Strategic Default Monitor – How To Strategically Default

Wednesday, June 30, 2010

Got Questions? Get Answers...LB Wants To Know What Can Be Taken From Home When Walking Away

GOT QUESTION?

Hello,

First of all, thank you for your website.


My husband and I are strategically defaulting on our home. When we bought the home, part of the negotiation with the builder was to have a fridge, a/c unit and central vac thrown in. I'm pretty sure I can't take the A/C unit, as it's probably considered a "permanent fixture". But could I take the central vac unit and the fridge? What are the chances of the lender looking at the original sale contract to see if these were included?


If you cannot answer for legal reason I understand completely. Do you have a good reference for a real estate lawyer that I could speak to on the phone? I am having trouble finding a good one in our little town (Bend, Oregon).


Thanks so much!

LB

GET ANSWER…

Dear LB:

The answer can be found in your loan documents. Normally a lender has some form of a lien on all of the fixtures and mechanicals in the home. As you correctly noted what is considered a permanent fixture for bank purposes.

I am not sure the difference between the fridge, a/c unit and central vac unit. Normally when people move they take the appliances.

The real questions is what kind of risk are you willing to take?

I wish I could help you more. I do not have any references. Perhaps you can contact the local bar association or a local non-profit legal association.

Feel free to contact me at anytime.

Thank you.

Augustine A. Diji

Got Questions? Get Answers...JJ is a Senior Citizen Seeking to Protect His Wealth From A Bad Investment

GOT QUESTION?

I am a senior citizen living in Florida but ten years ago built a house in New Mexico for my son and his wife to live in. They have both been unemployed and they can no longer help me in making mortgage payments. The house [modular home] has depreciated and well below the outstanding loan. I have a 401K, an annuity and some investments in the market and live off a small pension and SS. My homestead in Florida and 401K would be protected but what about these other assets? All my major assets are in a revocable trust. The mortgage is in my name only, how will this affect my wife's credit?

JJ

GET ANSWER…

Dear JJ

Your primary risk is exposure to any deficiency.

You are correct when you say that you have protection from creditors’ actions against your 401k and your homestead in Florida. Your other assets may be exposed unless you obtain proper legal and financial advice as it relates to asset protection. You need to implement legal asset protection strategies that legally hide and/or shield your assets from creditors.

A deficiency judgment is an unsecured money judgment against a borrower whose mortgage foreclosure sale did not produce sufficient funds to pay the underlying promissory note or mortgage loan, in full. A deficiency judgment can arise from a short sale, a foreclosure auction sale, and a deed-in-lieu.

Please read this link to learn more about deficiency judgments, debt obligations, and debt forgiveness.

If the property is in a state that does not allow for deficiency judgments then this may not be an issue. A state that does not allow for deficiency judgments is called a non-recourse state. These non-recourse states have anti-deficiency statutes. However since this seems to be an investment property, you may not have protection in a non-recourse state. You need to be clear on the law in New Mexico. You will need to speak to a qualified attorney who is licensed in New Mexico and understands your needs.

Read this link about Recourse and Non-Recourse states.

You may also consider contacting the bank on your son’s behalf to discuss the situation. An offer can be made to give the property back to the bank in exchange for the complete and full satisfaction of all of the debt that is owed to the bank. This is called a deed-in-lieu of foreclosure. This will eliminate any deficiency judgment risk. The key is to get any agreement with the bank in writing.

You can request a principle reduction from the bank. However, principle reductions are very rare. I raise this issue because it is worth the try. Clearly, if the bank is prepared to reduce the principle and modify the loan terms, you may be able to keep the modular home. Just be careful if the bank request you turn over your financial information. You must get a written letter from the bank stating that it will consider reducing the principle and consider offering a loan modification. If you do not get this in writing then you should not turn over any financial information. I am sure you understand this point.

You risk exposure to a deficiency judgment since the loan is in your name. In order to obtain a deficiency judgment, a bank must go to court and file the proper papers. Then a court must grant a deficiency judgment to the lender. A deficiency judgment can last for some time. For example, in New York, a deficiency judgment can last up to 20 years.

Keep in mind that even if a deficiency judgment arises it can be settled for less than the full amount. Most lenders do not pursue deficiency judgments. Instead the lender sells its rights to a deficiency judgment to a third party collection agency for a discount. A third party collection agency can pay thirty (30) cents on the dollar or in other word 30% of the deficiency’s face value. A third party collection agency that pays a discount for a deficiency may be willing to settle with you for less than the full value of the original deficiency.

Your first step is to use every legally available means to protect your assets. You mentioned a revocable trust. Normally, a trust is used to legally hide assets, however if the details of a trust are exposed, it may not protect the assets. You should confirm with a qualified attorney how your assets are protected in a revocable trust.

Since you bought the property only in your name and since your wife did not sign any loan documents for the house (primarily the promissory note) then it will not affect her credit score. Even if your wife signed the mortgage but not the promissory note, it would not affect her credit score. The promissory note gives a lender the right to report to the credit bureau, since the promissory note is evidence of a loan of money. A mortgage is simply a security lien against the property. A mortgage is not a promise to pay money.

It is critical you speak with the proper professionals to determine your best financial course of action so you can protect your assets and understand your risks.

Please feel free to contact me with further questions.

Thank you.

Augustine A. Diji

BD Wants To Walk Away But Unsure If It Affects Husband's Credit Score


GOT QUESTION?
I am considering a strategic default and just trying to gather information. One thing I can't seem to find. If we walk away from our house, will it affect my husband's credit score? I purchased the house before we were married and the mortgage is only in my name.

Thanks.

BD
GET ANSWER…
Dear BD:
If your husband signed the promissory note then it would affect his credit score. Since you bought the property in only your name and since your husband has not signed any loan documents for the house (promissory note) then it will not affect his credit score. Even if your husband signed the mortgage but not the promissory note, it would not affect his credit score. The promissory note give a lender the right to report to the credit bureau, since the promissory note is evidence of a loan for money. A mortgage is simply a security lien against the property. A mortgage is not a promise to pay money.
To be absolutely certain, you and your husband should request a credit report from the three (3) major credit reporting agencies. The agencies are Experian, Equifax, and Trans Union. These agencies are required to provide a free credit report once a year. You should carefully review your husband’s credit report to make sure there is no reference to the mortgage loan on his report. In fact, you should carefully review both of your reports to make sure there are no errors on the report. If you or your husband find an error on your report, you can dispute the improper information.
Feel free to contact me at anytime.
Thank you.
Augustine A. Diji

Got Questions? Get Answers...LM Demands A Princple Reduction On A Ginne Mae Loan


GOT QUESTION?
Dear Strategic Default,

I have for your review attached a letter sent to US Bank, regarding my upside down mortgage. I would be most interested in any comments you might have regarding the legal issue I specify in the letter. That as a matter of law, Ginnie May must have along with Foreclosure, Deed in Lieu and Short Sales as part of their liquidation procedures a Reduction in Principal for those who would qualify as this would "Minimize loss to the Federal Government" as required By GOVERNMENT NATIONAL MORTGAGE ASSOCIATION STATUTORY AUTHORITY (Section 301 [5]).

Sincerely,

LM
GET ANSWER…
Dear LM:
I applaud you on an excellent letter and an excellent approach. You have inspired me to write a section on my website that discusses this issue. It has been on my mind for some time. My advice is to send the letter multiple times via fax and certified mail.
You should ask your attorney contact if you should put the following language in the letter
“This letter is an offer for a settlement. The contents of this letter or any documentation I send to you may not be used against me in any court of law by you against me for any legal action of foreclosure or any legal action seeking a personal judgment against me.”
I have been concerned about homeowners providing certain documentation to their lenders that can be used against them in an action for foreclosure or a deficiency action.
Unfortunately, I do not give legal advice. I provide an opinion based upon my experiences and research of the available options. You will need to consult with a qualified attorney and accountant to determine your best course of action.
I support what you are doing. It is reasonable. It is fair. It is within your rights as a paying tax payer.
Feel free to contact me at anytime.

KU, An Active Duty Coast Guard Member, Has A Home Defect. Should He Default?


GOT QUESTION?


I purchased my home new three years ago, and had a swimming pool installed. This spring my pool collapsed. Estimated repair costs are approximately $30,000. Neither my homeowners or flood insurance will pay a dime. My home has always had drainage issues; and I came to find out that half of my lot was developed on mitigated wetlands, not disclosed at time of purchase by developer/builder. Both developer and pool builder say this is an act of nature and not their problem. I've been trying to find an attorney, but none seem very interested. Any advice? I live in Alabama, and I am an active duty USCG member. How would a default affect me?


KU


GET ANSWER…


Dear KU:


Thank you for contacting me.


If you decide to strategically default then you face certain consequences.



1. It will negatively impact your credit score.
2. Your peace of mind and space will be disturbed by collection calls, letters, and perhaps visits.

3. It will expose you to a possible deficiency judgment. A deficiency judgment is an unsecured money judgment against a borrower whose mortgage foreclosure sale did not produce sufficient funds to pay the underlying promissory note or mortgage loan, in full.



Please read http://ezinearticles.com/?What-Everyone-Should-Know-About-Debt-Forgiveness,-Obligations-and-Deficiency&id=3737575 to learn more about deficiency judgments debt obligations, and debt forgiveness.



If you live in a state that does not allow for deficiency judgments then this may not be an issue. A state that does not allow for deficiency judgments is called a non-recourse state. I believe Alabama is a recourse state therefore Alabama may allow lenders to obtain deficiency judgments. There may be new laws in Alabama that protect homeowners from deficiency judgments. Since you are an active member of the coast guard there may be additional state and/or federal protections against deficiency judgments.






You may also consider contacting the bank and telling them about your situation. While the bank may not be sympathetic to your pool problem, they should listen to your “mitigated wetlands” problem. You can tell the bank that the property has a drainage issue and you were not given full disclosure of certain defects in the property. You can offer to give the property back to the bank in exchange for the complete and full satisfaction of all of the debt that is owed to the bank. This is called a deed-in-lieu of foreclosure. This will eliminate any deficiency judgment risk. The key is to get any agreement with the bank in writing.



You would have to look at your original contracts to determine if the builder and/or pool installer are liable. Just because they say it’s not their fault does not mean it is.



You mentioned you were unable to find an interested attorney. I am surprised. You will need a qualified professional to help you. I am sure there is someone who can take your case.



Please feel free to contact me with any questions.



Thank you.






Got Questions? Get Answers...MK Doesn't Care About His Credit, He Doesn't Want To Owe Anything To The Bank

GOT QUESTION?

I had a question regarding strategic default.

I'm living in a house that I purchased with my ex-fiancee. She's since moved out and is living in another state. I am looking at moving out of state as well, and want to get rid of my house for that reason and many others. We purchased it at 250k with an 80/20 loan, but it is currently worth about 160k. I still owe 196k to my primary mortgage and about 44k to my secondary mortgage lender. Doing the math, it seems I MIGHT break even in about about 20 years.

While I am mildly concerned about credit impact (my credit is already shot due to my ex) I am more concerned with ending up owing money to either of my lenders after a foreclosure.

I am completely willing to walk away and hand over the house, keys, deed, whatever to the banks. I just want that chapter of my life behind me.

What do I do? Who do I talk to? Are there lawyers that help with this?

GET ANSWER...

MK:

Thank you for your email. The key to turning in your “key” is to understand the consequences.

Your primary risk is as you said “owing money to either…lenders after a foreclosure”. Please consider the following:

1. If you live in a non-recourse state, then you may not be liable to the lender on the first mortgage.

Read this link about Non-Recourse and Recourse States.

2. In most situations, a second mortgage lender never receives any money after a foreclosure sale. It is likely you will be liable to the second mortgage lender for the balance due. Also, keep in mind that it is big business for third party collection agencies to purchase second mortgage at a discount (perhaps 30 cents on the dollar) and chase you for the balance. Your best bet is to contact the second mortgage lender and negotiate a discounted settlement. For example, you may offer your second mortgage lender $8,000 to settle the loan and forgive the difference. In this case the difference is $36,000 ($44,000 less $8,000). When a debt is forgiven, the forgiven amount may be considered income by the IRS. Therefore this is can be a tax liability. You will need to speak with a qualified accountant to determine if you will have any tax liability for forgiven debt.

Read this link about debt forgiveness, obligations and deficiency.

3. There are some people who file for bankruptcy in order to get rid of debt. This may be an option if you are qualified and prepared to do so. Bankruptcy can allow for the “discharge” of your unsecured debt. A bankruptcy filing stays on your credit report for 10 years. You are required to list all of your assets in a bankruptcy. If you have enough assets to satisfy all of your creditors then bankruptcy may not be an option. You will need to speak with a qualified bankruptcy attorney to determine your options.

4. You can consider deed-in-lieu of foreclosure for the first mortgage. You can negotiate with the bank by giving the deed in exchange for the full and complete satisfaction of the first mortgage debt. Of course this leaves the second mortgage still open. Your first mortgage lender may not agree to do this unless the second mortgage is taken care of. If you negotiate with your lender make sure you get everything in writing including any agreement.

5. You mentioned that you bought the property in your ex-fiancee name. This means that you may need your ex to sign off on a certain option if the property also has her name on it. You will need to speak with a qualified attorney to determine your rights and obligations.

Your other houses would be considered investment properties while the house you live in should be considered your primary residence. There are more protections in place for primary residences and not investment properties. Do not assume that the rules will be the same for investment properties as it is for your primary residence. It much harder to walk away from debt as it relates to an investment property.

Yes there are professionals who can help you. The key is to talk to several professional to determine who can work best for you.

You did the right thing by asking me. Spend some time reading the links I sent and other information on my website www.strategicdefault.org. You can use this knowledge to find the right professional or if you feel comfortable handle it own your own.

Good luck. Feel free to write back anytime.

Thank you.

Augustine A. Diji