I am facing foreclosure in Virginia. Is Virginia a recourse state? What are my alternatives to foreclosure?
I was just approved for a short sale. I am recently divorced and have 2 kids and pay child support. I cannot afford my mortgage and in our divorce decree I have to have my wife's name off of the mortgage. The only way is the Short Sale, was able to show them the financial hardship. I have 2 loans, first one approved the short sale, paid the 2nd lien $12K, owe the 2nd lien a total of $100K. The 2nd lien accepted the $12K but in the approval letter they are not going to release the liability of the balance????? The company we are dealing with does a ton of short sales a month and they cannot get them to release this liability. In the beginning before the short sale I asked both banks to do a modification, they 1st lien agreed and came down and agreed to release my ex-wife off the loan, the 2nd loan would not do the modification and would not release her name??? I do not see any benefits now to the short sale, I know they will come after me for the balance and could do a judgment on me and could garnish my wages??? I now think the modification is a better way now? I can tell the judge if my ex-wife decides to take me to court that I tried all means to get her name off the loan, I cannot refinance as the value of my house dropped tremendously. I live in Northern Virginia, it dropped from a value of $500K to $360K -- no option there. I was wondering do you think that since they approved the short sale and the 2nd lien will go after me for the $89K, do you think they will be willing to talk to me again about modifying the loan. I have not told the banks yet that we are not going to do the short sale. I will not do a foreclosure and want to stay away from bankruptcy. Do you think they will say no to the modification and foreclose on my house. I would think they would want to do the modification instead of losing everything?
If I understand your facts correctly, your options are:
- Mortgage modification, which would not release your ex-spouse from the mortgage and thereby defy your divorce agreement.
- Short sale, but the junior mortgagee will not release you from the deficiency balance.
- Foreclosure, but then face a deficiency balance by one or both mortgagees.
What you describe is called a Morton’s Fork, which is the choice between equally unpleasant alternatives.
You may have another alternative in the Home Affordable Foreclosure Alternatives Program (HAFA), which I discuss below. Before I do, let me discuss the issues you face.
Foreclosure is the legal process through which a lender (most typically a mortgage lender) repossesses an asset from the consumer borrower who has defaulted on their mortgage payments. Because foreclosure is expensive and usually results in a poor return, lenders do not like foreclosure any more than homeowners do. Accordingly, I will discuss the HAFA program below, which is a federal program that offers financial incentives to lenders and homeowners to avoid foreclosure.
Virginia Mortgage Foreclosure
According to Virginia Title 55, in the event of a foreclosure, the mortgagee can pursue a deficiency judgment. If the foreclosure sale results in a deficiency a Virginia court must confirm the fair market value of the property is credited to the mortgage. However, if the mortgagee participates in the HAFA program, then according to the federal guidelines, the mortgagee may not pursue you for the deficiency balance.
The foreclosure process is expensive for all parties concerned, and the cumulative effect of many foreclosures can depress housing prices. To stabilize the housing market, the Obama administration created the Making Home Affordable (MHA) initiative. One program in MHA is Home Affordable Foreclosure Alternatives (HAFA). HAFA sets guidelines for short sales and deeds in lieu of foreclosure for distressed homeowners. If your servicer (the financial institution collecting your mortgage payments) participates in HAFA, then the servicer must follow HAFA's guidelines and deadlines. The guidelines provide financial incentives for both servicers and homeowners. The homeowner must also be eligible for the Home Affordable Modification Program (HAMP) as set forth by the program guidelines.
Let us say for the sake of argument you select an option that results in a deficiency balance. A deficiency balance is an unsecured debt, and is treated the same under law as credit card debt, medical bills, or a payday loan. A deficiency balance will not result in wage garnishment or a levy of your financial accounts if you resolve the debt. You have several options for resolving unsecured debt including debt settlement and bankruptcy.
Bankruptcy is a complicated process. Chapter 7 and Chapter 13 bankruptcy are the options appropriate for most consumers seeking debt relief. Unfortunately, after the passage of the Bankruptcy Reform Act in 2005, it became harder to file for a liquidation bankruptcy, and there is now more complexity to an already intimidating process. Filing bankruptcy can be difficult and, though a consumer can do themselves, I advise consumers to consult with an attorney licensed in their state to ensure the filing is completed accurately.
You mentioned you want to avoid bankruptcy. Most people do. It may be a viable option in your situation, and you would be wise to weigh its positives and negatives before ruling it out preemptively.
Research HAFA. Ask your mortgagees if they participate in the MHA program. If so, they must offer HAFA to you. A short sale through HAFA appears to be the best solution in your present situation because it frees you of the property, allows you to comply with your divorce agreement, and will result in a minimal impact on your credit score. If you are unable to do a short sale or deed in lieu of foreclosure (options that will not affect your credit score), you may wish to let the property foreclose and take the hit on your credit score. Then you may wish to resolve the deficiency balance either through negotiating a settlement or through bankruptcy.
Debt distressing you? The Bills.com Debt Coach is a no-cost online tool that will analyze your debts and show you the options available to resolve them and the costs and benefits of each.
Another option to consider is to open a negotiation with your ex-spouse. Obviously, I know nothing of the dynamics or history between you two. However, if she is sympathetic to your plight, perhaps your ex-spouse will offer a forbearance on the requirement that you sell or refinance the property until market conditions stabilize and the property values increase in your area.
I hope this information helps you Find. Learn & Save.