Northern CA failure, forclosure help, tax questions >>

[BayNegative]

I am new to this site which I stumbled upon researching CA and forclosures. I am an investor from Northern CA which unfortunately has fallen victim to this market. I had a couple of questions I’d like to ask regarding forclosure, non recourse loans, and taxes. Here is my situation, I own 2 properties in Sacramento and am facing forclosure. I want to make certain that if worst comes to worst and forclosure dawns on me, a disasterous credit hit would be the only consequence. Below is a bit more detailed description of my situation….any other advice would be appreciated.

Home number one (470k):
-5/1 ARM interest only
-HELOC*

HELOC* was then re-fi’d to acquire home number 2(350k):
-Negative AM
-HELOC

I put down 20% on home number 1. As stated above, I re-fi’d home no. 1’s HELOC and put 10% down on home no.2

[Daniel]

BayNegative, I’m afraid that this might be the wrong site for a question like that. There certainly are people here who know the answers, but there are many more that will take great pleasure in eating you alive. Just be warned…

[BayNegative]

Daniel, I realize so. As you can tell I am somewhat on my last straw. If members would like to so called eat me alive, so be it. I am at a point where there can be no more damaging news than what already exists. I am just desperate for better answers. To those who can help or possibly point me in the right direction…thank you in advance.

[BayNegative]

Daniel, I realize so. As you can tell I am somewhat on my last straw. If members would like to so called eat me alive, so be it. I am at a point where there can be no more damaging news than what already exists. I am just desperate for better answers. To those who can help or possibly point me in the right direction…thank you in advance.

[Daniel]

BayNegative, I’m afraid that this might be the wrong site for a question like that. There certainly are people here who know the answers, but there are many more that will take great pleasure in eating you alive. Just be warned…

[BayNegative]

I just wanted to add an additional question regarding forclosure. Does anyone have a more accurate time frame of how long this can taint ones credit? I’ve heard variations of 5-10 years but don’t know what determines so.

This has been a very frustrating time. I have managed an average credit score of 795-811 through out life and something like this comes along.

[TemekuT]

I’d be more concerned about the net debt relief via a 1099 coming your way for any loan on a refinanced property goes into foreclosure. That, plus the possibility of a judgment if the lender choses to pursue available legal remedies. We’ll see what the senate does with forgiveness and/or repeal of current IRS statutes.

You can survive bad credit by paying cash and placing huge deposits and prepayments on rentals, and the same on cars or leases.

[TemekuT]

I’d be more concerned about the net debt relief via a 1099 coming your way for any loan on a refinanced property goes into foreclosure. That, plus the possibility of a judgment if the lender choses to pursue available legal remedies. We’ll see what the senate does with forgiveness and/or repeal of current IRS statutes.

You can survive bad credit by paying cash and placing huge deposits and prepayments on rentals, and the same on cars or leases.

[BayNegative]

I just wanted to add an additional question regarding forclosure. Does anyone have a more accurate time frame of how long this can taint ones credit? I’ve heard variations of 5-10 years but don’t know what determines so.

This has been a very frustrating time. I have managed an average credit score of 795-811 through out life and something like this comes along.

[SD Realtor]

Baynative –

First off I would advise you to talk to your lender in both cases to discuss the situation. This is by far the most important thing to do.

Second, there will be good advice on this board, but take it with a grain of salt and seek qualified professional guidance on the situation.

Third, yes any loans made to you that have not been used for original purchase money for a home are loans that the lender can come to try to get back from you. So even though the refi you did was for another home, technically (I believe) that they can come to try to get it. Again, this is just an opinion so don’t take it as anything more then that.

Fourth, repeat of first, TALK TO YOUR LENDERS! Best of luck.

SD Realtor

[BayNegative]

SD Realtor,

Thank you for the advice. I will talk to my lender when/if the time comes near. As of now, I am holding on and am attempting other options.

[BayNegative]

SD Realtor,

Thank you for the advice. I will talk to my lender when/if the time comes near. As of now, I am holding on and am attempting other options.

[SD Realtor]

Baynative –

First off I would advise you to talk to your lender in both cases to discuss the situation. This is by far the most important thing to do.

Second, there will be good advice on this board, but take it with a grain of salt and seek qualified professional guidance on the situation.

Third, yes any loans made to you that have not been used for original purchase money for a home are loans that the lender can come to try to get back from you. So even though the refi you did was for another home, technically (I believe) that they can come to try to get it. Again, this is just an opinion so don’t take it as anything more then that.

Fourth, repeat of first, TALK TO YOUR LENDERS! Best of luck.

SD Realtor

[Diego Mamani]

That banks would lend in excess of $800K to someone who can’t spell ‘foreclosure’ or ‘disastrous’ is another clear sign of the crazy times we lived in 2003-2005.

I think what is disastrous is how much house prices were inflated by specuvestors playing with funny money. I’m glad that this house of cards if now crumbling, albeit in slow motion.

As they say in another forum, Got popcorn?

[Raybyrnes]

Most peopl sayn talk to your lender but the reality is that you really need to start by speaking with the servicing agent. Sometimes the lender and servicer are the same b ut nmorde often than not the servicing agent is different. It is the servicier who can explain what your options are. Often time they can provide you with option such as atemporary hardship deferrment or a forbearance. Find out what the qualification are for each.

[ucodegen]

@BayNegative.

Some very specific questions:

On which of the properties are you facing foreclosure? One (which one) or both?

What are the natures of the loans and amounts? Primary purchase loans? Refi’s of primary and existing HELOCs?

First property: Is the 5/1 I/O ARM the initial financing on the house, or a refi? How was the refi on the first HELOC done to get home #2?
Second Property: is the negam the orignal purchase loan?

From first sniff, it looks like you may have to deal with credit agencies or 1099s (depending upon how the banks feel) with the HELOCs. These are recourse loans (That means the banks can go after you for some ‘skin’. if the banks don’t think you have any skin they can get, they can 1099 you for loan forgiveness.. the amount of which is considered income and is taxible. The banks do this so they can write the loss off on their income taxes.)

Now about the primary loans. I assume these properties are in CA (which is important). Last time I heard, primary purchase loans are non-recourse (bank has to eat the loss and can’t pursue or 1099 you). If the primary loan is a refi, it is now a recourse loan. (Moral: Don’t equity out refi just to get money.. have a good, safe long term plan because you are sacrificing financial protection in the process. Speculating on the housing market does not qualify as safe.).

[BayNegative]

ucodegen…

Both are facing foreclosure. Here is more detail.

Home number 1: 20% down of my own money..not a refi from a previous property. The 1st 5/1 ARM is a seperate lender from the HELOC. Again, both loans are towards purchase of this home.

The HELOC was replaced with another HELOC but minus so and so dollars to acquire home no.2, ….no money was borrowed from the 1st existing HELOC.

As for home no. 2, yes both the neg AM and HELOC are of original purchase loan and both w/ the same lender.

[ucodegen]

It doesn’t matter whether the HELOC is from the original lenders or not.. or HELOC financing was used to do the original purchase. HELOCs are recourse loans. The only ones that aren’t are original purchase loans. (NOTE: Other states may vary in this).

Using an HELOC attached to a property just being purchased, to finance the original purchase is on the creative side of financing. I don’t know why they loan was not done with a subordinate 2nd instead of an HELOC.. other than that the bank generally gets higher rates on HELOCs than subordinate 2nds.

If the original purchase loan on property #1 is the 5/1 loan, it is a non-recourse loan. The NegAm is likely a non-recourse. I would recommend having them verified by a tax attorney if possible. Your exposure seems to be the HELOCs/credit agencies/1099s. I suspect you’ll be 1099’d. For the bank to pursue you through the credit agency, they generally have to discount what the amount is when selling the paper to the credit agency to collect on. 1099s allow them to write the full amount off on their books w/o muss or fuss.

The next question has to do with how much total outstanding loans are comparable houses presently going in that area. Consider that the HELOCs are subordinate to the primary loans, they only get money that is left after the primary has been satisfied on a foreclosure. Are the HELOCs 100% under water (comps would only cover the primary loans and not the HELOCs)?

The above is important because if the comps are such that the remainder of the equity would clear out part of the HELOCs, you want to push hard for immediate short sales. Otherwise you end up riding the market down because the amount you get 1099’d on is the difference between the amount the house eventually sells for and outstanding loan balance (allowing for non-recourse primary loan recovery first). The HELOC holder has no initiative to move quickly because either way, they either get a percentage of the amount and 1099 you for the rest, or the 1099 you for the full amount. I would recommend getting a good loss mitigation professional for this (and not a fly by night one either).

[ucodegen]

It doesn’t matter whether the HELOC is from the original lenders or not.. or HELOC financing was used to do the original purchase. HELOCs are recourse loans. The only ones that aren’t are original purchase loans. (NOTE: Other states may vary in this).

Using an HELOC attached to a property just being purchased, to finance the original purchase is on the creative side of financing. I don’t know why they loan was not done with a subordinate 2nd instead of an HELOC.. other than that the bank generally gets higher rates on HELOCs than subordinate 2nds.

If the original purchase loan on property #1 is the 5/1 loan, it is a non-recourse loan. The NegAm is likely a non-recourse. I would recommend having them verified by a tax attorney if possible. Your exposure seems to be the HELOCs/credit agencies/1099s. I suspect you’ll be 1099’d. For the bank to pursue you through the credit agency, they generally have to discount what the amount is when selling the paper to the credit agency to collect on. 1099s allow them to write the full amount off on their books w/o muss or fuss.

The next question has to do with how much total outstanding loans are comparable houses presently going in that area. Consider that the HELOCs are subordinate to the primary loans, they only get money that is left after the primary has been satisfied on a foreclosure. Are the HELOCs 100% under water (comps would only cover the primary loans and not the HELOCs)?

The above is important because if the comps are such that the remainder of the equity would clear out part of the HELOCs, you want to push hard for immediate short sales. Otherwise you end up riding the market down because the amount you get 1099’d on is the difference between the amount the house eventually sells for and outstanding loan balance (allowing for non-recourse primary loan recovery first). The HELOC holder has no initiative to move quickly because either way, they either get a percentage of the amount and 1099 you for the rest, or the 1099 you for the full amount. I would recommend getting a good loss mitigation professional for this (and not a fly by night one either).

[ucodegen]

A little more info here:
http://www.ocregister.com/money/loan-lender-says-1628627-mortgage-sale

[patientlywaiting]

From what I understand debt forgiveness is taxable and you must report it regardless of whether you receive at 1099. It’s like interest income. You need to report interest earned even if you don’t get a 1099 (ie from a foreign bank account or from a private party loan).

Talk to a tax adviser.

[BayNegative]

Rough numbers:

Home 1:
1st 300k (5/1)
2nd 105k (HELOC)

Can possibly sell for 340-350

Home 2:
1st 300k (Neg AM)
2nd 25k (HELOC same lender as 1st)

Can possible sell for 270-280

[ucodegen]

Concentrate on a short sale for home #1. You could knock off close to 40K on the HELOC. As for Home #2, looks like short sale would not help.. you’ll have to take the full 25K in 1099s. The bank holding the HELOC may drag its feet on house #1.

Make sure you don’t sign any further loan documents as a condition of short sale on #1. This could trap you. Take the approach that immediate short sale will limit losses. This is also where a good loss mitigation person might help. Sorry, I’m not one..

PS: You may want to talk to both a tax attorney and a loss mitigation person. The former for specifics on the neg-am loan and recourse. The loss-mit for negotiating the short sale. Time is critical.

[ucodegen]

Concentrate on a short sale for home #1. You could knock off close to 40K on the HELOC. As for Home #2, looks like short sale would not help.. you’ll have to take the full 25K in 1099s. The bank holding the HELOC may drag its feet on house #1.

Make sure you don’t sign any further loan documents as a condition of short sale on #1. This could trap you. Take the approach that immediate short sale will limit losses. This is also where a good loss mitigation person might help. Sorry, I’m not one..

PS: You may want to talk to both a tax attorney and a loss mitigation person. The former for specifics on the neg-am loan and recourse. The loss-mit for negotiating the short sale. Time is critical.

[ucodegen]

Concentrate on a short sale for home #1. You could knock off close to 40K on the HELOC. As for Home #2, looks like short sale would not help.. you’ll have to take the full 25K in 1099s. The bank holding the HELOC may drag its feet on house #1.

Make sure you don’t sign any further loan documents as a condition of short sale on #1. This could trap you. Take the approach that immediate short sale will limit losses. This is also where a good loss mitigation person might help. Sorry, I’m not one..

PS: You may want to talk to both a tax attorney and a loss mitigation person. The former for specifics on the neg-am loan and recourse. The loss-mit for negotiating the short sale. Time is critical.

[BayNegative]

Rough numbers:

Home 1:
1st 300k (5/1)
2nd 105k (HELOC)

Can possibly sell for 340-350

Home 2:
1st 300k (Neg AM)
2nd 25k (HELOC same lender as 1st)

Can possible sell for 270-280

[BayNegative]

Rough numbers:

Home 1:
1st 300k (5/1)
2nd 105k (HELOC)

Can possibly sell for 340-350

Home 2:
1st 300k (Neg AM)
2nd 25k (HELOC same lender as 1st)

Can possible sell for 270-280

[patientlywaiting]

From what I understand debt forgiveness is taxable and you must report it regardless of whether you receive at 1099. It’s like interest income. You need to report interest earned even if you don’t get a 1099 (ie from a foreign bank account or from a private party loan).

Talk to a tax adviser.

[patientlywaiting]

From what I understand debt forgiveness is taxable and you must report it regardless of whether you receive at 1099. It’s like interest income. You need to report interest earned even if you don’t get a 1099 (ie from a foreign bank account or from a private party loan).

Talk to a tax adviser.

[ucodegen]

A little more info here:
http://www.ocregister.com/money/loan-lender-says-1628627-mortgage-sale

[BayNegative]

ucodegen…

Both are facing foreclosure. Here is more detail.

Home number 1: 20% down of my own money..not a refi from a previous property. The 1st 5/1 ARM is a seperate lender from the HELOC. Again, both loans are towards purchase of this home.

The HELOC was replaced with another HELOC but minus so and so dollars to acquire home no.2, ….no money was borrowed from the 1st existing HELOC.

As for home no. 2, yes both the neg AM and HELOC are of original purchase loan and both w/ the same lender.

[ucodegen]

@BayNegative.

Some very specific questions:

On which of the properties are you facing foreclosure? One (which one) or both?

What are the natures of the loans and amounts? Primary purchase loans? Refi’s of primary and existing HELOCs?

First property: Is the 5/1 I/O ARM the initial financing on the house, or a refi? How was the refi on the first HELOC done to get home #2?
Second Property: is the negam the orignal purchase loan?

From first sniff, it looks like you may have to deal with credit agencies or 1099s (depending upon how the banks feel) with the HELOCs. These are recourse loans (That means the banks can go after you for some ‘skin’. if the banks don’t think you have any skin they can get, they can 1099 you for loan forgiveness.. the amount of which is considered income and is taxible. The banks do this so they can write the loss off on their income taxes.)

Now about the primary loans. I assume these properties are in CA (which is important). Last time I heard, primary purchase loans are non-recourse (bank has to eat the loss and can’t pursue or 1099 you). If the primary loan is a refi, it is now a recourse loan. (Moral: Don’t equity out refi just to get money.. have a good, safe long term plan because you are sacrificing financial protection in the process. Speculating on the housing market does not qualify as safe.).

[Raybyrnes]

Most peopl sayn talk to your lender but the reality is that you really need to start by speaking with the servicing agent. Sometimes the lender and servicer are the same b ut nmorde often than not the servicing agent is different. It is the servicier who can explain what your options are. Often time they can provide you with option such as atemporary hardship deferrment or a forbearance. Find out what the qualification are for each.

[Diego Mamani]

That banks would lend in excess of $800K to someone who can’t spell ‘foreclosure’ or ‘disastrous’ is another clear sign of the crazy times we lived in 2003-2005.

I think what is disastrous is how much house prices were inflated by specuvestors playing with funny money. I’m glad that this house of cards if now crumbling, albeit in slow motion.

As they say in another forum, Got popcorn?

[bubba99]

On home number one, I am guessing that the ARM and HELOC are different loans, the Arm is non-recourse. The HELOC may have also been non-recourse up until you tapped it for something other than the original purchase of home number 1.

If the arm and heloc are the same loan, all home 1 loans are recourse.

Home 2 loans are much the same situation. If property 2 has its own purchase money loan for the 1st plus a new HELOC, both may be non-recourse if the HELOC has not been tapped for any money other than the original purchase.

My recollection is that the negative credit item stays on your credit report for 7 years and 7 days from the date the final disposition is recorded. The final date is months later than the original foreclosure date.

The confusing part of the foreclosure is judicial vs. non-judicial remedy. If the property is foreclosed on in a non-judicial action (the bank just takes the property without a judge as allowed in Ca.) they cannot also try to take anything again in another judicial action.

The confusing part is:

If the property is foreclosed on by the 1st mortgage holder, what remedies does the second (HELOC) holder have. Some say none, some say many. Either way, just because the lender has no legal remedy does not mean the debt on recourse loans disappears. A colleciton agency can still try to collect and mess with your credit for even longer thatn the 7 years.

Hope some of this helps.

[bubba99]

On home number one, I am guessing that the ARM and HELOC are different loans, the Arm is non-recourse. The HELOC may have also been non-recourse up until you tapped it for something other than the original purchase of home number 1.

If the arm and heloc are the same loan, all home 1 loans are recourse.

Home 2 loans are much the same situation. If property 2 has its own purchase money loan for the 1st plus a new HELOC, both may be non-recourse if the HELOC has not been tapped for any money other than the original purchase.

My recollection is that the negative credit item stays on your credit report for 7 years and 7 days from the date the final disposition is recorded. The final date is months later than the original foreclosure date.

The confusing part of the foreclosure is judicial vs. non-judicial remedy. If the property is foreclosed on in a non-judicial action (the bank just takes the property without a judge as allowed in Ca.) they cannot also try to take anything again in another judicial action.

The confusing part is:

If the property is foreclosed on by the 1st mortgage holder, what remedies does the second (HELOC) holder have. Some say none, some say many. Either way, just because the lender has no legal remedy does not mean the debt on recourse loans disappears. A colleciton agency can still try to collect and mess with your credit for even longer thatn the 7 years.

Hope some of this helps.

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