Refi w/conventional mort. a mortgage not reaffirmed in BK7

[StartingOver10]

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@cem13 wrote:

This is basically a "short sale" to myself.  They are calling is a "short payoff".   Wells Fargo accepted my offer this morning; however, Freddie Mac owns the loan so they have to agree as well.

My guess is that Freddie will counter offer.  Either way, I will "buy" my house back for fair market value opposed to owing more than what the house is worth.  I will save about $20K~$30K.  I cannot do a traditional "re-fi" because I cannot reaffirm my loan after discharge.  Wells Fargo has a policy NOT to open a new loan after BK7.

I hold all the cards.  The first CSR that I spoke with gave me the line of "yea but if you give the house back in foreclosure, your credit will be "ruined" for 7 years".  My reply was simple; "the mortgage already reports IIB and that cannot change per federal law.  My state is a non-judicial foreclosure process so a judgement will not get picked up by the CRAs.  So I have two options, Wells Fargo work with me and we agree on a fair settlement or I walk.  I am pre-approved for a FHA loan so I can buy the house next door for less money and walk away from this."  He then said, "wow, you know your stuff.  Let me transfer you to the liquidation department"

The Liquidation Department, thus far, seems to be more "business oriented".  They want to limit losses.  

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This is excellent information to know. This also seems to be a change from how the lenders have been handling the short payoff issue with existing owners. A change or a maybe it has been going on all along and it just now came to light.  I saw something about a month ago where a property was sold back to the owner in a short sale (in California) and it hit the NY Times. I'm guessing that not many people know that the current owner can buy back their own property for the current market rate eg your 'short payoff'. 

[DaveInAZ]

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cem13 wrote:

2/2011: Filed Bk7 2 weeks later

3/2011: Foreclosure on summer cabin

6/2011: BK7 discharged, no reaffirmation

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Wow, good stuff, cem. One question from your timeline above - did you include the mortgage for the summer cabin in BK before they foreclosed. If the mortgage was IIB, the foreclosure doesn't count against you in terms of wating period for a new mortgage. FHA, Freddie Mac & Fannie all changed their rules last summer, that if their was a BK, the waiting period is from the date of BK discharge, not foreclosure.And that 4 years for conventional. 2 years for FHA.

As for me, my thinking took an "interesting" turn - I' thinking about selling my property. My mortgage is only around 50% of property value, and since it's so hard to refi a 10 acre property w/MH with cash out, maybe the best way to pull cash out is to sell and buy another property in the area. I really do enjoy the property, but in thinking it over, they house is way too big for me - 2200+ sq.ft., 4 BRs. I've been divorced and very happily single for 30 years, and I just live in one end of the house. And the 10 acres is alot to look after. A smaller house (a real house not a MH) & lot would be more practical, and get into one with small FHA down payment and I'd have the cash to invest with - several times I've bought foreclosures and fixed them up & sold for a profit. Actually, when I bought my current home it was a foreclosure that I intended to fix up & flip, but the more time I spent out here I came to love the peace & quiet and mountain views in 3 directions.

I'm going to think it over, over the weekend, but I'm leaning toward calling a realtor Monday morning..

[cem13]

Hi Dave,

My summer cabin was not reaffirmed either.  I filed on 31JAN11 and Wells Fargo filed (what I remember as) "Relief from Automatic Stay" in mid-Feb 2011.   The Judge granted this because I did not reaffirm.  Wells Fargo continued to negotiate with me.  They kept calling and telling me "Wells Fargo is committed to working with you so you can stay in your home".   Yea right........I owed $90K, I offered a short payoff of $60K and they declined.  They took possession and sat on it for a year and sold it for $32K.  

I called my "Home Preservation Specialist" (a contradiction in terms right?) and asked her, "Did that make sense for Wells to foreclose on my house and then sell it for almost half of what I was willing to pay?"  She said they would have but the Judge would have to agree to it and typically The Courts are not in favor of reaffirmation on a second home."

I did not realize that the rules changed for a foreclosure on a mortgage that was IIB.  It really does not matter to me now because I am FHA approved currently.  But it is something to consider for my next summer cabin.  I will look into this.  Thanks for the heads up.

As for your situation, I think I agree with your logic.  A large house has so many more hidden charges (heat/cooling, taxes, insurance) costs.  So your idea of downsizing sounds reasonable to me.  My only issue is that the overall package needs to make financial logic.

[Revelate]

What state do you live in if I may ask cem?  I know in Cali I can throw the keys at the lender and walk if I've never taken cash out of the equity (i.e. if I ever refinance, I'm bringing a check) but I don't know how many states allow that.

[cem13]

TI live in Michigan.

I am not sure if Michigan law allows for the action as you describe.  I am using the fact that I filed BK7, did not reaffirm, remain current on the mortgage and the home value has not rebounded.

Wells and Freddie does not have to accept my offer.  They own the lein on my house. Now it is a negotiation.  What is the dollar amount they will accept to sign off on the lein?  They really do not have any major leverage against me.  They cannot force me to pay any money or to make up the balance difference.  

The only leverage they have is that I will have to be bothered to pick up and move.  But at some point, that inconvienience is off-set by purchasing the same basic home for $20K less.

[cem13]

UPDATE:  I submitted my "Short Payoff Proposal" on 12JAN15.  I received a conditional approval on 09FEB15.  The condition was that I had to deposit the $80K into an escrow account and then they would determine if they approved me.  That is correct.  "Pay us and then we will decide if we will accept your proposal".  I laughed out loud to the Wells Fargo CSR on the phone.  She was sympathetic to my cause as she had never seen this request before.  So she said that there are several other people at 
Freddie Mac that she deals with so she was going to try another person.  T

I was pre-approved with a local Mortgage Company all the way through the U/W process.  I had no issues because I am required to have an FHA loan due to the BK7 discharge was Jun2011.  Conventional Loan requirements are that a BK7 must be 4 years post discharge.  However the Mortgage Company will not loan me the money unless they get a clean title, which is completely acceptable in my mind.  So the game continued.  

Fast forward to 10MAR15: I sent my WF CSR an email every Friday asking for an update.  She did not respond.  On 10MAR15, I sent the following:

"Since the Investor has not accepted my proposal and it has been 2 months, I must continue with my alternate path.  Please forward the address to the Investor so I can mail the keys.  I must "walk-away" to take advantage of my Mortgage pre-approval.  I have an offer accepted on a house that is larger in the same area for the same price.  I will not be responsible for any damage to this house for broken water pipes after 15MAR15.  I will turn the gas and electric off to this house on this date as well."

To my surprise, I had the proposal acceptance in my inbox within 2 hours.  Then on 13MAR15, I signed the loan documents.  The closing date is scheduled for 27MAR15.  

My current balance is $120K @6% payment of $1160 (escrow included) with a payoff date of 2035.  New loan is $80K balance @ 3.5% for 15 years with a payment of $800 and payoff date of 2030.  So overall I save $330 per month and gain 5 years of payoff.  So my plan it to continue to pay the $1160 and my payoff drops a few more years.  If I add another $200 per month, I will have it paid off in 10 years.

I have said in a previous thread that filing BK7 was the VERY BEST single action I took to improve my financial situation moving forward.  Sure it hurt my credit for a year or so but now I am back with a vengance.  i will be able to retire at about 57 instead of 65.  

[cem13]

UPDATE:  I am "Clear to Close" on 31MAR15.  The appraisal came back at $120K and Wells accepted $80K so I do not have to bring any money to close.  This will knock off $40K and 10 years off my mortgage.  So thanks to everyone on this board for sharing.