WE RE-FINANCED OUR HOME AND TOOK OUT A LINE OF CREDIT......IF WE DECIDE TO WALK AWAY FROM OUR HOME, WHAT RECOURSE CAN WE EXPECT IF ANY FROM LENDER.

Asked by Jwill, Oxnard, CA Fri Apr 15, 2011

UPSIDE DOWN ON HOME......LOOKING TO WALK AWAY FROM MORTGAGE, BUT ARE CONSIDERING RECOURSE OF THIS FROM LENDERS. ANY SUGGESTIONS, LOOKING TO BUY ANOTHER HOME FIRST BEFORE WALKING AWAY FROM CURRENT MORTGAGE. ALREADY PRE APPROVED, ALREADY TALKED TO A LAWYER HE SAID TO GET INTO NEW HOME ONCE ESTABLISHED IN NEW HOME STOP PAYING ON FIRST MORTGAGE. HATE TO DO IT BUT DONT WANT TO BE UNDERWATER FOR NEXT 20 YEARS. PLEASE HELP.

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Emily Knell, Agent, Huntington Beach, CA
Fri Apr 15, 2011
Ok, there is something incorrect about each answer so far.

Yes, if you can, go & buy the other house first.

1. As far as being "well established in the next home", that's not necessary. In fact, in California you don't want to get yourself toooo established in the next home, because you'll still want to claim & show that you DID in FACT own & occupy, what's now the short sale home for 2 of the previous 5yrs.

2. It is not a requirement for you to start missing payments on the old house in order to get the short sale approved. Depending on what's most important to you it's not mandatory for you to totally ruin your credit by missing payments.
(((However you may feel that since you're in the new house, missing a payment isn't going to put you at risk for not being able to qualify for other things, since you already have the house.))) Just something you need to consider.

3. Regarding the equity line. This depends on which lien holder gave you the equity line, whether it was a cash out refinance of the 1st lien or Straight equity loan from the 2nd.
If it was an equity loan from the 2nd, they will want a 30% payoff in order to release you of any & all future liability. The 1st lien holder will agree to 10%, a buyer will have to donate something ( 10-20%) with you donating a portion as well.

4. The 1st lien holder: It can be negotiated for you to be released of any future liability, but I would like to discuss this with you in more detail.

Feel Free to email me or call me directly. I can help homeowners in the entire state of California & in Nevada with Short Sales & this type of situation.

EmilyKnell1@yahoo.com
562-430-3053 cell
Realtor Since 1996
Short Sale Expert
1 vote
, ,
Thu Aug 15, 2013
I was just looking through old post and I noticed yours. If you were not able to refinance at the time of the post, I can certainly help you out now. You can call me at 408-352-5147 or email me at AGreer@themortgageoutlet.com. You can check us out at http://www.TheMortgageOutlet.com. I will look at your situation and present you with some options.

Alex Greer
NMLS #1056079
0 votes
Ron Thomas, Agent, Fresno, CA
Sat Mar 10, 2012
Having read 14 answers, let me tell you that there is a lot of conflicting advice:
Let me add that Realtors do not want to give you LEGAL advice, we leave that to the Lawyers,
and this case, I would strongly advise you to do so; because you are probably in trouble:

Shortsale: The Lender prpbably will not agree to a SS becuase you are definitely not in a HARDSHIP situation; just being UPSIDE/DOWN is not a hardship.

Deficiency: The Lenders (plural) will probably come after you, and even though California is a Non-Recourse State, they will be able to because of the two flaws in your situation; you took out money, and you did not use it as your Principle Residence.

IRS TAXES; The IRS probably will demand a bunch of $$ based on the "paper profits" that you will make on disposing of the Condo. You may want to walk into your IRS office and talk to them: This will not be a case of asking forgiveness is better than asking permission.

Please talk to a Real Estate Attorney.

Good luckand my God bless
0 votes
Nancy Celis, Agent, Chino Hills, CA
Sat Mar 10, 2012
Jwill, It is important to know that you must prove to the investors of your loans you have a verifiable financial hardship. Important facts to consider, short sales are not cut and dry, they are complex and everyone's situation is different. There may be tax and deficiency implications with either loan. You will not know the final implications you face until the investor responds to your request to short sale your home via an approval or denial letter. In addition, I understand your situation, you don't want to be underwater for 20 years, as most homeowners feel the same, but honestly that may not help approve a short sale, that is not a hardship. I strongly urge you to speak to a Real Estate attorney who can advise you on this. If your current attorney is a real estate attorney, his advice would be the best advice to follow.

Purchasing a home prior to short sale is very common among homeowners in distress, this will be interesting to see what type of implications may arise in the near future.

I wish you the best of luck and Im hopeful that all will work out for you with the sale and the purchase of another home. Obtain the best counsel prior to moving further! Review my website for further options and information regarding to short sales. I would be more than happy to speak with you or assist you.
Web Reference:  http://saveahome.net
0 votes
John Arendsen, Agent, Leucadia, CA
Sun Apr 17, 2011
Unless you declare BK you can't escape your tax obligations very easily. If the IRS discovers any fraud or deceit there's no way you'll get out of paying your tax obligations. You just need to come clean ASAP, face the music, short sell the property and try to negotiate the best deal possible and get on with your life. I certainly wouldn't even be thinking about buying another property with all those fly's in the ointment.

BTW, do you think you could possibly write in upper and lower case if possible. Reading all upper case copy is very hard on the eyes. Especially this 65 year old pair. Thanks.
0 votes
Jwill, Both Buyer And Seller, Oxnard, CA
Sat Apr 16, 2011
SO HOW WOULD THE IRS AND STATE (CA.) COME AFTER THEIR MONEY? WOULD THEY JUST GARNISH OR INCOME TAX RETURNS OR COULD THEY POSSIBLY GARNISH OUR WAGES? EMILY KNELL IS CORRECT....WE ARE PAYING FOR THE HOA OUT OF POCKET NOT TO MENTION MAINTENACE AND THE OCCASIONAL SHORTNESS OF RENT DUE TO RENTER HARDSHIPS. TRIED SELLING ONCE BEFORE WITH NO LUCK, NOT EVEN ONE OFFER.......NOW BECOMING MORE OF AN AGGRAVATION THEN ANYTHING, THE REASON FOR JUST WANTING TO WALK AWAY AND BE DONE WITH IT.
0 votes
Shane Willis, Agent, Pensacola, FL
Sat Apr 16, 2011
Consider a short sale if you have a hardship. That hardship is what will determine approval or not. If you do get approved attempt to negotiate with the bank (through your realtor) that they will not go after a defeciancy judgment. If you can get that done you shuld be good to go.

I would recommend a CDPE agent
0 votes
Emily Knell, Agent, Huntington Beach, CA
Sat Apr 16, 2011
Because the property has now been a rental for 2yrs, the bank will consider it an Investment property, so the "living there for 2 out of the last 5yrs" is out the window.

It is still possible to short sell & get the bank to NOT seek deficiency judgment in the future. I have done short sales for investors & it's not an automatic to get that language in the short sale approval letter. The lender will still want a 30% payout if the equity loan is a 2nd lien & maybe 15-20% payout if it was a cash out refinance of the 1st lien.

So, don't list the place thinking the bank isn't going to want some kind of payout from you.

The Mortgage Debt Forgiveness Act is now also NOT on your side, because it's now considered an investment property, so you will likely be facing a debt owed to the IRS & CA state (FTB) at whatever your tax rate is for income. Figure 18-24% to be on the safe side. If you sell for $100K you will owe the IRS & State tax of about $30,600 - $40,800. UNLESS you can prove some type of insolvency, which will probably be difficult if you've recently purchased another home.

SO

What you need to weigh is simply this: "I may owe $30-40k in taxes to the IRS & the state for short selling my property. I will likely need to pay 30% of X in order to satisfy the lender who holds my equity loan."

""Is it worth it to me to do the short sale OR hang onto this asset that is worth $170K less than what it's worth (and will the property further decrease in value over how many years & how many more years will it take to go back up & do I want to be responsible for maintenance & up keep should tenants destroy the place, because rents are low & I'm coming out of pocket X per month to cover my total payment X how many months/years do I want to continue to do that.......? ""
0 votes
John Arendsen, Agent, Leucadia, CA
Sat Apr 16, 2011
As others have so astutely stated consider deficiency judgments and tax ramifications especially before you purchase another property. You could just end up losing that as well if a lender comes after you with a deficiency judgement. You'd be wise to consider a short sale and rent until the dust all settles.
0 votes
Jimmy Esqueda, Agent, West Covina, CA
Fri Apr 15, 2011
That does change everything. Bottom line you're holding on to a bad investment. Even if it's paying for itself who knows when you'll gain any equity which defeats the purpose of having income property.

In this case go ahead and purchase your other property but do something about the condo right after. Don't wait until something happens. Short sale, settlement, foreclosure, etc will be negative items on your credit. Might as well take the hit now and let time start healing your credit. Not smart to know you're going to ding your credit in the future, do it now and start recovering you're credit.
0 votes
Jwill, Both Buyer And Seller, Oxnard, CA
Fri Apr 15, 2011
I THINK I LEFT SOME IMPORTANT INFO OUT............WE HAVE NOT ACTUALLY BEEN LIVING IN THE CONDO,WE HAVE BEEN RENTING IT OUT FOR THE LAST TWO YEARS, WE HAVE ALREADY BEEN PRE APPROVED FOR ANOTHER HOME.......WE WILL CONTINUE TO KEEP RENTING OUT OUR CONDO.....BUT JUST LOOKING DOWN THE ROAD, IN CASE THERE COMES A TIME WHEN WE WONT BE ABLE TO RENT IT OUT.............WE OWE $270,000.00 ON THE CONDO......THE COMPS IN THE COMPLEX ARE IN THE LOW $100,000.00.....WE ARE JUST CONSIDERING OPTIONS FOR THE FUTURE IN CASE SOMETHING WERE TO COME UP.
0 votes
Sergio Medina, Agent, Long Beach, CA
Fri Apr 15, 2011
The lender will eventually file a judgement for the deficiency. Log in to our website as we have valuable free reports that will be off help to you. We have 2 great lawyers on retainer at no cost to our clients that will get truthful answers and results to you and your family.
Web Reference:  http://LaRocheTeam.com
0 votes
Jimmy Esqueda, Agent, West Covina, CA
Fri Apr 15, 2011
You'll need to put a large down payment on new loan and be able to qualify for both homes without rental income.

And if you walk 2nd may come after you by collections or possible judgement. Which means if they find out you have a new property you'll most likely now have that lien on that property too.

One option is to convince your 1st to do a short sale if you could prove hardship and negotiate a settlement with 2nd. You'll be able to buy with an fha loan if you have no delinquencies on both loans in the last 12 months prior to closing escrow on old home.
0 votes
Eli Givoni-S…, , Boca Raton, FL
Fri Apr 15, 2011
Yes, you should move into your new home, then stop paying the mortgage on this one. Instead of letting your property go to foreclosure, though, you should do a short sale. This will keep foreclosure off your credit. In addition, we will negotiate with your lender to try to get you off the hook for the deficiency.

We are a professional short sale service and would be happy to explain the process to you. Please call us directly to discuss your specific situation. Our services are FREE to homeowners. We look forward to hearing from you.

Eli Givoni, Director
Short Sale Department, LLC
561-361-1909
info@shortsaledept.com
http://www.shortsaledepartment.com
Serving all 50 states

MARS Disclosure for General Commercial Communications
IMPORTANT NOTICE:
Short Sale Department, LLC is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan. If you stop paying your mortgage, you could lose your home and damage your credit.
0 votes
Madeleine Se…, Agent, Anaheim Hills, CA
Fri Apr 15, 2011
Have u tried the short sale ,you may qualify on HAFA?who is the bank you are dealing with and the loan amount?
Madeleine
7143225428
Web Reference:  http://www.mado1.com
0 votes
Madeleine Se…, Agent, Anaheim Hills, CA
Fri Apr 15, 2011
Well if you have consulted an attorney he should have explained to you tax consequences in ca pertaining to the line of credit.if its large Amount they can pursue u with a deficiency judjement within the statue of limitations(3 or 4 yers).in other word they may not release the lien.they can come after you.
I hate to advise you in a legal way.ur best bet is a Real attorney to consult with.
Madeleine Semaan
7143225428
First Team Real Estate
Web Reference:  http://www.mado1.com
0 votes
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