Effects of Home Equity Line in Default

What recourse does a Bank have on a defaulted home equity line of credit?

There was a line of credit taken out on my property that i own with my spouse which I never signed or authorized. My spouse defaulted and the bank closed down the checking out for no explainable reason where the payments were being taken out of. However the loan was never recorded on the property. It has been well over one year now! Does the bank have any recourse on my property? Or can they sue my spouse only?

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Bill's Answer
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  • A creditor that has extended credit secured by a home must foreclose to recover.

The fact that the bank never recorded a lien on your property does not prevent them from doing so now, even though more than one year has passed from the date of default. Generally speaking, a creditor must take action on any defaulted contract within the statute of limitations provided by each state, which varies from three to 15 years from the date of last payment, depending on the state and type of debt. Some states have separate rules for mortgage deficiencies, which you can see in the Bills.com Anti-Deficiency resource. For more information about the statute of limitations in your state, see the Bills.com resources Collection Laws & Exemptions by State and Statute of Limitations on Debt.

In most states, a creditor that has extended credit to you secured by your home must still file a lawsuit against you to force you from the property. Since only one year has passed since the date of default, it is unlikely that the statute of limitations has passed, and therefore the creditor could potentially file a lawsuit to foreclose on your property. Given the complexity of this situation, I highly encourage you to consult with an attorney as soon as possible to find out what action the creditor may take against your under your state’s laws, and what recourse is available to you.

Just because a loan is secured on your home does not necessarily mean that the creditor will attempt to foreclose on the property. Home equity lenders and second mortgage holders frequently choose to pursue a standard lawsuit to obtain a money judgment rather than proceeding with foreclosure action. These types of loans are considered “junior encumbrances” to your first mortgage, and in order to foreclose, these lenders are required to pay your first mortgage off before auctioning the property. Depending on the amount of your first mortgage and the amount that the lender can obtain for the property at auction, this type of foreclosure can actually cause a home equity or second mortgage lender to lose money.

Since more than a year has passed and the lender has taken no action to foreclose on the property, I would be surprised if the creditor attempts to proceed with foreclosure. However, as I mentioned previously, I highly encourage you to consult with an attorney to discuss the situation and your options. Even if the creditor does not foreclose, if they sued you and obtained a judgment against you, the creditor may be able to garnish your wages, levy your bank accounts, or attempt to seize other property you own. As you can see, the consequences of a lawsuit can be quite serious, even if the lawsuit does not result in foreclosure, so I would encourage you to take steps to resolve this debt as quickly as possible. You may want to set up a payment arrangement with the creditor, or you may even want to consider filing for bankruptcy protection. Again, these are options you will need to discuss with your attorney to determine which possible solution is the best for your situation. For more information about bankruptcy, I encourage you to visit the Bills.com Bankruptcy Information Page.

If you would like to read more about foreclosure action, and for options available to consumers facing foreclosure, you should visit our Foreclosure Resource Page.

I hope this information helps you Find. Learn & Save.

Best,

Bill

Bills.com

77 Comments

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  • 35x35
    Apr, 2013
    carol
    We short-sold our primary home in Feb 2010. Since then we have received phone calls regarding our second line of credit that was in default at the time of short sale. Our last payment for our HELOC was in Oct of 2009, making our SOL expiration Nov 2013. We recently received a letter saying that if we pay 20% of our last HELOC balance ~$20k, the bank would report this debt paid in full for less than full balance. Should we take the offer? Will speaking with the bank now reset the clock on the SOL?
    0 Votes

    • 35x35
      Apr, 2013
      Bill
      There may be several relevant facts not mentioned in your message that would change an analysis of your situation. The most important are what, if any, promises you made to the HELOC lender in the February 2010 short sale. In the short sales I've seen, all lenders have their say in the short sale. It would amaze me to learn you were able to short-sell the home without promising a payment plan to the HELOC lender. If my assumption is correct, then the HELOC lender will argue to a court, probably successfully, that the statute of limitations on the HELOC starts not in October 2009 when you stopped making the payments, but sometime after February 2010. Consult with a lawyer who has experience negotiating with mortgage lenders to learn what your liabilities are under the short-sale deal you signed, and when the statute of limitations clock started for the HELOC. On to your question about accepting the settlement offer.

      Bills.com readers have reported to us that junior mortgage lenders are accepting near-zero to 15 cents on the dollar to settle deficiency balances on foreclosures and short sales. Therefore, the lender's offer of 20 cents on the dollar is not a great deal, but it's a fair start to a negotiation. Negotiations will not restart a statute of limitations clock. Any lender who claims such is being untruthful.

      You indicated you reside in California. For the benefit of other California readers, the California legislature changed the anti-deficiency law for short sales in mid-2011 to outlaw the collection of deficiency balances on both senior and junior home loans. See the Bills.com resource California Short Sale & Deficiency Balance to learn more.
      0 Votes

  • 35x35
    Nov, 2011
    I live in California. I own a house in New Mexico that is worth about 125K I owe 149K. I got in on an 80/20Heloc. The HELOC is 28K that just started it's repayment plan. (I had no idea thanks to mortgage idiot) If I default on the HELOC can they put a lien on my property here in California? What to do?
    0 Votes

    • 35x35
      Nov, 2011
      Bill
      Keep paying the loan. If you wish to keep your refinancing options open for your first mortgage under the new HARP program, then you must be current on your payments. Bills.com has updated information on the HARP 2.0 program. If you qualify, then you may be able to lower you payments on the first mortgage.

      I am not sure what you mean by "the repayment just started now". Were you making interest only payments? If the payment schedule in not manageable then you should speak to the lender and see if you can negotiate a loan modification. The more that you convince the lender that you are facing financial hardship, the more likely you will be able to negotiate a change in the loan payments.

      If you default on the loan then the lender will have the option to foreclose on the property and pursue any deficiency balance. This can mean that the lender can seek a court judgment and, if it obtains the judgment, place a lien on your property in California, along with taking other actions to collect on the debt, such as garnishing wages and levying bank accounts. New Mexico does have a deficiency recovery restriction in low-income cases, Check with a lawyer to see if that is applicable to your case.
      0 Votes

  • 35x35
    Nov, 2011
    JC
    I have a HELOC that is delinquent in MN. Can the bank garnish my wages as opposed to trying to buy the first mortgage and then foreclose?
    0 Votes

    • 35x35
      Nov, 2011
      Bill
      A HELOC is a form of mortgage. Here, it is a junior or second mortgage. A junior mortgagee may foreclose. See the Bills.com resource Second Mortgage Foreclosure for a discussion of this issue.

      If a lender forecloses, which results in a deficiency balance, the lender can sue the borrower unless an anti-deficiency law prevents the lender from doing so. If the lender sues the borrower and wins, it can use the resulting judgment to collect the debt. See the links I just mentioned to learn more about each of these subjects.
      0 Votes

  • 35x35
    Aug, 2011
    loretta
    I brought a home with cash money in 1989 with my first husband. I later got married again to my second husband , and we took out a loan with a credit union in 1998, in which they say it was a mortgage.before I took this loan out I had a secured loan with a bank in which I received a mortgage satisfy letter. I did a title search in 2008 ,and my 1st husband was still listed on the title. He didn't pass away until 2000. I filed bankrutcy in 2005 and I received a discharge from this debt. I was not told to reaffirm this debt.I continue to pay but I later felt that I shouldn't be paying this loan and it also was affirmed by the probate secretary. I stop paying for about a year, and the credit union ask me to move out. I did a year ago, but the house is still there not being occupied by anyone. now the credit union name was not on my deed or title. yes they did have a mortgage recorded at the court house, but it was for a different amount and different terms. several years this was not on my credit that I had a mortgage, but when they faulty foreclose on my home it came on my credit report. I had this investigated by the credit bureau, just a few months ago, and now the mortgage was taken off of my credit report, also this mortgage loan they they claim me and my second husband had, never showed on his credit report to this day. please tell me if this was a mortgage or loan that was discharge in my chpt 7 bankruptcy.my husband was not included in my bankruptcy. but he had filed bankruptcy several years prior to me filing. please comment.Thanks in advance!!!:)
    0 Votes

    • 35x35
      Aug, 2011
      Bill
      Loretta, your set of facts is so complicated that you need to speak with a lawyer to get a proper answer. Start by speaking with the lawyer that assisted you in your bankruptcy filing.
      0 Votes

  • 35x35
    Jul, 2011
    Doug
    Hi Bill, my Chapter 7 bankruptcy was finalized in December 2010 and I'm currently in my third month of trial modification for my primary mortgage through Chase. However, I am currently 3 months in default with my HELOC through Wells Fargo. I am now able to resume payments again on my HELOC but Wells Fargo has already deemed my account non-active and closed it. What actions can Wells Fargo take and will this default jeopardize my potential permanent modification through Chase?
    0 Votes

    • 35x35
      Jul, 2011
      Bill
      A HELOC is a form of second mortgage. Please see the Bills.com resource Second Mortgage Foreclosure, and in particular the reader comments, to learn more about which options are at Wells Fargo's disposal. Whether Chase decides to change course because of your delinquent HELOC is up to Chase.
      0 Votes

  • 35x35
    Jun, 2011
    Tam
    We have our primary residence in AZ and another home in WA with a home equity line of credit. The home has a balance of $114k and line of credit $65k. We've looked into selling but have been told the home is currently only worth $150k. This amount would pay off the primary loan but not enough for the line of credit. We are looking at foreclosure and need to know if the line of credit lender can come after us or other home in AZ. Any input?
    0 Votes

  • 35x35
    Jun, 2011
    Dan
    Dear Bill - I am going through foreclosure of a property in Minnesota and I also have a home equity line of credit. I am a British national and have moved back to the UK. I don't expect the auction to raise enough capital to pay off both lines of credit. What is the likely outcome, given that I am now in the UK? Can I be pursued for any outstanding balances?
    0 Votes

  • 35x35
    Jun, 2011
    Shane
    Lets start with i owned 3 homes in California when i lost work and moved to Ohio. After struggling to make the payments, I tried and after almost 2 years sold my largest and most expense home at short sale. Needles to say i had a personal friend who owed me a large sum of money file bankruptcy, and the house i sold at short sale hit me with a deficiency judgement, i am forced to file bankruptcy. I would like to keep the other two homes i own in CA but my bankruptcy lawyer says i can if the rents dont equal the payments, which they dont, but not by much and in 25 years i will own them free and clear. The one home is with B of A and is worth about 200k with a first of 260k and the second of 60k. This home is 4 months behind and B of A hasnt done anything besides threaten foreclosure (it was an 80/15/5 with the second a heloc at time of close). My other home is what i really have a question about. This was my first house with an original first of about 165k and a second (HELOC) of 170k. Homes value is 160k. My first is with Guild and second is with Wells Fargo, formally a Wachovia loan. First is current and second is 4 months behind. Tried to do modification but first wont so second wont. Since i am going to file bankruptcy, can i wait for the second to charge this loan off then include it in the bankruptcy? Will i only owe on the first then? Will they still hold title? Can i then just reaffirm the first. I have asked my BK lawyer these questions.. ( i have seen 4 and this one the fifth, seems to be most knowledgeable but living in Ohio, shes is not sure how the home in CA will be treated and she says its sometimes up to the judge and his mood that day). Would it be better for the BK to just short sale these to homes also. Thanks, Shane
    0 Votes

    • 35x35
      Jun, 2011
      Bill
      Without knowing more about your intentions and the locations of the properties, it is difficult for me to offer an observation about your overall strategy. If the two properties are located in the central valley or Sacramento where home values continue to fall, then I would abandon the properties and allow a short sale or foreclosure immediately. If the properties are along the coast or the mountains where values have been a bit more stable, then you may see a recovery in the medium term (say, 10 years).

      I realize you asked legal questions and I gave you an economic answer, but you mentioned you already received four answers from what I assume are four Ohio bankruptcy lawyers, who probably do not know anything about California's housing markets. Were it me, I would stop the bleeding.
      0 Votes

  • 35x35
    Jun, 2011
    Margaret
    We have our first mortgage of 200k, and an equity line through the same bank for 180k of which we have borrowed 120k. We are now at the point that foreclosure is on the near horizon. We are still current on all payments. My husband wants to pull the remaining 60k out of the equity line before everything is frozen. We can use this to pay our bills and hope for a reversal of fortune in the coming year. My question is, can we give any of that 60k to our adult son to purchase a place of his own? Could the bank come after him for the money if the mortgage and equity line ultimately fall into arrears and foreclosure?
    0 Votes

    • 35x35
      Jun, 2011
      Bill
      Under common law, I lack the imagination to think of a legal means for the lender to make a claim against the recipient of a gift from a borrower. However, if the borrower does what you described and soon after files for bankruptcy, the bankruptcy trustee can unwind the gift. Consult with a lawyer in your state who can research your state's case law to learn if there is any court-made law on this issue.
      0 Votes

  • 35x35
    May, 2011
    T G
    Bill, I own a home in Fl appraised @ 142,000.00 with no first mortgage BUT I have a HELOC for 136,000.00 which I have paid every month for 2 1/2 years without missing a payment. I am not able to pay my property taxes for 2010 (2800.00) and the holder of the HELOC was notified of the non-payment. Per the terms of my agreement I am obligated to pay all property taxes and the HELOC Holder has sent me a letter stating such. I fully intend to pay these Taxes but need a little more time. What options do I have with the HELOC Holder and will they foreclose? Thanks
    0 Votes

    • 35x35
      May, 2011
      Bill
      There is not a one-size-fits-most answer to your questions, because your lender can choose how it wishes to react. I think the best course of action is to discuss with your lender how quickly you reasonably can catch up on the back taxes and see how they will react. If they threaten foreclosure, consult with an attorney.
      0 Votes

  • 35x35
    May, 2011
    Brian
    My wife and I had to claim bankruptcy because my wife had stage 3c breast cancer, my daughter had an autoimmune disease, and I lost my job because we were downsized, so the medical bills killed us. If I have already completed a Chapter 7 BK and all debt was forgiven, what will happen if I stop paying my HELOC (CA)? The 1st was $420k (house is now worth $325k) and the second is about $20k. Since the second mortgagee will not gain anything from foreclosing (since the house is about $100k underwater), would they still attempt to? Since the debt was forgiven, we are trying to just keep paying our mortgage to the 1st mortgagee and stay in the house by basically paying "rent". But if we can stop paying the HELOC it would be of great help. Thank you for any info.
    0 Votes

    • 35x35
      May, 2011
      Bill
      My answer assumes the Chapter 7 extinguished your personal liability for the two deeds of trust, and you never signed a document to reinstate your personal liability for the two loans.

      You central question is, "Will the junior foreclose if I stop paying it?" Really, who knows? The mortgage servicers are still overwhelmed and are not making what outsiders would consider reasonable and financially sound decisions. It would be foolhardy for me to say, "Of course the junior would never foreclose because there is a negative financial outcome if it does so!"

      If you cannot afford both payments, consider stop paying the junior and start saving every penny you have. In six months or so, open negotiations with the servicer for the junior (or whoever owns the collection account at that time) and explain that you would like to settle the debt. Offer it 10 cents on the dollar, and take the negotiations from there. Be advised that if the mortgage servicer sells the debt, it will most likely sell it for pennies on the dollar, so even though you legally owe the face value of the debt, the person you negotiate with will make a profit on a settlement for less.
      0 Votes

    • 35x35
      May, 2011
      Sher
      Our situation is similar to the story in this link about a couple in Iowa who had their loan discharged http://realestate.aol.com/2011/03/22/couple-owns-home-after-one-payment-due-to-foreclosure-glitch/ Essentially the couple got their loan cancelled because the lender only got one spouse to sign papers. My spouse and I live in NC. We had a 1st mortgage of 130,000 (now owing 120,000)signed by both of us through Countrywide that started in 2001. Countrywide called every day for months after that asking us to do an equity line. We had great credit at the time. We decided to do the equity loan(Heloc)in 2002 and qualified for 40,000 (now balance is 30,000). We were naive and didn't know the full details of loan (not very smart looking back) and arranged to meet a hired agent contracted by Countrywide at our local McDonalds. They would only allow my husband to sign the papers even though my name is on 1st mortgage along with his. He was rushed through the signing. After a couple of years I lost my job due to several health issues and we have had trouble paying both mortgages since. We are current on our first mortgage but behind on our Heloc. We pay some every month but they keep sending letters saying we are in default and they can foreclose at any time they see fit. Bank of America now holds both loans since they took over Countrywide. My question is can we assume they can't foreclose on the Heloc since my husband is the only one who signed that loan? According to the link I included, we have a similar situation to the couple in Iowa and in NC we could claim the homestead law and say that the Heloc isn't valid due to my not signing the loan. If we were to not be able to pay any more on the Heloc could they find a reason to foreclose on the first mortgage just because they want to? Thank you for any input.
      0 Votes

    • 35x35
      May, 2011
      Bill
      Consult with a lawyer in your state who has experience in real property law. I commend your creative thinking, but I read North Carolina's homestead law to not apply to home improvement loans, which HELOCs often (but certainly not always) are. That said, a North Carolina lawyer will be able to interview you in person, review the HELOC contract first-hand, and research North Carolina's homestead law more extensively than my cursory read.
      0 Votes

  • 35x35
    May, 2011
    Jake
    I live in CA and have a home loan with a balance of $170,000 through First Mortgage. I also have a Home Equity Loan in the amount of $130,000 through Bank of America. If I short sale, deed in lieu, or forclose does the HELOC get taken care of or will I still be responsible for that loan. FYI my home is worth around $180,000. Thanks for the help!
    0 Votes

    • 35x35
      May, 2011
      Bill
      Let us say your home sold tomorrow for $180,000 in a California Short Sale. You would pay off the entire first ($170,000) leaving $10,000 to pay for the second (the HELOC). The remaining balance on the HELOC would be $120,000, which you would have personal liability for. Click on the hyperlink I just mentioned to learn more.
      0 Votes

    • 35x35
      May, 2011
      Jake
      So the only way to get rid of the HELOC would be to file for bankruptcy correct? The HELOC would be what you call a recourse loan correct? FYI the HELOC was started 2 years after I purchased the home. Thanks again!
      0 Votes

    • 35x35
      May, 2011
      Bill
      You have several options to resolve the deficiency balance, and one is bankruptcy. A better option is to negotiate a settlement for the deficiency balance on the HELOC. Let us say for the sake of argument you are not wealthy. Start negotiating with the HELOC servicer. As part of the negotiations, send a summary of your personal finance balance sheet. Explain that you can either settle the debt for X cents of the dollar, or you will file for Chapter 7 bankruptcy, in which the servicer will see zero. A smart servicer will settle to avoid the debtor filing for bankruptcy.
      0 Votes

  • 35x35
    Nov, 2010
    Jennifer
    Hi Bill, I hope you can assist me. My husband and I inherited my mother-in-law's townhouse after she passed. We were able to assume the primary mortgage and it is now in our name. My mother-in-law took out an equity LOC on the property some time before she passed. Unlike the primary mortgage, it is not a loan we can assume into our names, our only option would be to apply for a new loan, which is not something we can do credit-wise at this point. What would happen if we stopped paying it? Its not in our name and the primary mortgage is not in her name anymore, its in ours. Can the LOC company forclose on a property no longer owned by the LOC loanee? Any input would be greatly appreciated. Thanks!
    0 Votes

    • 35x35
      Nov, 2010
      Bill
      The note and mortgage run with the land. The fact that the title of the property changed from a parent to you does not strip a junior mortgage from the property. See the Bills.com resource Second Mortgage Foreclosure to learn more. Ask any follow-up questions you may have on that page.
      0 Votes

    • 35x35
      Feb, 2011
      Carl
      Bill, When I graduated college, i thought I was doing the "right" thing and bought a condo instead of renting. I was talked into an 80/20 mortgage with rates around 8.5%. Two years later I refinanced the 1st and 2nd mortgage with a HELOC at 6.5%. The rate was cheaper, it lowered my monthly payment. Needless to say, I got married, had a child, changed jobs, and bought another house out neccesity. I had the condo for sale for over a year and no action. Its now worth about 40%-50% of what I owe on it. The HELOC is the only mortgage on that property. I have the unit rented but taxes and mx fees have nearly doubled in the last 5 years. Thinking about walking away. 1) can they put a lien on my primary home? 2) will i be responsible for the 70K difference in what I owe? 3) what if I stop making payments on the mx fees or the taxes? will they come after me?
      0 Votes

    • 35x35
      Feb, 2011
      Bill
      In general, you are considering what is called strategic default. Your questions are ones fellow Bills.com readers have asked. Rather than give you abbreviated answers, allow me to direct you to the following Bills.com resources:
      1. You mentioned a lien on your home. That is possible if the lender files a lawsuit against you and your state laws allow a judgment-creditor to file a lien on a judgment-debtor's property. See the Bills.com resource Consequences of Foreclosure.
      2. You mentioned owing $70,000. I assume this is a deficiency balance, which is the difference between the market value of the property minus the balance of the loan.
      3. Delinquent HOA dues, maintenance fees, and property taxes can become liens on a property. However, you may have signed a contract with your HOA that gives you personal liability for delinquent fees. Review your HOA contract to learn your rights and liabilities.

      See the Bills.com resource Foreclosure and Bankruptcy to read an answer to a reader who had a similar question about foreclosure on an investment property.

      0 Votes

  • 35x35
    Mar, 2010
    Bill
    Generally speaking, if a secured creditor forecloses and there is a sale of the security, the creditor foreclosing takes the balance due on the debt, leaving any remainder for other secured creditors. If there is nothing remaining, the debt becomes unsecured and becomes a liability of the debtor. In states I have studied, that is true for foreclosures related to tax debt, but I caution you to consult with an attorney in your state to make sure the general rule applies in your state and circumstances.
    0 Votes

  • 35x35
    Mar, 2010
    S.
    If a property is sold in a tax foreclosure sale, are all other mortgages against the property wiped out? Do oustanding amounts remain payable to the bank even though the property has been sold? I think in a regular foreclosure sale the mortgage is attached to the property, not the owner, so the new owner could be foreclosed on if the original foreclosure sale didn't cover the amounts owed? Does the bank have claims to both owners now - for any deficiency amount from the old owner and a secured claim on the property from the new owner? What about judgement holders? Do they have a claim to the foreclosure proceeds (regular foreclosure or tax foreclosure)even if their judgements had nothing to do with the property sold?
    0 Votes

  • 35x35
    Mar, 2010
    Todd
    Hi Bill. I have a $130,000 home equity line of credit on my house. It is a first morgage and there are no other leins on the property. I rent this house now and I have purchased another home. Can I foreclose or shortsale the house and be free of it? Will the Bank of America come after me for what I owe? This is in Michigan. I owe $128,000 and it is now only worth about $75,000. I don't want the home anymore. I need to get my ex-wife's name off somehow. I can't refinance because its so upside down. It is not assumable either. The judge ordered me to get her name of through refinancing, but I can't. My ex is ok with the shortsale. Neither of us want or need the home. Thanks.
    0 Votes

  • 35x35
    Mar, 2010
    Bill
    I cannot summarize the pros and cons of short sales in this space. See the Bills.com resource Deed In Lieu Of Foreclosure vs. Short Sale to learn more. See also Consequences of Foreclosure and Need to Remove Your Name From a Joint Mortgage.
    0 Votes

  • 35x35
    Mar, 2010
    Bill
    Consult with an attorney in Arizona who has experience in bankruptcy. I am not saying that bankruptcy is your only option, but a bankruptcy attorney will be able to discuss all of your options with you, including whether you or your spouse are considered "judgment proof."
    0 Votes

  • 35x35
    Mar, 2010
    Rebecca
    Hi Bill~ My husband and I live in Arizona and we have been trying to sell our home sence June of 2008.We are facing forclosure with BOA 732,000.00 on the first and Wells Fargo HELOC 150,000.00.Orginally BOA agreed to our short sale offer of 500,000.00 and Wells fargo agreed to 7000.00 from the short sale and 1000.00 from us.However, because the banks took so long to work together the buyer at the last minute walked away. my question to you is now that I have a May 21,2010 trustee sale with BOA, Wells Fargo just this week filed a law suit against us for the 150,000.00 line of credit.How can We fight this,how should I respond to them and do you think they will still take the 8000.00 offer they agreed to take from the short sale? Our only source of income comes from the VA and SSI.My husband is a 100% disabled veteran that is on the Portland liver transplant list.please help!!
    0 Votes

  • 35x35
    Mar, 2010
    Bill
    If such a chart exists I would love to see it. Readers, if you know of one please let me know!
    0 Votes

  • 35x35
    Mar, 2010
    DecentHuman
    At what % is Wells Fargo likely to settle on a HELOC? It was just charged off, the 1st is in foreclosure and has motioned for summary judgment, and I informed Wells I'm filing ch 7 bankruptcy and sent them a copy of my paid agreement with a bk attorney. Is there a chart somewhere to see what the various banks are settling HELOCs at? Thanks.
    0 Votes

  • 35x35
    Mar, 2010
    Stephanie
    thank you so much for taking the time to get back to me. i like your suggestions from the link provided and will look into those options further. stress is definitely getting the better of me right now! fyi - LOC is unsecured. thanks again Bill.
    0 Votes

  • 35x35
    Mar, 2010
    Bill
    It is unclear to me if the LOC you referred to is a second mortgage, although you stated it is not a HELOC. If the Wells Fargo LOC is a species of second mortgage, I really, really dislike your idea because you are converting your unsecured debt into secured debt and consequently putting your home at risk of foreclosure. If the Wells Fargo LOC is not a second then I still dislike your idea because all you are doing is shuffling around your debt to one account that you plan to default on. "Letting go" of the account will not make the debt disappear. You need a better plan. See What Are My Debt Consolidation Options? to learn more.
    0 Votes

  • 35x35
    Feb, 2010
    Stephanie
    Hi Bill. I have $58k in debt with 4 accounts. I am thinking about letting my Wells Fargo LOC at 13% go (not a HELOC.) Current Balance is $18k and limit is $30k. Was thinking about taking out the remaining $12k available and then letting the account charge off. That will leave me with $40k in debt (3 accts, 2 at 10.9% and 1 at 5.5% all 3 with the same Credit Union), I'd use the $12k to pay that down so I will be left with $28k which I can chip away at a lot easier than the $58k that I can't seem to make a dent in. I'd like to know what the repurcussions would be and if WF could come after me and how would it affect my credit and for how long (no current derogs but the other 3 accounts are maxed) What do you think I should do? I bought my home 1yr ago (currently upside down...I live in FL)and don't plan on applying for credit for anything within the next few years. Thank you for taking the time to offer your advise!
    0 Votes

  • 35x35
    Feb, 2010
    Bill
    Ignoring the law for a moment, their reluctance to execute the contract makes no economic sense. By definition, as short sellers they are in economic distress in danger of default, which will result in foreclosure. In a Florida foreclosure, they will be responsible for the deficiency balance. In this short sale (if you are correct about the contract terms) they will not be responsible for a deficiency judgment. The reluctance to execute the agreement springs from fear of the unknown. The seller needs to bring the contract to an attorney in Florida who has experience in contract law. The attorney will review the contract with the seller line by line and explain his or her rights and liabilities. In particular, they need to review the section of the contract that concerns the deficiency balance.
    0 Votes

  • 35x35
    Feb, 2010
    Bill
    I am a Florida broker working on a bank approved short sale, representing the buyers. The seller, after signing the FAR BAR, Short Sale Addendum and the Lender's Approval, decided on the day of closing NOT to sign. They have now said they have a fear of the bank perusing future savings for their child's college fund (Do not currently exist). Despite this being their primary residence and the bank clearly stated in signed Approval Letter that the Promissory Note would be for $0. What information is available that can help them feel comfortable with the completion of the short sale. Thank you so much for any help you can provide.
    0 Votes

  • 35x35
    Feb, 2010
    Bill
    Generally speaking, 401(k), IRA, and other retirement accounts may not be levied. Talk to the first mortgage holders about a short sale or deed in lieu of foreclosure.
    0 Votes

  • 35x35
    Feb, 2010
    PAUL
    We have a 650k first with BOA and 250k second with WF. Our 1.4 million dollar home is no worth 700k. We are current on everything thanks to savings, both unemployed now, and running out of savings. Still have approx 75k in retirement and a 2nd home that is also upside down. Our wells Fargo is a secured loan yet we live in Hawaii. If we foreclose, can they come after our 401k for the second, we still have about $40,000 cash to live off of. It really isn't a matter of if, its just a matter of when we run out of funds.
    0 Votes

  • 35x35
    Feb, 2010
    Bill
    To the best of my knowledge Florida does not have an anti-deficiency statute. Please see Florida §702.06 Deficiency decree; common-law suit to recover deficiency to read the statute. You are liable if there is a foreclosure and there is a deficiency balance. Regarding a short-sale, whether you are liable for the deficiency is dependent on the contract you sign with the creditor (the bank servicing the mortgage) for the short sale. Some short sales contain terms that forgive the deficiency, and others do not. Ask a Florida attorney to review the short sale contract and ask him or her to explain its terms to you before you sign the contract.
    0 Votes

  • 35x35
    Feb, 2010
    K.C.
    I bought a rental property in 2006 in FL. I have a 1st ($240,000). As the property does not rent well, we have used our savings trying to keep it going. We are attempting to short sale, however, if we do receive an offer (may be $150's) it will surely not cover the debt. I briefly heard that FL may be a debt forgiveness state. If so,how would this apply to our 1st? The loan is secured by the rental property only. Will I be liable for the balance on the loan? How about foreclosure in FL if it does not short sale? We live and own a home & 2 other rentals in California. Thank you so much for your time.
    0 Votes

  • 35x35
    Feb, 2010
    Bill
    It appears your family member has three issues: 1) A HELOC he is not paying. He faces foreclosure on this debt if this issue is unresolved, 2) Delinquent tax payments. The IRS can place a levy or garnishment on your family member or his business if he does not pay his taxes, 3) I surmise he has a problematic business venture that may be causing financial distress. Suggest your family member consult with an attorney in your state who has experience in taxes or forming corporations. A financial adviser will not have the skill-set or training required to handle any of the three issues I mentioned.
    0 Votes

  • 35x35
    Feb, 2010
    dina
    My family member currently owes approximately $340K on a HELOC. He is unable to pay the bank, taxes, etc. We are not sure which course of action to take since he also owns a business. Bankruptcy may not be the best choice, but we are considering foreclosure. What kind of attorney or legal advice should we seek. Bankruptcy lawyer, financial advisor, ??
    0 Votes

  • 35x35
    Jan, 2010
    Bill
    California is a community property state, and this answer applies to community property states only. When did you acquire the mortgages? If you acquired the property or refinanced before marriage the debt may be considered your separate property. However, most debts incurred by either spouse during the marriage are owed by the community (the couple), even if only one spouse signed the paperwork for a debt. Your HELOC may be a non-recourse debt. See Is My HELOC a Recourse or Non-Recourse Loan in California? for more details.
    0 Votes

  • 35x35
    Jan, 2010
    Anna
    I'm facing foreclosure on my house in CA , owe 680k on 1st mortgage and 150k on HELOC. The property is just under my name and the loans are also under my name, can the bank that I have HELOC with come after my spouse's assets.
    0 Votes

  • 35x35
    Jan, 2010
    Bill
    I am not clear on the details of your situation. It is not clear whether the HELOC is secured against the town home or another property. That said, I can not provide you any advice. However, I wrote an article discussing this topic in detail. Please read A Deed In Lieu Of Foreclosure vs. A Short Sale.
    0 Votes

  • 35x35
    Jan, 2010
    Sam
    I have recently moved from a townhouse that is being financed by a HELOC - $183,000 - and moved into a home that is on a 30 year fixed mortgage - $225,000, the townhouse property value has dropped to $150,000. I was unable to attempt to sell the townhouse because I could not afford the loss and recently found out that I have to wait before I would be able to rent it out as a rental property due to HOA restrictions. If I cannot afford the payments on the townhouse anymore, being that is 100% financed with a HELOC, is a short sale or foreclosure an option? I do not know if it would be looked at the same way as a mortgage. I have the HELOC and mortgage company with the same lender WF.
    0 Votes

  • 35x35
    Dec, 2009
    Bill
    I recommend that you read an article I wrote which discusses the differences between A Deed In Lieu Of Foreclosure vs. A Short Sale. Filing a chapter 7 bankruptcy does not necessarily mean you will be able to obtain a loan modification. Please read Bankruptcy Advice to Help Avoid Bankruptcy. If you are considering bankruptcy I suggest you speak with a licensed bankruptcy attorney in your state.
    0 Votes

  • 35x35
    Dec, 2009
    Kevin
    Hi Bill. Thanks for taking my question. Almost underwater with my opt arm loan for 680k heloc for 74k tryng just to keep up with the min payment. Now very difficult because wife wants divorce. I cannot afford to continue to make payment along with child support,spousal support and a place for me to live. Am I better of filing ch 7 trying to get a loan mod or short sale? If a ch7 which my credit is stellar, how far will it be destroyed like my life right now. How long will it take before it comes back to good standing. Any help would be grateful.
    0 Votes

  • 35x35
    Jul, 2009
    Bill
    People recover from bankruptcy. A family member of mine filed for bankruptcy in the mid-1990s, and less than five years later bought a house and then got a student loan. This may not be typical for everyone but with discipline, hard work and smart use of credit people rebuild their FICO scores and lead normal lives. I am not suggesting that bankruptcy is your only option (it isn't) but it wouldn't hurt to learn more about the types of bankruptcy. Regarding the short sale, it's by definition that the first mortgage company forgives the deficiency balance. Any balance on the second mortgage is unsecured debt. However, a second mortgage may or may not be considered a "recourse loan." You need to learn more about the consequences of default on a second mortgage and California recourse loans. Finally, look into the Home Affordable Refinance Program for your primary residence.
    0 Votes

  • 35x35
    Jul, 2009
    Joy
    My husband and I just short-saled our primary home and in the process of short selling our last investment property. Needless to say, the market in California (our primary home) and our Arizona properties resulted in negative cash flow, so we used the equity we had in our primary home (about $117k) to keep us afloat with 3 investment properties and our home. We eventually sold one with a huge loss, and the second we short-saled and the 3rd is in the process now of being foreclosed, though we have had 4 buyers and 2 cash buyers that eventually walked away from the deal because the bank was so slow to approve the sale. We were responsible, never late, never had foreclosures or bankruptcies or delinquencies. We even used our 401k and took some out thinking we could reduce our monthly payments, and paid off most of our credit cards (about $60k). These credit card companies immediately closed down our accounts or lowered the limit. Our Amex went from $16k limit to $2k as an example. Advanta just closed the card down without explanation after we paid it off. Then in December, my husband gets laid off. When our primary home was short-saled, our 2nd sent us a promissary note. Is this now an unsecured debt? Is bankruptcy our last recourse? As far as we can see, we have nothing to lose now. Even when we were responsible and paid everything in time or paid off our debts, we had absolutely no line of credit! Now that my husband has been laid off, we don't see how we can even manage. He is our sole income. And we were doing well with his executive salary. Now, we can't even qualify for a student loan for our daughter because of last year's income. And yet, we can't pay for her college or get a private loan to help her. Please explain to me the type of bankruptcy we should consider, what debts will be erased, and how will that affect our credit, or ability to "fix our credit" in the future, and are we be able to buy a home again in the future?
    0 Votes

  • 35x35
    May, 2009
    Bill
    That will depend on the criteria that Wells fargo has set forth, for loan modifications. There is no way for us to guess what the outcome will be or how open they will be for this option. You should also try to see if you qualify for a modification based on the new plan announced by President Obama; you can check it here: http://www.makinghomeaffordable.gov/
    0 Votes

  • 35x35
    May, 2009
    dave
    I am currently unemployeed. My house value has decreased below what I owe. I have a 1st for $234,000 and a HELOC for $67,000. Both are with Wells Fargo. How willing will Wells Fargo be if I utilize a "short sale" to get out of both loans? Help in Fresno
    0 Votes

  • 35x35
    Apr, 2009
    AB
    I bought our primary house in WA state in 2006 with 332K first mortgage from USBank and 83K HELOAN from WellsFargo. We currently owe 72K on the HELOAN. My wife lost her job and I may also lose my job in a few weeks. If that happens, we will not be abble to keep our house and will let them forclose. We currently owe a total of 403K (331K first and 72K HELOAN) and our house is worth about 365K(zillow). We can not sell because of the difference and the commissions. I'm not sure what my options are and what assets they can come after after foreclosure. We have about 15K in savings(both my and wife's), 15K in stocks and 8K in 401Ks for both of us. any guidance is appreciated. We did not refinance and not taken any money out. We made extra payments in the amount of $10K in the last 2 years when times were good.
    0 Votes

  • 35x35
    Apr, 2009
    Bill
    You still have several options. You need to call the lender and have a frank discussion with them about your situation. The 2 options that come to mind is a short sale and a Deed in Lieu of foreclosure. You can easily research more about these options online. You can also see if you qualify for a refinance as per the new plan announced by President Obama, you can visit this link to find out: http://www.financialstability.gov/makinghomeaffordable/refinance_eligibility.html
    0 Votes

  • 35x35
    Apr, 2009
    Sam
    Thanks for visiting Bills.com, Shannon. From what I know of Tennessee foreclosure law, mortgage companies and other secured lenders can pursue borrowers for the collection of deficiency balances. If your vacation/rental property sells for less than your mortgage and other secured obligations, the lenders would likely have the legal ability to sue you for the portion of the debt not paid with sale proceeds. Thankfully for you, many mortgage companies have become much less aggressive about collecting deficiency balances since the economy took a turn for the worse. I strongly encourage you consult with an attorney licensed in Tennessee to discuss the problems you are having with your property; he should be able to tell you what problems may arise out of the short sale and what steps you can take to mitigate them. I wish you the best of luck.
    0 Votes

  • 35x35
    Mar, 2009
    Shannon
    My husband and I bought an resort rental property in 2006 in Tennessee. We have a 1st ($255,000) and an equity line ($35,000). As the property does not rent well, we have depleted our savings trying to keep it going. We are attempting to short sale, however, if we do receive an offer (may be 190's to low 200's) it will surely not cover both debts. I briefly heard that Tenn may be a debt forgiveness state. If so,how would this apply to our 1st and equity? Both loans are secured by the rental property only. Will we be liable for the balance on either loan? How about foreclosure in Tenn if it does not short sale? We live and own a home in California. Thank you so much for your time.
    0 Votes

  • 35x35
    Feb, 2009
    Sam
    If you took borrowed against the equity line on your FL home to pay off your GA home, then defaulted on the FL mortgage and home equity line, the creditor(s) holding your mortgage and equity lines in FL could sue you for defaulting on the loan agreements. If the FL creditors obtain judgments against you in FL, they could then move the courts in GA to domesticate the FL judgment, making it enforceable in GA. Once the judgment is domesticated in GA, the creditors could possibly move to force the sale of your home and other assets, as well as garnish your wages, freeze your bank accounts, etc. While it is unusual for a creditor to force the sale of a debtor’s home, if the home in GA is paid off, and the creditor knows that you used its money to pay off the loan, the creditor is probably more likely to be aggressive in executing on its judgment. In addition, if you tried to file bankruptcy on the debt, the lender could claim that the debt was incurred fraudulently, since you had no intention of paying it when you borrowed the money; this could cause the debt to be ruled non-dischargeable in bankruptcy. I strongly encourage you to consult with an attorney to discuss the dilemma you are facing with your homes. Your attorney may advise you that it would be better to pay off your FL home, if possible, as the protections for debtors are generally more generous in FL than that are in GA. Your attorney should be able to help you work out the safest and most financially sound solution to this problem. I wish you the best of luck!
    1 Votes

  • 35x35
    Feb, 2009
    Kurt
    Hi Bill, I have a home in Fla that I live in and a second home in GA (both have mortgages). I have a equity line on my Fla. I use the equity line to repair the old home in GA..The company I work for is cutting back and I'm afraid I might loose my job. If that happens I will not be able to cover the mortgages. I owe 108k on the Fla home and 150k on the GA house and about 40K on the equity line. What would happen If I used the balance of my Equity line to pay off the GA home and relocate there) and defaulted on the one in Florida along with the equity line. The Fla home is worth around 300k-320k. Could they come after me?
    0 Votes

  • 35x35
    Dec, 2008
    Bill
    It is almost certain that your second would not come after your other assets, unless you signed a very unusual loan agreement. They can, however, attempt to force a foreclosure process if they think that the remaining equity (after paying off the first) will pay back their loan. Good luck.
    0 Votes

  • 35x35
    Dec, 2008
    lydia
    Dear Bill, I own my home in ca. I have first loan with C.W and Equity source Account with citibank. Iam trying to keep home. I've offered citibank settlment for my second which they rejected. Can 2nd loan come after my other assets or the second is secured by my property only.
    0 Votes

  • 35x35
    Nov, 2008
    Bill
    After the 1st lender finishes the foreclosure proceedings, if there is any money left, it will be given to your second lender. But if the proceeds of the sale were not enough to cover the payment to the 2nd, then yes, they can still come after you for the balance. It is basically an unsecured debt (just like credit cards) and the lender can go after judgments and wage garnishments.
    0 Votes

  • 35x35
    Nov, 2008
    Kevin
    If I go into default on my first and 2nd lien in Illinois can the 2nd lender come after me for the 2nd lien default Let me rephrase this... I know the only recourse to the lender on the 1st lien is to take the home. Is that also true on the 2nd lien or can they come after me at a later date with a judgement or wage attachment or some other form of recourse?
    0 Votes

  • 35x35
    Mar, 2008
    Greg
    I have just completed a chapter 7 bankruptcy. My property is worth 169,000. My first and second equal 265,000. I am still current with my first but I have defaulted on my HELOC. If I stay current with my first how long will it be before the creditor on the second will sue me. The balance on the first is 200,000 and the balance on the HELOC is 65,000.
    5 Votes

  • 35x35
    Mar, 2008
    Bill
    The aware that the lender for your second mortgage can initaite foreclosure proceedings because of the default. The foreclosure process varies from state to state, but generally takes from 2 to 18 months. It all depends on the terms of your loan. However, normally if mortgage payments are not received within 150 days, the bank can proceed with the foreclosure process. The 2nd mortgage would be repaid after the first mortgage is paid in full. In fact, 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.
    0 Votes

  • 35x35
    Apr, 2008
    Bills
    It really depends on their internal policies and your own financial situation (how much you make and what you own {if they skiptrace you and verify your assets and income}. A reasonable 'starting' place is to document your income & expenses and your financial hardship and pitch them a low settlement (25-40% to start). Also, do your research on the cancellation of debt income issue (there is a bunch at Bills.com) because if you are 'insolvent' at the time of settlement you can file a CODI form 982 and you may not be liable for any of your stated 1099 income... but check with your CPA or tax preparation firm. Best.
    0 Votes

  • 35x35
    Apr, 2008
    Alex
    Dear Bill Thank you for the advice. I did call them and they are willing to settle. What is the lowest percentage will they normally accept ? Of course they will 1099 me for the rest.Your input is very appreciated and help me a great deal in my negotiation Take care Alex
    0 Votes

  • 35x35
    Apr, 2008
    Bill
    If the second lender wants to, it can file a lawsuit in court and obtain a judgement against you. Even though what you state in your question might be true, keep in mind that garnishment of the debtor's bank account is the main legal remedy still available to enforce judgments against consumers in Texas. Collection agencies actively utilize investigation and post-judgment discovery to uncover debtor bank accounts (for example, the Equifax SkipFinders program). It is always best to talk to the lender. It might take some work, but if the lender realizes that the available options are limited, there is no reason why they should not work with you towards an amicable settlement on the account.
    0 Votes

  • 35x35
    Apr, 2008
    Alex
    Dear Bill I let go a rental in Fl that I can't hold any more with a big negative . The first has not foreclosed on the house and the second lender is referring the loan to a collection company who just sent me a letter. 1.Will they settle for a lesser amount ( I owe 57K ) 2.I have no asset except my TX home ( which is homestead), my 401-K and my 2 cars ( worth about 30K)and now unemployed.What can they do to me if they are not willing to settle for less.Can they come and take all my furnitures and cars since they can not touch the house and the 401-K. 3. Am I allowed to keep 2 cars for me and my wife and is there a value limitation?
    0 Votes