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