (982) the IRS has that (in most cases) will counter the 1099. So really all you have to worry about is the deficiency judgment. And a good short sale expert knows how to avoid that so it’s rarely an issue. Most of the time they just 1099 you for the difference.