Chapter 7 discharged, mortgage not reaffirmed, what are my options

[MyFico_704]

We filed ch7 in 2011, discharged, did not reaffirm. Included was 1st, 2n and 3rd mortgages.  We have been current on the first and have not paid the 2nd & 3rd.  The property is under water..  We're considering walking away.

Here are some questions that I'd like to get answers for before we pull the trigger.

- If we stop payments BUT continue to live here(or until they evict us) how long before the bank starts the foreclosure process?

- If we walk away, not knowing how long the bank will complete the foreclosure, am I still responsible for the county taxes, water and sewage? 

       > I read somewhere a couple walked away but the bank took 3 years to complete the foreclosure BUT the county bills were never paid and the county sued the owners  to recoup the $$.  I'd hate to walk away, the bank takes 4 years to foreclose but we're stuck and sued by the county for back taxes/liens.

- IF the 2nd/3rd liens were still not attached then we probably would not consider walking away.  Is there a way to get rid of these two loans/liens?

- Deed in lieu  - Can we stop making payments during this time and what are the costs?   Does this mean we work out with the bank, sign all the papers and if they approve, we give them the keys and walk away?  IF we stop making payments will they even help us via deed in lieu?

Just a few questions I have and hopefully someone knowledgeable will be able to answer.

Should I stay or should I go?  lol

(Created new thread for help everything else has been left as is)

[cem13]

Let me chime in here and I will try to help you.  I had 2 properties that were IIB and not reaffirmed.  No one will be able to tell you to stay or go.

You need to make the decision based on finances.  Can you buy a comparable house for less money?  Do you have an emotional attachment to this house? etc.

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@MyFico_704 wrote:

We filed ch7 in 2011, discharged, did not reaffirm. Included was 1st, 2n and 3rd mortgages.  We have been current on the first and have not paid the 2nd & 3rd.  The property is under water..  We're considering walking away.

Here are some questions that I'd like to get answers for before we pull the trigger.

- If we stop payments BUT continue to live here(or until they evict us) how long before the bank starts the foreclosure process? Eviction processes are different for each State and County.  All you need to do is look up this data on the local Court's website.

- If we walk away, not knowing how long the bank will complete the foreclosure, am I still responsible for the county taxes, water and sewage? 

       > I read somewhere a couple walked away but the bank took 3 years to complete the foreclosure BUT the county bills were never paid and the county sued the owners  to recoup the $$.  I'd hate to walk away, the bank takes 4 years to foreclose but we're stuck and sued by the county for back taxes/liens.  This again is different for each state.  In my state, the answer is yes, the home owner is responsible for these items until the property changes ownership.

- IF the 2nd/3rd liens were still not attached then we probably would not consider walking away.  Is there a way to get rid of these two loans/liens?  I had a second mortgage on my primary house that was stripped during BK.  Exactly 2 years to the date of discharge, WF issued a discharge of mortgfage on the second mortgage.  Now YMMV, but I have heard about 2nd and 3rd mortgage companies accepting pennies on the dollar for a release.

- Deed in lieu  - Can we stop making payments during this time and what are the costs?   Does this mean we work out with the bank, sign all the papers and if they approve, we give them the keys and walk away?  IF we stop making payments will they even help us via deed in lieu?  

I did a deed-in-lieu on my second, summer home.  I negotiated to keep the cabin, payment free for a year then sign the title over to them.  Get this, they actually paid me $3000 in the "cash for keys program".  Freddie and Fannie will spend thousands of dollars to evict you with attorney and court fees.  The would rather pay you to walk away.  I saved about $6000 in payments plus they gave me money $3000.  Overall not to shabby.

@Also, on my first house, I did not reaffirm.  I kept paying the mortgage until this January.  I wrote them a letter offering a payoff to sign a release.  I if they did not accept, I will walk away.  It was January and cold.  Freddie accepted within hours.  They did not want to take the chance of me walking away and risk frozen pipes etc.  So my balance went from $120k down to $80K @ 3%.  It appraised at $115K.  I had to get an FHA mortgage because I was not yet to the 4 year discharge mark for a conventional mortgage.  So what??  I pay $30 in PMI but I cut $400 per month off my payment AND I shortened the mortgage by 4 years.  I will continue to make my original payment and I will have the house paid off in 9 years.  I made out like crazy.  My biggest problem is I will only pay $2000 in interest payments when I was up around $10,000.  So this will be a tax shift.  That is okay though.  I will own the house free and clear in 9 years but I will have to find other tax advantages.

Just a few questions I have and hopefully someone knowledgeable will be able to answer.

Should I stay or should I go?  lol

(Created new thread for help everything else has been left as is)

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[MyFico_704]

@cem13 -

Thanks for the answers.

Regarding the stripping I have heard about that in chapter 13 BK but not in ch 7.  Being that it is now 4 years since discharge I don't think it would be wise to file ch 13 BK.. right away since I am now eligible to get another mortgage.

- Regarding "deed in lieu" - Can I stop making payments for lets say the next 12 months...(save money).. then write a letter to the bank to offer deed in lieu?  Assuming they don't evict me or foreclose first.

           > Because there are 3 different loans (all WF) who would I contact to do the "deed in lieu?"  Write a letter to just the first lien or all three?

- About the property being under water.. I mispoke.  It appears values in the Charlotte area have made some gains. Based on property listing in the area of similar homes I would say my house can be sold for 235k-240k.   Here are the lien balances

    - 1st - 175k (still paying).  IIB.  Not getting credit on CR but balance is being reduced with every payment.

    - 2nd - 52k - not paying IIB

    - 3rd 38k HELOC - not paying IIB

    2 questions -

              > Would the bank (all 3 are WF) even consider debt settlement on the 2nd/3rd liens?  This "pennies on the dollar" I've read about.

              > Suppose I wanted to sell.. can I just list the house with a realtor or would I need to getpermission from  the bank first?

Ideally IF we can strip the 2nd/3rd OR even settle pennies on the dolloar the 2nd/3rd, I'm willing to refinance/modify the 1st so I can at least get credit for the payments. Probably impossible!  

But if we can just sell the house out right.. I'd be ok too and we would look for a new home!  This would probably mean short sale since the property is still under water.

Or worse case, just walk away and let it go into foreclosure!

[cem13]

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@MyFico_704 wrote:

@cem13 -

Thanks for the answers.

Regarding the stripping I have heard about that in chapter 13 BK but not in ch 7.  Being that it is now 4 years since discharge I don't think it would be wise to file ch 13 BK.. right away since I am now eligible to get another mortgage.  My Atty told me that the 2nd Mortgages are USUALY removed from liabilty duing discharge; however, the leins can remain.  The 2nd holders cannot foreclose but will still maintain their equity in the property.  Two years after my D/C, W/F released the lein on the 2nd for whatever reason.

- Regarding "deed in lieu" - Can I stop making payments for lets say the next 12 months...(save money).. then write a letter to the bank to offer deed in lieu?  Assuming they don't evict me or foreclose first.  You can stop making payments whenever you like.  The issue will be whether they come after you for the money/property.  You need to get a more qualified, professional opinion other then me and others on this board.  This is a serious decision.

           > Because there are 3 different loans (all WF) who would I contact to do the "deed in lieu?"  Write a letter to just the first lien or all three?  WF has a separate department called the "Home Preservation Department".  That Dept has different specialties.  Call the general 800 number and ask to be transferred.  Now I have to admit, EVERYONE that I spoke to at Wells Fargo seems a little "uneducated" and not very sharp.  It is almost like they went to Notre Dame so something...Sorry Irish.  j/k

- About the property being under water.. I mispoke.  It appears values in the Charlotte area have made some gains. Based on property listing in the area of similar homes I would say my house can be sold for 235k-240k.   Here are the lien balances

    - 1st - 175k (still paying).  IIB.  Not getting credit on CR but balance is being reduced with every payment.

    - 2nd - 52k - not paying IIB

    - 3rd 38k HELOC - not paying IIB

    2 questions -

              > Would the bank (all 3 are WF) even consider debt settlement on the 2nd/3rd liens?  This "pennies on the dollar" I've read about.  Absolutely, they want to get paid any amount.  If they forced foreclosure, they get nothing.  If you walk away, they get nothing.  If you make an offer they get something.  I would offer the 3rd between 1~5%.  I would offer the 2nd mortgage 5~10%.  Keep in mind that Wells Fargo Home Equity DOES NOT talk to Wells Fargo Home Mortgage.  It seems counter-intuitive I know.  They are under the same company name but they are really 2 separate companies.

              > Suppose I wanted to sell.. can I just list the house with a realtor or would I need to getpermission from  the bank first?  You do not need permission to sell the house.  Just walk away (provided the loans are discharged in your BK).  You are not responsible for the loans any more.  The bank owns the leins (mortgages) but you cannot sell for a profit.   Since the first mortgage is safe, they will take your house, sell it and re-coup their money.  The 2nd will also get paid off.  The 3rd will have to wait around for the scraps.  In this situation, the first mortgage will be difficult to work with.  They dont have to work with you.  Their interest is covered.

Ideally IF we can strip the 2nd/3rd OR even settle pennies on the dolloar the 2nd/3rd, I'm willing to refinance/modify the 1st so I can at least get credit for the payments. Probably impossible!    All I can tell you is that I wanted to re-finance my 1st mortgage and I was told that Wells Fargo will NOT re-finance any mortgage that was IIB.  They wanted me to re-open my BK7 and reaffirm.  In my state, that is not possible, the Courts will not allow it.  So I asked Wells Fargo to give me a new mortgage at the new rate.  They said NO because I was not 4 years post BK7.  So I asked, "You are not willing to work with me and are forcing me to get financing outside of Wells Fargo?"  They said, "Yes.  That is our policy".   

So I went and obtained an FHA loan at 3.5%, and offered them 66% of the mortgage and they accepted.  Had they sent an appraiser out beforehand, I would have been screwed because the appraisal came back at $120K which is the mortgage balance.  I guess I am lucky because in my general area, the prices have not rebounded.  But I have kept up with the maintenance, and I redid the kitchen and bathrooms.  That boosted my value.

But if we can just sell the house out right.. I'd be ok too and we would look for a new home!  This would probably mean short sale since the property is still under water.   If you walk away, you still are not obligated to pay anything,  also, since the mortgages are IIB, WF cannot update the loan to say short sale.  They can only report IIB.  

Here is what I would do.  Start working with the 2nd and 3rd.  You might get lucky and get them to settle both for $10K, maybe less.  Then you can re-finance the 1st mortgage at 15 or 10 year loan and the payments will not increase very much.  

If the 2nd and 3rd do not work with you, then threaten to "walk away"  The 3rd will take anything, maybe $1K,  the 2nd is the wild card.  They have enough equity to stay in the game.   But do they have the will power to fight.  It is easier to cut losses and run.

Of course, my opinions are based on my recent experince with Wells Fargo and I live in a different state so you may have a different outcome.  So YMMV.

good luck and keep us informed.

Or worse case, just walk away and let it go into foreclosure!

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 My response in RED