Information on Bankruptcy on HELOC After Foreclosure
Is there any recourse for my second mortgage lender to come after the funds if I file for bankruptcy after foreclosure?
I have come into a financial hardship with work and have had to take a pay cut. I am 60 days late on my first and second mortgage. I have been in constant communication with both lenders and the first is willing to work with me so I don't lose my home. The second loan is a HELOC and they said they have no programs to assist me. The first loan is $580,000 and the second is $220,000 for a total of $800,000. My home is now worth about $675,000. If I default then the only one who will recover their money is the first lender. The second will wind up with nothing after all the fees and foreclosure costs. Is there any recourse for the second lender to come after the funds if I file for bankruptcy after foreclosure? I would think they would rather settle for a smaller amount instead of possibly losing it all. This would help me as the homeowner and limit most of the loss of their loan if they settle for cents on the dollar. Am I crazy for thinking a lender would settle since it is a second loan?
The HELOC lender has little recourse against you in the situation you describe. If you allow your home to go into foreclosure, and the home equity loan is not paid through the foreclosure sale, the HELOC will become an unsecured obligation. If you took no action after the foreclosure, the home equity lender could pursue collection action against you, including possibly filing a lawsuit against you to obtain a judgment for the balance of the debt. If the creditor obtains a judgment, it may be able to garnish your wages, levy your bank accounts, and place liens on any property you own, depending on your state’s laws regarding the collection of judgments.
For more information about what assets are protected from creditors in your state, see the Bills.com State Statutes of Limitations page. These exemptions also apply to individuals filing for Chapter 7 bankruptcy protection, so you should also carefully review these laws since you are considering filing a bankruptcy petition.
After foreclosure, the remaining unsecured debt owed on your HELOC should be dischargeable in bankruptcy, so filing for bankruptcy should protect you from any collection action taken by your equity lender. However, your ability to file for bankruptcy protection will depend on your income, assets, and numerous other factors which you must carefully consider to determine if bankruptcy is the best solution to your problem. I strongly encourage you to consult with a qualified bankruptcy attorney to help you figure out if bankruptcy is a good choice for you, and if so, which type of bankruptcy you should file. I also invite you to visit the Bills.com Bankruptcy page, where you will find a wealth of educational information about bankruptcy and other options available to people struggling with debt.
Given the fact that you owe so much more on your home than the property is currently worth, you may wish to consider selling the property before you are forced into foreclosure, and including any deficiency balance in your bankruptcy filing. In order to sell the property for less than you owe, your lenders will need to approve a "short sale" of the home, meaning that the lender will allow you to sell the home for less that you actually owe. If your lenders will approve a short sale, you may be able to go ahead and sell the home, and file bankruptcy on any debt remaining after the short sale. It is unfortunate that you are stuck owing so much more money than your home is actually worth, but your bankruptcy attorney may be able to help you work out a plan to sell the property and resolve the remaining debt.
Given the complexity of your situation, and the possible negative consequences that could result from making an incorrect decision, I encourage you to consult with an attorney in your area as soon as possible. You should ask the questions you have posed here to your attorney to obtain a legal opinion of the best course of action available to you. Your attorney may also be able to negotiate with your home equity lender to reach a settlement of your outstanding debt. While the lender has thus far been unwilling to negotiate with you, they may be willing to work with your attorney, as they may see your contacting a bankruptcy attorney as a sign that you are truly in dire financial straits.
For more information about foreclosure, I encourage you to visit the Bills.com Foreclosure page. I hope this information helps you Find. Learn & Save.
Best,
Bill
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This means that all I am receiving is $925. Since the mortgage loan has been already discharged I am not even interested in any favors from the bank. They cannot collect any money from me even if their sale net proceeds were zero. I am angry, disappointed and actually upset with myself. I was simply stupid. I should have just stay here until the very end, let that “greedy PNC Bank” go through the foreclosure proceedings and maybe sell my unit at the auction for half what they are getting now.
So stay in your house or condominium as long as you can, save your money and let the sheriff kiss you goodbye. You credit is already very bad and it cannot really get any worse no matter how nice as a human being you are. Do not let others make money on your misery, specially that bank that was never good to you anyway. After all, the bank is not losing anything, do not fall into any “short sale” promises, and represent only your own interest. Good luck and be smarter than I was! Janina
Deficiency balance: You will be liable for a deficiency balance on both your first and second mortgages, unless you negotiate a settlement, before selling the property. If you proceed with a short sale, make sure that your first mortgage lender, will include an anti-deficiency clause in your agreement. Remember, forgiveness of the debt, may create a tax liability.
Cash Flow: You suggested that stopping work for 6 months may help you in a bankruptcy procedure. If you are contemplating filing for bankruptcy, I strongly recommend that you speak with a bankruptcy lawyer to see if your strategy could possibly succeed. However, it seems to me that by not working you will create a tremendous burden on yourself, and probably create more debt and would have problems meeting your other obligations. If you are left with debt, upon selling the house, then review your debt relief options. It might be wiser to reach a settlement with the creditors.
Protecting your assets: If you default on a loan, then the creditor will seek a court judgment that can lead to a lien on your current house. That does not mean that you will be forced to sell the house. If you have equity in the house, then you will want to consider how best to use it to cover your debts, and manage your daily budget.
If you did not reaffirm the mortgage, then, as you stated, you should have no personal liability on the loan. It concerns me that you thought that your mortgage loan was reaffirmed but now you feel that it was not. Check with your bankruptcy lawyer, to find out what your exact position is regarding the reaffirmation of your mortgage loan.
Maryland does not protect its residents with a anti-deficiency law.
Why not now? Because you do not know how aggressive the first and second mortgagees will pursue you for what I assume is the deficiency balance on your property. If the mortgagees plan to cancel or forgive the deficiencies, then the bankruptcy would be pointless, with the exception of the credit card debt.