Information on consequences of home equity loan default - The Bills.com Blog

I have a Credit Score of about 730 thru Experian. I have a First and a Home Equity Line for a total of about 322,000. 248,000/74,000. The House becouse of current market conditions is only worth around 250,000. I am barely hangin on from month to month is Bankruptcy my only option here? If I default on the Loans there is only going to be enough to cover the first and thats only if it auctions well at a forclosure sell. Along with Truck pyment and household expenses I am tapped out. Whats your advice would it be better to go Chapter 13 and save my first Mortgage. Plese any advise much appreciated.

You have a few options, but it depends on if you want to keep your home and if you can afford to make the chapter 13 payments. I can tell you that if your loan 'adjusted' recently the federal government has a new FHA loan policy that allows you to refinance. Given your high FICO score, i would certainly suggest refinancing if you want to keep your home. You can see if you can lower your payment or rates. Since you have a second that will be under water, a deed in lieu of a foreclosure almost certainly won't be acccepted by both your lenders... so if you decide to walk away from your home you'll most likely have to let them foreclose. BUT - be sure to see an attorney and ask them for advice. You could keep current on your auto loan and credit cards and just let them foreclose (and not file bankruptcy) -- but if you want to keep your home you should try a refi or a chapter 13.

can you file chapter 13 on a home equity loan

Yes, you can generally file Chapter 13 on a home equity loan. However, you cannot include a home equity loan in a Chapter 13 bankruptcy as you would unsecured debts. Rather, filing Chapter 13 on a home equity loan should bring your equity loan current, placing any delinquency in the Chapter 13 plan, but you will be required to continue making your regular monthly payments in order to prevent the creditor from foreclosing on your property. Filing Chapter 13 on a home equity loan or mortgage could help you prevent foreclosure if your loan is already behind, but you will be required to continue making your monthly payments, so a Chapter 13 may not solve your financial difficulties if you simply cannot afford your monthly mortgage payments. If that is the situation, you may want to consider refinancing your home equity loan to try to obtain a lower monthly payment. To learn more about bankruptcy, visit http://www.bills.com/bankruptcy/.

I have fallen behind on many credit cards payments due to unreasonable high interest rates. My aim is debt settlement. However, re my house: My basement continues to flood and I cannot afford to fix it. I am ready to let the house go into foreclosure. Please confirm that once in foreclosure this will settle the first mortgage plus equity loan held against the house. Home is in prime location.

The truth is, that the only way that someone can guarantee that a foreclosure (or you could do a voluntary one, or a 'deed in lieu of foreclosure) will satisfy the first lien (called a mortgage) is if the home value that gets received after the sale of your home post foreclosure is more than the first lien and the equity loan. If the sale price is less than the value of the mortgages held against it, then in some states you could still owe an unsecured balance called a deficiency balance. The good news is that this new deficiency balance (if it exists and if your lenders pursue it) is an unsecured debt that you could conceivably enroll into your debt settlement program.

My husband and I bought our home for 345,000 two years ago. our home loan is an 80% 20% adjustable rate, the first one is 276,000 and the second 69,000. due to the market our home has drop value to 260,000 and our payment went up $700.00 and is due to go up another $700.00 dollars in two months. it has become difficult for us and we know that it will be imposible to make our mortgage payment when it goes up again. we tried to refinance with our bank, but were not able to. we are thinking of letting it go into foreclosure but have no idea of the consequences. could they come back after us for the difference or can we file bankruptcy.

Once the home goes into foreclosure, the proceeds of the auction of the home will go towards paying what is due to the mortgage. If there is a balance left, they will still report it as due to the credit bureaus. The good news is that the debt is now unsecured (meaning they do not have any collateral against it). You don't necessarily have to file for bankruptcy, as there are programs that can negotiate a settlement for you as the debt is now unsecured. If they decide to, they may start legal proceedings to collect on the debt, but they usually don't if they know that you are making efforts to pay it back.

I'm considering walking from my home mortgage, despite the severe consequences to my credit rating. What are the additional costs, fees, etc. that would be added to my debt by the bank? What if by some chance the auction price was above the amount of debt + foreclosure costs? Would I be entitled to the surplus and how is it transmitted to me? Thank you!

You will have to talk to your present lender to find out the actual costs involved. Remember that you still might have 3 options; Short sale, Deed in Lieu of foreclosure, and foreclosure itself. If in case the proceeds of the sale of exceeded the amount due then you will be credited with the surplus.

In December, my husband and I went into foreclosure. Our loan had been in default since October. Fortuanetly, we were able to come up with the total past due and lawyer fees. The problem is now that we are back on track, we are still struggling to make our monthly payment. We have quite a bit of equity in our home b/c we built it ourselves in 2005. My husband and I want to sell this home and by an affordable home with lower monthly payments. Our concern is our credit score may be to low, due to our default, for any mortgage company to even give us a second look. We feel stuck. Any suggestions?

You will need to check your credit reports to see if the foreclosure reported to the credit bureaus. If it was, then your credit will have taken a sizable negative impact. You are right in that any new lender will be hesitant to fund your loan if indeed the foreclosure was reported. Make sure you get your credit report and your score. If you feel that your score is not too bad then please come back and visit Bills.com to get multiple quotes to figure out your refinance plan.

For all that are considering foreclosure and short sales - 1. Only Purchase Money loans will be "forgiven" in the foreclosure. If you have re-financed, have a home equity, etc. you are liable for the deficiencies - depending on your state. As far as reporting to the IRS - if you are bankrupt or insolvent (assets less than debts) - you are not taxed on the deficiency. So if you did an 80/20 all purchase no refinance and live in CA - you are golden! If you put 20% down, your first is 80%, took out an equity line - value dropped - you are on the hook for the equity line. Sucks - but it is only fair... Who is to say you didn't go to Vegas and put $120k on RED! :) Good Luck everyone!

Living in Maryland. The house has a mortgage of 525,000 and a home equity line with 100k balance. Can't keep up with the payments and consider to walk away from it. In Maryland if I walk away and the sale price couldn't satisfy the total amount of both loans, what are the consequences?

I am not aware of specific rules for each of the individual States. You will have to talk to your present lender to discuss the following: Short sale, Deed in Lieu of foreclosure, and foreclosure itself. If in case the proceeds of the sale fall short to meet both the loan balances, they might still report the remaining balance as overdue amounts on your credit report and lenders have a period of three (3) years to file for a deficiency judgment, but it is limited to the balance of the loan in default after the foreclosure sale proceeds have been applied.

My brother has taken out a $20,000 equity line of credit. He owes $6,000 left on his house and is never on time with payments - usually 2 months behind. The payments on the 1st mortgage is around $350 a month, the payment for the equity line of credit is about $360 a month. He is basically sinking. Can he file bankrupcy on the equity line of credit and still keep his house? His credit is horrible, so I don't think refinancing is an option unless it is one through bankrupcy reconsolidation.

When it comes to bankruptcy protection for your home, laws vary from state to state. You cannot selectively file bankruptcy only on specific debts; rather all your assets and liabilities will come under scrutiny. It is best that you consult with an attorney to decide your best course of action.

I bought a piece of raw (unimproved) land in NC for 500k with a business partner. We paid way too much for it and since the developer working on the project went bankrupt - we are stuck with it. Independent appraisers tell us the property is worth $230,000! Our loan is for $475,000. I honestly can make the payment, but it is a 3yr balloon and since the whole development project is going under, I don't forsee the lender renewing the note. I don't see any use paying interest on a property that will be foreclosed upon eventually when they call the note due. I am mostly worried about a deficiency judgement on my credit for the next 21 yrs. It is all purchase money, but not owner occupied. Any advise here?

Have you talked to your present lender about short sale or a Deed in Lieu of foreclosure? Given your situation, those are the only options that come to mind. I did some research into NC foreclosure law and it seems that lenders are able to file for deficiency judgments there. I am pretty sure that for a deficiency of this size, you are faced with that risk. Is there not a possibility that a different developer may take over the project? Might be a good idea to hold on to it if that be the case.

We live in NC. We had to relocate two years ago due to my husband's new job and were unable to sell our house. We have a no-equity second mortgage and owe more than it is worth. (1st mortg $78,000/ 2nd mortg $41,000). We are leasing a house in our new location, and got renters in our original house. However, we were unable to get it rented out for our full payment (1st and 2nd mort pymts together are $1300/mo, and due to the area economics and market, we were only able to rent it for $750/mo)--so we have been paying the difference every month, and also taxes, insurance, and repairs. Our renters are now moving out in 30 days. My husband lost his well-paying job and is now making much less money, but is happy with his job, as am I. We are just unable to keep up with the house anymore. We are 2 mo behind on the 2nd mortgage. We can't afford to fix the house up for more renters, and are drowning in credit card debt. Also, it needs two significant repairs (new roof and windows) that we can"t afford. I think we should foreclose on the house and use the money we save on monthly payments to pay off credit cards, so we still have credit available to us. But, although we are insolvent, I'm still worried if the 2nd mortgage holder can come after us for a deficiency judgement, and also about tax consequences. Any advice?

If the house is worth less than the total amount owed, then the lender might be able to sue you for the deficiency balance. Even if they did not, you still might have to pay the taxes on the difference amount as that would be considered income in most cases. The best way to pursue this is to contact a bankruptcy attorney. As stigmatic as it may sound, sometimes bankruptcy is the only solution. If you qualify for Chapter 7, you will get protection from the deficiency balance on your mortgage (if any) and as well as the credit card payments, effectively giving you a fresh start.

My husband and I live in MN and the sheriffs auction for our home was on March 21st 2008. We had a 1st mortgage, 2nd mortage and a line of credit all through different lenders. The 1st mortgage company is the one who forclosed. Yesterday (June 4th) We were served papers for a deficiency judgement from the line of credit company for $27,000. We have not been paying any of them since the auction and are struggling to pay all of our bills. What happens from here? Do we go to court? Can they garnish our wages? If we file bankruptcy does that eliminate the deficiency? if so, does the bankruptcy have to be filed before the court date? PLEASE HELP! We are at a loss....

Recourses for deficiency balances vary from state to state. Yes, wage garnishments could be one of the consequences. I think bankruptcy will be the best course for you. Please consult with your bankruptcy attorney about your options and eligibility for either a Chapter 7 or a Chapter 13 bankruptcy (what you qualify depends on your financial situation). If you do qualify for bankruptcy then all collection efforts including court cases will receive an automatic stay.

I purchased a property in California as an investment property, I never lived in it, it has been rented for the last 21/2 years off and on. The problem is, 1) the rent does not cover the mortgage, I pay out of pocket up to 1200.00 a month. It was purchased as 80/20, I took the 20% on my primary home. 2) The house has lost its value by 50%, I can't even sale it for what I owe just the 80%, I am planning to walk away from it and eat the 20%. Besides affecting my credit score which I may not need for a while, what are the other consequences? I live in California

According to what you state in your question, you have only one loan on the California property. This would be classified as a purchase loan. Purchase loans in California are non-recourse loans, meaning if there is a deficiency balance after foreclosure, the lenders cannot come after you. But, if you ever refinanced this loan, then you would lose that status. Moreover, non-recourse purchase loans are mainly for primary residences. Being that this is an investment property for you, I would clarify with an attorney about the non-recourse aspect of it. Also, even if the loan is non-recourse, and the lender ends up short of the amount you owe, they may report that to the IRS as income and it might have tax implications for you in the future. I strongly suggest that you consult with a real estate attorney and a tax specialist before you decide to walk away.

Do the laws in New York permit a deficiency judgement against the initial purchase loans (80/20 from the same lender) ?

check out http://en.wikipedia.org/wiki/Deficiency_judgment

for California: If I filed bankruptcy last summer, it did not eliminate equity loan debt or mortgage. If I walk away from the equity loan, they will take my house but can they exercise anything else against me (like sue for the deficiency balanace or can the IRS come after me) or am I protected under bankruptcy law? Can they garnish my wages, or can I walk away clear and free and just lose the house?

In your comment, you don't mention which kind of bankruptcy protection you filed for. There are two forms of bankruptcy, Chapter 7 and Chapter 13. Each is different in the level of protection that it provides for your obligation to debts. In any case, purchase mortgage loans for your primary home (the home that you live in) in the state of California are non-recoursable. Meaning if you took out a mortgage purely to purchase the loan then they cannot come after you for any deficiency balance. But if you took out additional loans or refinanced your primary mortgage, then they CAN come after you for the deficiency balance. If you qualify for Chapter 7 bankruptcy, then any deficiency balance may also get discharged. You should always consult with a qualified bankruptcy attorney in your area, for the ramifications of filing for bankruptcy.

I own a home in CA. The equity line has been delinquent since October 2007. The primary mortgage is current. The line was obtained at the time of purchase, almost like a second mortgage, because of the high prices back then. Can the equity line foreclose the house? If not, what leverage do I have against the primary to renegotiate rates?

Yes, your home equity line lender can initiate foreclosure. Please refer to these articles on the same topic: http://www.bills.com/blog/consequences-of-home-equity-loan-default/ http://www.bills.com/blog/consequences-of-default-on-a-second-mortgage/

i took a home equity loan on a house i own an use it to buy another house, and also got a loan on a new house, but now i can not make the payment on the home equity loan. if i let the bank forclosure my old house will it effect my new house?i try to rent my house but have no luck.

Well, technically I don't think it can but you can never be sure, you will have to look at your loan contract real close. Worse case scenario, if they ever go to court and end up getting a judgment against you, they might try to force you to liquidate your current home. I have to make it clear that I am not an attorney so I am not qualified to give legal advice. You should speak to the lender for your new home and also consult with an attorney to get more clarity.

i am about to foreclose my primary home next month. had a 80% first mortgage; 10%heloc and 10% down payment. I did not refinance. my property dropped down 50%. will the lender go after me? will i be taxed with IRS. also both loans are under my name and my husband is not included in those loans but he is in the title and it's a community property in California. Will his credit report be affected? Can he buy a home under his name, if he qualifies? Can my lender go after him? Thank you

Since your husband is on the title, the foreclosure (forceable release of claim to title) will go against him as well. The best action is to call you lender/servicer immediately! If you don’t get through to speak with someone the first time, call back… and continue to call back until you speak with someone. The homeowners that are getting help in this market with similar situations are those that are relentlessly calling their lender/servicer and inquiring about their options. Believe it or not, the lender/servicer does not want to take your home – but the only way out is to speak with them. There was recent legislation passed that impacts your tax liability on any mortgage amount that is forgiven by the lender/servicer. You should talk to a tax expert on how this will affect your specific situation, but the government is working to address this. Lastly, and most importantly, make sure to visit this site and get more options and information: http://www.hud.gov/foreclosure/index.cfm

I bought a home in ca in 2003 i was married when i bought but my husband is not on the loan or title- I got a heloc in 2006 husband is not on that either together i owe 320,000, 240,000 on the first 80,000 on the second. The house across the street from me just sold for 158,000 the first on my home is an arm due to reset soon currently i am legally seperated, income has decreased by over 50% if i foreclose i know the heloc has the option of comming after me 1. can i file bk on the heloc? 2. can they come after my ex garnished his wages etc? I did work out a deal prior to my seperation with Indymac on the heloc they cut my payment from 400.00 per month to 200.00 per month which isnt really helping at this point I had to send my husbands financial info check stubbs etc so they have his info just need some direction everyone i ask all have different opinions or answers and i feel like some just make thme up cause no one know if your second is going to go after you or not.

We have been seeing a lot of these questions recently. The best thing to do to get a true answer is to talk to a HUD Housing Counselor, which can be found here: http://www.hud.gov/foreclosure/index.cfm

I have a condominium in Florida that I purchased as an investment property, current value is about $50K less than what my mortgage and equity balances are. Almost impossible to sell for what I owe. I have excellent credit rating 750+ and have good income. I'm trying to get out from under this condo to reinvest my money elsewhere. Is walking away a viable option?

Walking away is going to have its consequences. It's better that you discuss your options with both your lenders. There are other options apart from foreclosure (short sale, deed in lieu of foreclosure etc.), which might turn out to be one of the outcomes of your "walking away". A foreclosure is a serious negative remark on your credit profile and should be avoided, if at all possible. Your lenders will be able to provide you with the best advice. I also suggest that you read more about foreclosure at http://www.bills.com/foreclosure/.

I was told by an attorney that if I can show real estate comps in my area which indicate my home's worth as being less than what the first mortgage actually is, then I can make the 2nd mortgage go away. Have you heard of this?

I would be careful, that depends on your state law. In some states, lenders can come after you for deficiency balances, be it primary mortgage or secondary. I would research more about similar instances in your area and also take a second opinion. Also have a frank chat with your lender, I am sure they are aware of the fact as well, and might just help you figure a way out.

Hi, We bought a single family home in California in 2005 for 578k with 5 ARM. Due to market sliding, our home is now valued at 450K. I still have 530K in loan for which I am paying interest at 5.2%. Our income has not decreased, however our expenses have increased with two children who just started going to school. I am now hesitant to pay any amount towards this loan, since it is a waste. I enquired about refinance rates and the current rates will increase my payments. 1. When I am able to get a house for 400K in the same neighborhood, why should I be paying interest for a similar house that is nearly 180K more ? 2. So, I am considering walk out. What are the consequences and what are my other options ?

That really depends on whether your loan is classified as a recourse loan or a non-recourse loan. A recourse loan is one where the lender can come after you for any excess amount of money you owe. A non-recourse loan is a loan that the bank can only look to their secured interest. In other words, they can only foreclose, they cannot get a deficiency judgment and chase you into bankruptcy collecting it. In California, purchase money loans (basically loans that you use to purchase your primary residence) are classified as non-recourse loans. A purchase money loan is one where the money went from the lender, to escrow, and then to the seller or to pay purchase closing costs. In California purchase money loans made on your home (note: not second home or investment properties) are non-recourse. The mistake comes when you refinance your loan, because it is no longer a purchase money loan, a refinance transforms it into a recourse loan. That means the lender will chase you into bankruptcy collecting it. Or worse, they will sell it to a debt collector. I suggest that you confirm the status of your loan with your lender. For more information on mortgages, please visit our mortgage information page.

Thanks for the reply. Yes, this should be a recourse loan, because this is the first time I got this loan as a first time homebuyer and havent refinanced yet and the purchase money went to the escrow and then made it to the seller. The question I have is, if I short sell, what happens to the difference in amount. What happens to my assets in the bank as liquid amount ? Will my credit history be hurt ? How long do I have to wait before I can make a home purchase, especially now that the prices are dropping.

I think you mean non-recourse loan, meaning they cannot come after you for any shortfall after the short sale. Your credit will take a hit for sure. The effect of a short sale on a seller's credit report is identical to that of a foreclosure. The ding on credit will show up as a pre-foreclosure in redemption status, which will result in a loss of 200 to 300 points. This means a short sale with a previous FICO of 720 will see it fall from 520 to 420. Some agents say the good news for short sale sellers is the wait is much shorter before buying another home, and new Fannie Mae guidelines require only 24 months' seasoning.

I have a question. My home's title is currently joint, i.e myself and my husband are on the title. And there is an outstanding loan on the home. Is it possible to transfer the title to one person and we still stay together ? We do not have any issues with each other, but if I can transfer the title to one of us and then default on the loan, only one of our credit history will go bad and not both. And thats the only reason.

No, that is not possible. The only way that figure that can happen is if you refinance to your name only.

my huband recently was laid off. we can make our morgage payments barely but can not make our home equity loan payment. can the bank take your house away if you can't make the home equity payment?

Technically, yes, your home equity lender could initiate the foreclosure, but this depends on how much your home is worth now. If the current value is enough to take care of both your first mortgage and this home equity line, they might just do that. If they do initiate a foreclosure, they would get paid only after the first mortgage is taken care of.

We moved from Illinois to Texas a year ago. We put a down pmt on our new home with an equity loan from the first home. Our Illinois home has been on the market for over a year and no bites. We are current on all payments, but the price of our old home has gone down so much, that the sale price of the home will barely cover the loans ($149,000 and $140,000) after realtor fees and may have to do a short sale. The value of the home has dropped from $379,000 to a current asking price of $329,000. Were paying around $2,000 a month.... basically wasted money that we desperately need. We never thought it would take this long to sell, and can no longer pay. Savings, etc is gone. My question is if we decide to walk away, can they come after our new home? Without realtor fees, the value of the Illinois home is more than the loans, so would they be more likely to do a deed in leau? (All loans are from the same lender.) I did call the bank but they werent very helpful, and are just sending me information. Thanks.

Only if there is a deficiency balance due, do I see a possibility of them coming after your new home. If you are able to get them to agree to a short sale or a deed in lieu, that will close the matter right there and will not put your knew home in jeopardy. There is no harm in asking your lender to work with you through this. In fact if you were good on your payments, given the market conditions and the value of you home, it would be unwise on their part not to resolve this right now.

Have a first and a second (home equity line) on my home. What happens if I default on the second but keep up the first?

The second mortgage company has the ability to initiate foreclosure on the property.

I have 3 houses with indymac. With taxes due , i am going to fall behind 2 months in each of them in order to pay property taxes. My primary residence morgt is 50% of my salary and the other house don't make any money so I actually subsidize them. If i stop paying can they go after my bank account, stocis

That depends on your state laws regarding recourses available to your lender to either garnish your wages or your bank account. But either of these things can only happen if your lender can get the order for the same from the court, which also means that you would have to go through foreclosure first. You can learn more about collection laws here: http://www.bills.com/collection-laws/.

We owe $550k on a home currently worth $425 in FL. We have very little assets and have 3 teenagers about to embark on college. However our income is in the mid $100s. Finacially we're making it, but practically walking away from the mortgage and renting for a while seems to be a prudent business decision. Is walking away as simple as that or are there other repercussions such as lawsuits, wage garnishings, bankruptcies, etc. Where can one go to get counseled in how TO be foreclosed on???

In Pa and am in default on my mortgage and home equity. I can get caught up with my mortgage but not both right now. My credit has taken a big hit from this an I'm in the 500s right now. Any advice?

Basically, the biggest component of your credit score is your payment history. That means that getting caught up on your mortgage and then showing that you are paying on all of your trade-lines will benefit you the most.

Best place to start is your lender. Ask them every question possible and discuss every option available to them. There are also other programs in the works such as the "The Hope for Homeowners Program", which are in the works. The internet is an invaluable resource for you to learn about other peoples' experiences and also to educate yourself about your options. You have a lot to learn about, including, short sale, deed in lieu of foreclosure and foreclosure itself. Foreclosure is a very serious issue with a lot of negative consequences which you want try to avoid at all costs.

I have an 80/20 deal. I can't keep up with my mortgage payments. If push comes to shove and I have only enough for one payment (temporarily) which payment would be best to default on? The primary mortgage monthly payment of $2058 or the home equity loan monthly payment of $680?

For two reasons the 80% first is most important: #1, it is the largest payment and #2, since it is the most likely to move forward with a foreclosure process. Good luck.

We are in CA. My husband refined the house (cash out against home equity) for total of $260.000.00 in 2005 and got a new Home equity line of credit in 2006 for $60,000.00.He spent all these cash by himself. The home is worth $199,000.00 now. I started by my incorporation (100% ownership) after laid off. The business currently doesn't make much money. I am not able to keep this payments for both loans. If the house has to go for a short-sale or foreclosure for the less amount we owed banks.Will there be a deficiency balance against my or my corporation after foreclosure? I didn't use this cash out money for myself nor for my corporation. Do I need to file bankruptcy to clean this deficiency balance if I can't pay back? Please advise. Thank you

If your first mortgage lender agrees to a short sale, there will be no deficiency on the first, but you will still owe on the home equity line. If you go through a foreclosure, then you might owe deficiency on both the loans. I cannot say for sure of filing for bankruptcy will protect you from collection on these deficiency balances, but usually a bankruptcy does help in wiping out the debt after a foreclosure (chapter 7). Please consult with a qualified bankruptcy attorney before you take any decisions.

My husband and I took out a home equity loan on our home in Utah to pay for medical bills. My husband passed away, the house was sold and I have since relocated to another state. It would seem that the bank did not file paperwork for paying off the loan once the house was sold. I cannot pay the amount now--1 1/2 years later. What will happen to me?

It sounds like they have not tried to come after you with collections, so there is a good chance that the Home Equity Line was paid off out of the proceeds from the sale (it should have been). You should, in that case, be just fine. If, however, they do try to collect an unpaid portion or a deficiency balance you should probably seek advice from an attorney on the appropriate paperwork and also the payoff instructions when the house was sold. Good luck Megan.

I have a limited Liability corporation, If I go into forclosure, can the bank go after it in a deficiency judgement in the state of florida?

Your question is not clear. Is the property in the corporation's name? If so, then yes, they cannot come after you personally, but they can file a suit against the LLC.

i have a home mortgage in CA of about $550K. I also took a home equity line of credit of $250K. At that time, both me and my wife were working and drawing about $280K per annum. i quit my job about 2 years ago to start a business outside the country and infused a lot of our savings and some of the home equity line of credit. Now, with the recession, my business is almost bankrupt. there is only one income in the family and we are barely able to make ends meet. We are current on all our payments till now and I may not be in a position to maintain this. The house prices have crashed and i am not sure whether I will be able to get the total amount of the outstanding mortgage and the heloc if i sell the house. I am not clear as to what to do now. I have a 15 year mortgage and am not sure whether the bank would consolidate the heloc and mortgage and extend a 30 or 40 year with one income of about $140K. Would filing for bankruptcy be my solution and would that wipe out my loans. what are my other options. both of us have a good credit score. Please advise. what will happen to us?

You have several options to deal with this. The first thing to understand is the California recourse law. Basically, if you never refinanced the loans that you used to purchase the property, then the lenders cannot come after you for any deficiency balance that might be left over after a foreclosure or a short sale. You will need to look into all of your options and then decide which one will help you. If you have had a good payment history, your lender might be willing to work with you to work out a short sale, which is basically selling the house as per the market value and letting go of the balance amount. This option will avoid the bankruptcy route. As you are still earning a significant income, I don't think you would qualify for a Chapter 13 bankruptcy filing and not a Chapter 7, yet i would clarify this with a bankruptcy attorney.

To Satheesh - Generally speaking, mortgages and home equity credit lines are not discharged in bankruptcy unless the homeowner is willing to surrender the property and allow the secured loans to be included in the bankruptcy case. Bankruptcy petitioners who wish to keep property securing a loan generally must "reaffirm" on the loan, which basically excludes the account from the bankruptcy proceedings. Even if you are not willing to give up your home, bankruptcy may assist you by reducing your payments on your unsecured debts, freeing up income to apply to your outstanding home loans. You need to consult with a qualified bankruptcy attorney as soon as possible to discuss the options available to you; with an annual household income of $140k, you and your wife may not be able to file for Chapter 7 (aka "liquidation") bankruptcy. Rather, you may need to file a Chapter 13 bankruptcy, which is basically a court-administered plan to repay your creditors. In both types of bankruptcy, consumers must generally reaffirm on any secured property which they wish to keep (cars, homes, etc.), and continue making required loan payments outside of the bankruptcy plan. This requirement can make bankruptcy an untenable option for people whose debts are primarily secured by a home or other property. Before you make a decision about filing for bankruptcy protection, you may want to contact your mortgage and HELOC lenders directly to discuss the possibility of reworking your existing loans. Due to the difficult economic situation currently facing all Americans, many lenders are more willing than ever to work with homeowners to set up affordable payments to keep properties from going into foreclosure. If your lenders are willing to work with you, you may be able to negotiate an affordable plan to allow you to stay in your home. However, if your lenders are unwilling to negotiate, filing for bankruptcy protection and surrendering the home may be a viable option. As I stated, I strongly encourage you to consult with a qualified bankruptcy attorney to discuss your circumstances; your attorney should be able to help you determine the best course of action given the complex financial difficulties you are experiencing. I wish you the best of luck!

I have a mortgage and 3 equity loans of about $569k (300k/72k/98k/99k) in VA with the same bank. My house value has dropped to 460k. I am current on all of the loans but my husband has just lost his job and we are thinking about letting the house foreclose if he does find a job in about 5 months time. Without my husband's job, our household income is around $100k. If we go into foreclosure, can the bank come after us for the equity loans? Can we file bankruptcy to dismissed the equity loans?

I have a 80/20 loan on my primary home. I did refinance my second mortgage under line of equity.($100k) I leave in Ca. My loan is adjusting soon. My home value is underwater. I am able to pay my 1st but will not be able to pay my 2nd. If default on my 2nd mortgage, will they be able to foreclose on me or run after my personal assets? will refinancing your 2nd mortgage under equity line will put you loan on a recourse status? Thanks.

I purchased my home in 2005 w/a $330k adjustable mortgage (MTA + 2.2%; currently at 4%) plus a home equity loan of $60K (fixed rate of 7.25%). (I've never refinanced and the first and second mortgages are w/different lenders). At that time, my income was $150K annually. The homes in my area have depreciated such that I owe about 170k more than the home is worth. In addition, I was unemployed for over a year. I used my savings to pay mortgage and car payment, but all else was paid w/credit cards thus I now have $90k in credit card debt. I have never paid late to any creditor. However, w/the high credit balances my FICO is now about a 630-660. I also have an auto loan of $25k at 6%. My income now is about $100k which sufficient to cover the mortgage, car payment, necessities, and some of the credit cards, but not all of them. Approximately $30k of the credit cards is at a fixed lower interest rate varying from 3-7%. The remaining $60k is at a variable rate currently 12-16%. I've contacted the latter creditors and they are not willing to reduce rate and have reduced my credit limits. If I stop paying the high interest credit cards and only pay the lower rate cards, my income is sufficient to cover all other expenses, mortgages, etc. My mortgage lender is not willing to modify or refinance my loan due to debt ratio caused by credit card balances. My profession is such that if I file bankruptcy everyone in my office will be privy to the information (court clerk). This would likely hinder future employment opportunities. What do you suggest...stop paying high interest credit cards or let home foreclose?

Lisa - Yes, a deficiency judgment may be obtained when a property in foreclosure is sold at a public sale for less than the loan amount that the underlying mortgage secures. This means that the borrower still owes thelender for the difference between what the property sold for at auction and the amount of the original loan. You could possibly file bankruptcy to protect yourself from a deficiency judgment, but that would depend a lot on the type of bankruptcy you qualify for (chapter 7 or chapter 13). You should consult with a bankruptcy attorney to clarify.

Apple - Yes to both of your questions: Refinancing your purchase money mortgages will cause them to go into a recourse status and the 2nd mortgage co. can initiate foreclosure on your home.

Melissa - You look like a prime candidate for a debt settlement program. You can read more about it at: http://www.bills.com/debt-settlement/. If you do decide to go that route, I would suggest that you get a free consultation from the folks at Freedom Debt Relief, they seem to be the leaders in the space. Debt settlement would negotiate one time settlements on all of your unsecured debts with a low affordable monthly savings plan. This way, you would not file for bankruptcy and take care of the credit card debts while protecting your home.

I have a home worth about 220k in California. On this property I have my mortgage balance of about 150k and an equity loan of about 150k. I am now having problems coming up with the money to pay both the mortgage and equity loan. The 150k I used them for remodelings and a business which is gone now. So, bottom line, I do not have the 150k anymore. What could happen to me if I let the house go? Can the lender come after me for the equity loan if after the house is sold there is not enough money to pay both lenders? I am afraid that after the foreclose on the home I still have to pay the second lender the home equity loan? What could I do?

The first thing that i want to clarify is that you will not be able to sell the home without paying off your mortgages. What you could do is talk to your lenders about a short sale. If the lenders do not agree, then you are probably faced with a foreclosure. If both of these loans originated at the time of purchase, then the loans are termed "non-recourse" meaning the lender cannot come after you for any balance remaining after a short sale or a foreclosure.

Bill, the equity loan was taken out a year after I bought the property. So is there anything I can do to avoid the home equity lender to come after me after facing a foreclosure?

Ramon, then the loan is not considered purchase money and will be a recourse loan, meaning your lender will have the right to pursue collections for any balance left. You should clarify this with the lender, or look at your mortgage papers for the terms.

I declared Chapter 7 bankruptcy in CA reafirming my first and second mortgage. Now that I am again having financial difficulty paying these mortgages, if the condo is foreclosed on, will the equity line be considered a nonrecourse loan or will I be liable for it?

You will be liable for it. If you reaffirmed, you are liable just like any debt regardless of the bankruptcy.

I own two homes. One home is on a 30 year fixed loan. The other home has a 135,000 home equity loan on it as a second mortgage. The home equity loan will balloon in a year in which I will have to pay the remaining balance. If I default on the loan with the home equity loan, do I just lose that house to foreclousure, or do I risk losing both houses and/or loss in wages?

Dealing with home equity loans is a little different. First, although a home equity lender can initiate a foreclosure, they only get paid after the first mortgage lender is paid, therefore they tend to be real careful when initiating foreclosures because of default. This is because a lot of homes have come down in their values, and if the value of the home is barely enough to cover only the first mortgage, then there really is not point in the home equity lender initiating foreclosure. They would most likely pursue collections on it just like any other debt, with a lot of phone calls, or maybe even sell the debt to a collection agency. Now here is where it gets a little tricky, what debt collectors can do to collect on their debt varies from state to state. For example, in California, if the loan in question is a purchase money loan, then the loan is termed 'non-recourse', meaning the lender cannot pursue collections on any deficiency balances. I suggest that you look up your state laws at http://www.bills.com/collection-laws/. There are other recourses, such as wage garnishments, which they can use, but it can only happen if they go to court and are successful in getting a judgment against you. Please consult with an attorney before you take any steps in this regard.

I live in California. We refinanced two years ago and cashed out some money. Most of the cashed out money was used for home improvements. We are having some financial difficulties and are considering letting the bank forclose (walking away.) I have been told because we refinanced, our mortgage became a recourse loan. My question is this… since California is a “one action rule” state, and if our loan is now “recourse” can they still sue us for the difference if they forclose? How does that work in California with the “one action rule.”

If you have only one loan, then the lender will have to chose his course of action between the foreclosure or a deficiency judgment. If you have a 1st and a 2nd mortgage, the first might choose foreclosure and the 2nd might resort to deficiency judgment.

We have a mortgage, 2nd mortgage and an equity line against our home 260,000/30,000/20,000. We are going to have to file for bankruptcy but want to keep our home. We are not behind on any of our bills yet but due to the ecomony we know its going to happen soon. We have to file b/c of other investments that went bad. My question is can we refinance before we file if we owe more than it appraises for or will we have to lose our home? I am hoping someone will give us a loan since we are willing and can afford the home and our credit is still good. But everyone I talk to says since we owe more and have the other loans against the house there is nothing we can do please tell me this isnt true!

Unfortunately, that might be the case. Most lenders these days are capping the loans at 85%-90% LTV. You should check to see if you qualify for the plan announced by President Obama, you can check here:http://www.financialstability.gov/makinghomeaffordable/refinance_eligibility.html

Own a condo in Md. Comps show value less than 1st mtg. 80/20 interest only with 2yrs left on the deal. Refied the 2nd arm. We are current and want to retire to GA. Cashed out what was left of our 401k to put downpymt on home there. How can we protect Ga home if condo won't sell? Very glad to learn about deed in lieu...think that may help us get out of Md prop. Then just pay off 2nd We're current

Also, check to see if you qualify for any help from the Obama Administrations's initiative: http://makinghomeaffordable.gov/index.html

I live in California. I bought a house a couple of years ago for $500K (1st Mortgage/400K, 2nd Mortgage/100K). The usual story, home is probably only valued at ~ $325K. No refinance activity yet. What are the consequences of a walk-away if lender (WF) refuses to amend and reduce the loans? The lender is trying to talk us into refinancing the first and leaving the second in play. This looks like a huge mistake if we anticipate leaving the area within 3-5 years anyway. Should we abandon ship now and start the clock on rebuilding our credit, since we'll be at the same point in a few years anyway(upside down on loan/equity)?

If these are purchase money loans (meaning they originated at the time of purchase) and if this is your primary residence, then CA law states that these loans are non-recourse meaning neither of the lenders can come after you for a deficiency balance on the loans and would have to take the loss. But, you will need to consult with an accounting professional as they might declare the amount written off as income and you might become liable for income taxes on it. But do not refinance if you know that you will be moving in the next couple of years as that would convert the loans into recourse loans.

my late father in law had a home equity line of credit, no mortgage. 2 years before he passed away he signed over all his property to his children with a life lease. He had renters in one of his properties, this property is connected bank that issued the home equity line of credit. The house is not worth anything since the renters have completely destroyed property, letting animals that should live outside live inside. Seriously bad. An attorney told the children that if they did not want property to tell the bank they would gladly sign the property over to them. The bank is obviously not interested. Line of credit loan worth $40,000. Property no where near being worth that. The renters stopped paying and the children do not want to pay either. It has been well over a year since a payment was made on this line of credit. How long can the bank drag this on? Wouldn't they have foreclosed on the property by now, or atleast sent a 45-30 day notice of foreclosure? The bank has actually said they don't want to get stuck with this property and the taxes. What do you suggest? If the bank isn't going to take the house the children would like to evict the non paying renters. And then burn the house because of condition.

The children should evict the renters regardless of what the bank wants to do. Even though the bank has a lien on the property, it primarily belongs to the children and is their responsibility. Even if the bank proceeded with the foreclosure, the children would be responsible. I don't know how the attorney is stating that you can easily sign over the property to the bank, it is not that simple. it is also weird that the bank is not doing anything even after a year.

Hello, I need help. I have $100,000 in credit card debt that I have never missed a payment on and am not behind on any loans, I have a house that has a HELOC and in total is worth less than I owe on it, underwater, I have been out of work for a year and savings are almost dried up, two months in reserves left. I have a $50,000 car but still owe $36,000. I have $46,000 in Student loans that are currently in forbearance. I can scrape enough by to make the house payments and car payment, but the credit card payments are taking a toll, would I be able to file for chapter 7 on the credit cards and still save my car and home at least. I reside in Washington and the recession has crippled me. Should I file for Bankruptcy?

It goes without saying that you need to act now while you still have some savings remaining. Bills.com has written extensively about what I see as your three options; Bankruptcy, Debt Consolidation, and Negotiation and Settlement. Start with our Debt Consolidation page: http://www.bills.com/debt-consolidation/ although given your facts I'm not sure this option is best for you. Take a look at our Debt Negotiation and Settlement page: http://www.bills.com/debt-negotiation-and-settlement/ which might be a better option given your significant credit card and auto loan debt. This is the process of negotiating with your creditors to either establish a new payment schedule at a reduced interest rate, or a lump sum payment that's significantly lower than the total balance. Finally, start learning about bankruptcy on our Bankruptcy page: http://www.bills.com/bankruptcy/ Bankruptcy is a complicated process, and there are hurdles for consumers who want to declare bankruptcy. One last thought -- make your goal avoiding foreclosure on your home.

Husband and I took out a HELOC for 60k in 2003, made payments on time, my husband passed away a few months ago and I cannot afford to make the payments on my own, I don't care if I lose the house. IMO, the home is not worth 40k and the HELOC balance is just over 42k. I want to stop making the payments and let the bank have it, but I want to protect myself, has anyone ever done this?

Lisa, foreclosure is almost always a bad idea. Contact the creditor and see if you can work out a payment plan that you can afford. Alternatively, if you are upside down on the property, you and the bank can consider a short-sale, which will cause far less damage to your credit score and allow you a measure of control over the process. This is in contrast foreclosure, where you have no control over the situation and the consequences on your credit score are severe.

I have a couple investment properties covered by one loan. With the loss in value (substantial) and tenants unable to pay rent I'd like to walk away from these properties as I can never recover the loss. What are the consequences? Can the mortgage banker go after my other assets? Will I be responsible for the loan minus any recovery costs they receive from a sale??

Try to avoid foreclosure. Yes, a creditor may be able to sue you for a deficiency balance resulting from a foreclosure. See Will Foreclosure On One Property Affect Another We Own? for a more complete answer to your question.

My father in law has serious financial problems. He is 83 years old with a first mortgage on his house, an equity loan on a second piece of property and massive credit card debt. He has filed for bankruptcy. I am considering buying his house for the amount on the mortgage. If I do, and he defaults on the home equity loan can they come after the house or me for buying it from him. I would be buying it under market value.

What you described is contrary to what is permitted under the bankruptcy law. If you are able to complete the transaction you described, the bankruptcy trustee overseeing the disposition of your father's assets (called the debtor's "estate" in bankruptcy-speak) has the power to unwind transactions that are detrimental to the interests of other creditors. I urge you to consult with an attorney in your state who is experienced in bankruptcy law to learn what steps you can take to acquire assets in your father's estate that comply with the bankruptcy laws.