Foreclosure in Saint Louis>Question Details

Lisa, Home Buyer in Saint Louis, MO

i have home equity loan with different lender than 1st mortgage. do i have to pay that after foreclosure?

Asked by Lisa, Saint Louis, MO Sat Aug 30, 2008

I am going into forecosure. I have 1st mortgage through one bank and home equity through another lender. I beleive after forclosure in MO, i can not be sued for balance lost on house after foreclosure sale but what about my equity loan? Can i be sued to pay that back if the house is gone?

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you do need to be aware that the banks are currently making people show proof that they have no funds before going into foreclosure - ie you will have to show your income tax statements and pay stubs for the past several years, they will check to make sure that you haven't transfered assets to someone else recently rather than pay the mortgage, etc. We have also recently seen in the St Louis area where at the closing table the banks have suddenly put a piece of paper in front of the seller making the seller sign agreeing to pay the bank back the difference between the amount owed on the loan and the amount the house is being sold for over the next XX number of years when it's a short sale, since the banks are getting stuck with so many foreclosures and short sales. Also, be aware that if the bank forgives any of the debt, you may end up having to pay taxes on that amount of money, so you really need to talk to a tax accountant and to a foreclosure expert preferable a lawyer, not just someone who has taken one or two seminars on how to process the paperwork or sell a foreclosure house - you need to know how it's going to affect you and realtors really don't have the answer to that question like tax accountants and lawyers do.
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0 votes Thank Flag Link Sun Aug 31, 2008
the home equity loan has to be paid off at the same time that the mortgage is paid off in order to clear the title in a regular sale. In a foreclosure, it has to be cleared at the same time also. That does not mean that the lender will let you off without paying it. They may accept less, or they may require you to pay it or they may allow you to restructure it, but it has to be cleared in order to clear the title. I've seen short sales and foreclosure sales held up while they tracked down the subdordinate loans (2nd mortgages, home equity loans, etc) and got those lenders to agree to the deal.
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0 votes Thank Flag Link Sun Aug 31, 2008
Hi Lisa, I'm not entirely positive and it's too late to call my lender, but I believe your Home Equity loan would be wiped out by the foreclosure because it is subordinate to the first mortgage.

President Bush signed into law a policy that protects you from being taxed on the money lost by the foreclosure lender. IN other words, if the bank writes off $50,000 in debt, that's like they just gave you $50,000 and normally that would be taxable. With the lending debaucle going on, there would not be tax owed but I don't know if that precludes you from also being sued later. You really do need to contact an attorney.
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0 votes Thank Flag Link Sat Aug 30, 2008
Your circumstances warrant contacting an attorney. In Florida, the BAR Association has a free hotline to advise people who are facing foreclosure proceedings.

Could you renegotiate your loan?

The attorney will most likely suggest that you talk to the bank about a short sale first. which will be less harmful to your future credit rating than a foreclosure. A short sale is usually less expensive for the mortgage lender as well, so they often prefer that procedure. A short sale is a cooperative effort by you and the bank where you contact the bank about your inability to pay your existing loan and they may agree to have you list the property for sale at below the amount you owe on the mortgage. You will need to tell the bank about the equity loan as well. Typically your mortgage lender and the equity loan lender will have to work together to be able to sell the home. If your first mortgage holder will work with you on a short sale, the equity loan lender will also need to cooperate. The home cannot be legally sold without the agreement of both lenders. It is far better for this information to be shared sooner rather than later when it could jeopardize a Purchase and Sale offer. The Title Company or attorney who will handle the closing will research and find this outstanding lien on the property that will require the loan to be paid or the equity loan lender to agree to a partial settlement.

Call your local BAR Association (the professional organization for attorneys) and ask if there is a free or low cost way to get some legal advice about what to do.
0 votes Thank Flag Link Sat Aug 30, 2008
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