Got Questions? Get Answers... JSW is Concerned About His Future Finances So He Can Protect His Family

Got Questions?

Hi, I bought my current home in August, 2001. I have made each and every payment on-time the entire time I have owned the home. I have exceptional credit (850 FICO). I have tried to sell the home 3 times. At present, it is listed for sale. I have it listed $7,000 below what I owe on the mortgage and I have no takers. Sadly, it backs to a busy road and has a small backyard. However, it is well taken care of -- almost new -- and considerably upgraded. I just can't seem to sell it. I don't even think I could get someone to buy it even at $200K. And now, it looks like Romney is going to win the election and repeal the mortgage interest deduction. I currently take $35,000 in deductions just in mortgage interest alone. Even with his so-called cuts, it will be a huge tax increase for me. I can't afford it. I'm already supporting my parents and my brother who is currently out of work.

I would like to strategically default on the property, but I don't know if that is the best option. What would be your advice? I think I am too far off the mark for a short sale since I don't think it would sell even at $200K. It is sad because the home is in a very nice affluent community where the average incomes are over $100,000 annually. And, I don't think the bank is going to work with me at all in taking back a property that is clearly worth much less than I owe on it. I feel I got the short end of the stick and that it isn't going to get any better unless I do something. Even trying to sell it at a loss, I'd be clearing my 401K to do so and no one will step up and buy it.

What do you think? Is strategic default the right option for me?

Kind regards,

JSW

 
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Got Questions? Get Answers...PA Seeks Direction In Order to Reduce His Anxiety

Got Questions?

[I] have read alot about it. I don't think i would qualify for a short sale as i have income, but bank only wants to lower interest for five years on a loan that is $100k underwater. I hate the abandoned neighborhood and the house is falling apart even though it was built in 2003. AZ is a non-recourse state.

I am current on 1st mortgage there is no second. I need to find somewhere to live.

1.) WHEN SHOULD I TRY AND RENT A NEW HOME?

2.) How long does "freddie Mac" (serviced by wells fargo) take to evict you once payments are stopped?

3.) should i occupy the home until evicted?

I am nervous, worried and frankly afraid. I am a disabled single dad with NO-ONE to help me. I am confused in spite of my reading about what to expect. Please respond as I am fairly desperate. I don't know if I have asked all the right questions or considered all of the possibilities yet. PLEASE HELP!

Sincerely, PA


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Debt Defense Must Read Alert: Principles and Strategies for Dealing with Deficiency

The Wall Street Journal reported in its aptly named article House Is Gone but the Debt Lives On that lenders and/or third party debt collectors are suing borrowers for deficiency judgments. 

This is not a new issue. This has been a growing concern among borrowers. There is a dawning realization that if a property cannot pay off the mortgage loan balance in full then the borrower will be responsible for the shortage. We talked about deficiency debt in our March 2010 post entitled Plan To Be Followed When You Walk Away From Debt. As predicted, there has been an increase in lawsuits for deficiency judgments.

This current post focuses on principles and strategies that can be a guide  towards resolving deficiency debt.

A deficiency debt arises when a property sold at a foreclosure auction cannot generate enough proceeds to pay off the entire loan amount. If a lender can prove to a court that a borrower is personally responsible for the payment of a deficiency debt then the lender can obtain a deficiency judgment against a borrower. A deficiency judgment is a court order that directs a debtor to pay the lender a certain amount of money. A deficiency judgment includes the principle balance, unpaid interest, legal fees, escrows, and/other costs. A deficiency judgment allows the lender to collect interest until the balance is paid in full. It provides a lender with various tools to collect the judgment such as the right to garnish wages, the right to place a hold on a bank account, and the right to place a lien on personal property or real estate. A deficiency judgment can appear on a credit report. If you are not clear about deficiency debt please read the article What Everyone Should Now About Debt Forgiveness, Obligations, and Deficiency.  

There are three alternatives that can arise from the auction of a property at a foreclosure sale:

1. The property is sold to the highest bidder or,
2. The lender takes the property in full satisfaction of the debt or,
3. The borrower redeems the property by paying in full at auction.  

If a lender takes the property at an auction then there is no deficiency debt arising from the loan made by the lender. If the lender decides to take a cash bid at an auction, instead of the property, then the borrower may be responsible for the difference between the total amount due on the loan and the amount collected from the cash bid.  

Keep in mind that an auction may not always eliminate a second mortgage and/or Home Equity Line of Credit ("HELOC"). A foreclosure auction typically deals with the loan that is the subject of the foreclosure lawsuit. A foreclosure lawsuit is usually started by the first lien mortgage lender. A borrower can still remain liable for a second mortgage and/or HELOC after the first lien mortgage lender takes the property at an auction.

Each state has specific laws governing the collection of a deficiency debt. In some cases, states prohibit the creditor from seeking more than the collateral used to secure the loan. This is called “non-recourse” or “anti-deficiency.” This means that a creditor cannot hold the borrower personally liable for more than the value of the property at the time of sale. In a “recourse” jurisdiction such as Ohio, if a borrower owes a lender an $100,000 deficiency after a foreclosure sale, then the lender can sue the borrower for the difference, i.e., get a deficiency judgment against a borrower. You can learn more by reading What Is The Difference Between Non-Recourse and Recourse States. 

The WSJ article contained important points which should serve to remind all strategic defaulters about the need to develop a written action plan. The following are the main points from the article: 

DEBT DEFENSE MUST READ ALERT : Is It Possible To Face Jail For Not Paying A Debt?

This is a long post but it is worth the time to read everything. 


This post is based on a story written in The Home Equity Theft Reporter. The Home Equity Theft Reporter is a must read for people seeking to protect their home, cash, and investments from improper debt collection and foreclosure practices. 


The Minneapolis Star Tribune reported that a 57 year old woman was arrested while driving home. At first she did not know why. After being placed into a county jail she learned that she was arrested for missing a court date over a lawsuit for an unpaid debt.

Got Questions? Get Answers... RH Wants To Protect His Daughter's College Fund After Strategic Default

Got Questions?

I would like to do a strategic default, however, I'm concerned that BOA will be  allowed to take my daughter's college fund, which is only $17,000, and also pursue me relentlessly for years.  Is this true for residents of North Carolina? Our home, which we paid $385,000 for three years ago is now worth $290,000,  which is less than we owe. We can just about afford to stay and pay all of our  bills but this could change if our income goes down even slightly. Thanks for any advice you can give. RH

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Collection Tactics Monitor: October 9, 2010

In our previous Collection Tactics Monitor: October 6, 2010 post, we talked about a debt collection technique employed by a company called Heritage Pacific Financial. Please read the prior post so you can put this post into context. Since that post, we received the following email:

"Hello, I am writing you on your article http://www.debtdefense101.com/2010/10/collection-tactics-monitor-october-6.html. I am pretty much in the same case than “Kim” except Heritage Pacific took it a step further and filed suit against me. More or less the same Boiler Plate FRAUD complaint. I’m in process of hiring an attorney to respond to this and ask the court to dismiss this case (plus their Statute of Limitation is expired). I wonder if the hundred of people being victimized by this company http://hpdebtexchange.com/ couldn’t unite and counter-sue or get them close down business…Best, PK"

So assuming that PK's email is true then Heritage Pacific believes one or all of the following:

Debt Defense 101 : Whistle Blower Says Fannie Mae Took Homeowner's "Trial Mod" Payments With No Intention Of Permanently Modifying Loans

Now this is an issue for anyone who is considering a strategic default or trying to get a loan modification. Many times, a person decides to strategically default after being refused a loan modification. In certain circumstances the homeowner has made monthly "trial mod" payments while waiting for approval of a permanent loan modification ONLY to be rejected later. This happens quite often under the Federal Government's HAMP (Home Affordable Modification Program) aka Making Home Affordable program. The HAMP program was created for homeowners to avoid foreclosure. Instead, it has lined the "wallets" of Fannie Mae and other lenders with tax payer money.

Now why would homeowners make monthly "trial mod" payments if they knew they would be rejected? They wouldn't. However, homeowners are duped into making the payments.

Consider this: If a homeowner is able to make monthly "trial mod" payments as agreed, why doesn't the lender agree to a permanent loan modification. What better proof does a lender need regarding a homeowners ability to pay then the fact that the homeowner is actually making the payments under a "trial mod".

The purpose of this post is to show you how to use lending institutions "clear and convincing malfeasance, unfair negotiating and delay tactics, and outright bad faith" against them as a defense to collection efforts and foreclosure. On top of that it can be an offensive tool to get a permanent loan modification.

The defense rule is this: If a lender is unwilling to negotiate a loan modification in good faith (which includes being treated with respect during the application process), then you have the right to use any and all available defenses against a lender to keep your property even if you are not paying.

So let's begin...

The Center for Public Integrity reports that a Fannie Mae whistle blower has claimed that Fannie Mae executives mismanaged the HAMP program and wasted public funds.

The key quote from the article is as follows: "One issue inside Fannie was its push to put as many borrowers as possible into short-term trial modifications, at the expense...of getting qualified borrowers into permanent modifications...Herron charges that Fannie Mae continued in headlong pursuit of 'trial mods' even though it knew many had little chance of becoming permanent. As late as September 2009, barely 1 percent of trial modifications had converted to permanent modifications by the end of their three-month trial...Nevertheless, Fannie preferred doing trials, Herron alleges, because it was eligible to receive incentive payments from the Treasury Department for trial modifications it booked before the end of 2009."

Based upon these allegations, we now know the following:

                      
1. Fannie Mae took monthly "trial mod" payments from homeowners even though Fannie Mae had no intention of providing permanent loan modifications.
2. Fannie Mae was paid by the Treasury Department (with your tax money) for taking home owner's monthly "trial mod" payments.
3. Fannie Mae made "double the money". Fannie Mae had both hands in your pockets and cleaned you out. Fannie Mae took "trial mod" payments while it took tax payer funded incentive payments despite rejecting over 70% of home owner's seeking a permanent loan modification.

So let's do a little math. It was estimated that 1,000,000 homeowners were placed on monthly "trial mod" payments under HAMP through March 2010. So if, on average, each homeowner was making a payment of $1500 per month then Fannie Mae and other lenders were collecting $1.5 billion dollars per month. If the Fannie Mae and other lenders received a $500 to $1000 incentive payment from the Treasury Department for each borrower in a monthly "trial mod" program then these entities collected $500 million to $1 billion dollars.

BTW...WHY DOESN'T FANNIE MAE (OR OTHER LENDERS) GIVE BACK THE TRIAL "MOD MONEY" AFTER IT REJECTS A HOMEOWNER FOR A PERMANENT LOAN MODIFICATION?

And let's not forget, Fannie Mae recently implemented rules to "punish", to "chase" and to "spy on" any homeowner who decides to strategically default.

My Opinion: This can be a strong defense to a foreclosure case, debt deficiency case, or loan modification rejection under the following conditions:

If the homeowner:

1. applied for HAMP aka Making Home Affordable.
2. has made or continues to make monthly "trial mod" payments.
3. has been rejected for a loan modification or has experienced a long delay in a decision to modify their loan.

Then the homeowner can raise the following defenses under the following circumstances:

1. If foreclosure papers are served on a homeowner then one of the defenses should state: "The lender refused to approve me for a loan modification under HAMP aka Making Home Affordable even though the lender took 'trial mod' payments and even though the lender was paid my tax dollars to set me up with a 'trial mod' payment. The lender had no intention of giving me a permanent loan modification. This was claimed by a Fannie Mae whistle blower."
2. If a lender or third party debt collector seeks a deficiency judgment, then one of the defenses should state "At some point in time, the lender took my 'trial mod' payments and received my tax dollars in the form of incentive payments to set me up with a 'trial mod'. The lender should give me back my money because the lender acted in bad faith. The lender knew that it would not give me a permanent trial modification. On top of that the lender has been paid back the loan with my tax dollars. This was claimed by a Fannie Mae whistle blower."
3. When you apply for a loan mod and it's through the HAMP aka Making Home Affordable program ask your lender..."Do you receive incentive payments from the US government if I make monthly 'trial mod' payments? How much are you paid? Will you return my 'trial mod' payments if I am not accepted for a permanent loan modification? Will you continue collection efforts, including foreclosure, while I apply for a loan modification? Will you send me a response to my questions in writing? What address can I send my questions to?"

By the way, these defenses may be applied to any other lender or servicer. Fannie Mae is not the only mortgage company getting incentives under the HAMP program.

Save the outrage for later. This is about minimizing the consequences of a strategic default. This is about keeping and protecting your cash, savings, and investments.

Keep me posted.

Got Questions? Get Answers...KL Wants To Strategically Default In Colorado - Can The Bank Come After Him?

GOT QUESTIONS?

Hi,

I am considering strategic default and am wondering how Colorado state law will effect strategic default within CO. Can the bank come after the debtor for the balance?
Thanks,

KL

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KL

Thanks for writing.

You are essentially asking is Colorado is a recourse or non-recourse state. It is my understanding that Colorado is a recourse state therefore a lender may have the right to collect on the unpaid mortgage balance after your property is sold.

Read the following link to learn about debt deficiency, forgiveness, and obligations and the link on recourse and non-recourse states.

I advise you to speak with a legal professional that is familiar with Colorado’s foreclosure laws, debt laws, deficiency laws, recourse laws, and collection laws.

Thank you.

Augustine A. Diji