With the recent changes to underwriting guidelines, it is very unlikely that you will be able to walk away from your current home AND buy a new home. The underwriting guidelines for that purchase are going to prevent you from successfully getting a new loan. FHA, Fannie, and Freddie are all in alignment now that you need to have a very high Loan to Value on your current home, as well as the income to support both homes, before they would underwrite the new loan. These underwriting guidelines are designed specifically to prevent exactly what you state you want to do.
With regard to your second loan w/ Wells Fargo, a HELOC is a personal line of credit, very similar to a credit card. It is protected by the home, but also by your "good name", such that on the sale of the property it can be paid off by the home, but if there's not enough money there, the bank may want the balance from you.
I have been successful negotiating settlements with regard to HELOCs as part of a short sale process, but I certainly wouldn't be able to guarantee a settlement. Each bank and situation is certainly different.
FYI, a short sale will be just as bad for your credit in the near term as a foreclosure. For at least 2 years you will be completely unable to get a conventional loan. In a foreclosure, the rule is 5 years. So for the first 2 years, the situation is the same, it's just that a short sale can be forgiven sooner.
I don't think that Wells Fargo can sue you, but there are other issues we need to discuss.
I would suggest that you do not trust online home value estimates because they tend to be inaccurate the majority of the time. However, every now & then a blind squirrel does find a nut. So, there is a small chance that your home is actually valued at $174K, but to be certain, I would recommend that you speak to a REALTOR or two or three to get a very good analysis of the value of your home. If after this information you learn that you are in a negative equity situation, I would recommend that you contact your lender for assistance.
HomeSmart Real Estate
Most probably the bank can not sue you on the first loan, since it is a regular mortgage. But the rules can change on your second, which is basically a HELOC (Home Equity Line of Credit). You might want to consult a Real Estate attorney for all the legal consequences, but I have known or several cases in Phoenix where the banks have gone after the borrower for the deficiency on HELOCs after they have foreclosed.
If you have a real hardship and can not continue making the payments your first step is to always contact the bank. The can help you with a loan modification or approve you for a short sale.
If you can not work out a deal with the bank, then plan to do a short-sale. Get in touch with a Real Estate agent and get a better estimate of value, the estimates on Zillow can sometimes be way off. If we trust the estimate on Zillow you seem to be under water only by about 6%. Based on those numbers you might very easily be approved for a short sale, or even better you property might really be worth more than that and you might be able to just do a regular sale and satifsy what is owed to the bank.
Remember that a foreclosure will destroy your credit and that will stay on your report for the next 7 years. A short sale will be a lot easier on your credit, but it will still be a considerable hit - if you can you should try to avoid them.
Have you spoken with a Real Estate Agent yet about the value of your home? They will be able to give you a more accurate market value on your home. You should also call Wells Fargo at 800-678-7986 and ask about Loan Modification Programs - Adds any past-due interest and escrow amounts to the unpaid principal balance, which is then reamortized over a new term. Or you can check out this information for Alternative Repayment Options at https://www.wellsfargo.com/mortgage/account/altrepayment. You are welcome to call me if I can help. Take care and Good Luck.
I'm sorry to hear of your situation. Contact Wells Fargo and see what options they may be able to provide you. Wells Fargo may be able to modify the loan terms, rate etc to help you out.
As a Realtor another option that might arise would be to sell your home for what it's worth today and get Wells Fargo to accept less than what you owe. This is called a short sale and we are currently helping people like you with that option. A short sale is much better credit wise than foreclosure. A short sale would not cost you anything, we would work with the bank for you.
Please let us know if you have other questions.
If you have to go into foreclosure I suggest you find another place to live before the foreclosure hits your credit report. Any new landlord is going to run a credit check before they agree to let you move in. If the see a foreclosure you may have a tougher time finding a new place to live.
Hope this information is helpful.
Is it an assumable loan and how much equity is in your home? What is your current rate and any other info. you can pass on. I am not a Realtor, just a buyer looking for the right deal and home.