Wednesday, June 30, 2010
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!
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.
Augustine A. Diji
Got Questions? Get Answers...JJ is a Senior Citizen Seeking to Protect His Wealth From A Bad Investment
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?
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.
Augustine A. Diji
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 ).
Got Questions? Get Answers...MK Doesn't Care About His Credit, He Doesn't Want To Owe Anything To The Bank
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?
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.
Augustine A. Diji