Bank of America HELOCs
Hi all,
thanks in advance for all your information and assistance.
I'm in California and 60 days behind with my mortgage payments. My property (primary residence) was fully paid for at one point and have taken out two HELOCs.. One fixed for 205K and the variable at 90K. My short sale offer was accepted by BofA. However, the offer letter have the following verbiage "Bank or America, ... will release the lien and charge off the remaining balance as a collectable balance".
Which method will be better off for me?
option A, take the deal and sign the paper on the shortsale and take my chance of getting call by BofA to collect the remaining balance after the short sale.
option B, let the property go to foreclosure. California is one actions state. I'm pretty sure BofA will go with the non-judicial way to foreclosure my property. If they do foreclose my property, does both of my HELOCs wipe out. I read alot of information that once you are in foreclosure and your first lien holder will be wiped. In my case, I have two HELOCs owned the same lender BofA.
Which option is better for me? thank you All!
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Comments
hope to hear from some one
Hi Rick,
Bank of America rarely gives full satisfaction releases on short sales which is what you are reading on the short payoff approval. You can try to negotiate that with them to see if they will remove that verbage (it can happen) otherwise they would have the ability to collect on the loss. Once the short sale was closed you could go back and try to negotiate a settlement on that amount as well.
If you decide to let the property go to trustee sale and the first forecloses that would be their "one action" and they could not attempt to collect on that loan. The second (even though it is the same lender) would still be able to collect on the 2nd HELOC. The foreclosure would not count as their one action.
The other reason that people consider a short sale over a foreclosure is that they eventually want to purchase another home and based on the underwriting guidelines in todays market you will be able to qualify to buy a home faster with a short sale on your record than with a foreclosure (of course underwriting guidelines can change at any time).
Thanks Michelle for your comments. I read on server site that HELOCs are not cover under the one action rule. How can I be sure that the higher HELOCs forcloses first? I thought even after foreclosure, they still have rights to come after me for both HELOCs.
I'm going to seek advice from attorney and determine if signing the current short sale letter will put me in a bad position.
Thank you Sean for your comments as well
No special exceptions for HELOCs that I've ever heard of. I'd be VERY surprised if that was the case.
Having an attorney review the specifics of your deal is a great idea! Make sure they are qualified and knowledgeable on these topics - many aren't.
I'm in the same situation. I hope to hear from others.
While junior loans are "wiped out" with regard to their secured interest in the property when a senior lender forecloses, they are NOT "wiped out" in their ability to pursue you for any losses.
Once exception in CA would be if the loan was a "purchase money" loan, ie. it was used to purchase the property. Typically they don't have the right to go after a homeowner for losses on a purchase money loan on a primary residence.
Bottom line you are likely on the hook with either of the options you outline above - at least for the junior loan, with one possible exception....
If you can force the junior (2nd) loan to foreclose first (will likely require continuing to make payments on the 1st, and even then the 2nd may not foreclose), which would use their "one action" and remove their right to come after you for losses. Then let the 1st foreclose. Long process, and the reality is that the 2nd likely won't foreclose so I doubt it will work.
I'd recommend trying to negotiate a full release. Maybe by kicking in some cash. The Realtor handling your short sale should be able to guide you. Though note that BofA is notoriously tough on full releases. If you simply can't get the release you may be able to negotiate one with the collector down the road, and you always have the option to declare bankruptcy to have it dismissed (depending on your overall financial picture).
Finally it is always a good idea to talk to an attorney AND an accountant before letting your home go to foreclosure, or closing a short sale. We try to point people in the right direction, but we don't know the particulars and aren't qualified to give legal or financial advice.
Thanks Sean for your response.
I will take your advice and try to kick some cash and see if BofA will meet me half way. If they won't work with me, then I let it go to foreclosure and deal with the collection or law suit down the road. I'm reluctant to sign the short sale approve with remaining balance as collectible.
thanks again for your feedback
Talk to an attorney, but I don't think signing the short sale agreement will give them any additional rights to collect vs. the foreclosure, and the short sale will look better to creditors down the road, and lets you move on with your life now.
Does the fact that the first "sold out" the heloc , both loans being with the same bank, mean that the heloc is wiped out and can't seek a deficiency judgement OR issue a 1099c? My understanding tht the loans, after the first forecloses, are merged and thus there is no longer any recourse for the heloc to recover or issue a 1099c.
HI Scotlindoug,
If the HELOC was used as a purchase money loan then there would be no recourse. If the Heloc was a cash out or part of a refi and it was in a 2nd lien position when the first foreclosed then it was "wiped out" as a lien on the property. This does not mean that the lender (regardless if it was the same lender as the first lien that foreclosed) cannot pursue payment from the signor on the note (becomes like an unsecured credit line) or that there are no tax consequences. You would want to have a tax advisor look at your specific situation since there are numerous ways to reduce or eliminate the taxes that may be due.
Thanks for your quick response Michelle. My research turned up Simon v. Superior Court, 4 Cal.App.4th 63 (1992), which seems to indicate the opposite....what do you think about this ruling allowing me shelter under CCCP 580-d?
Super interesting, thanks for citing that case. These days I imagine the bank would argue that they only originated and serviced the loans, solely as a representative for the underlying investor. Therefore the junior is theoretically at the whim of the senior (the underlying investor) and should be entitled to a deficiency judgment. Hard to say how the court might rule.
I see your point Sean but have my fingers crossed. One lawyer indicated that BofA is foreclosing as well as servicing the loan so the two should be considered merged once the first forecloses, and thus selling out the heloc to their detriment. I'm hopeful that this cloud might make the bank less aggressive, but there is a bit of money involved.
My property short saled and now the remainder of my HELOC (I paid it down 50% before going into default) has gone to B of As recovery dept. The remaining debt has been reported as a "charge-off" on my credit report. If I pay extra money to BofA and "settle" for a lesser amt. will the "charge off" remain on my credit report? I understand this "charge off" is as bad as foreclosure and lasts 7.5 years. I appreciate any info. or advice. the other option I have is not to pay anything more to BofA and let the remainder go to a collection agency. Thanks!
Sorry. My post needs to go in a new question section. Good luck.
When I was at REOExpo in June, there were four exhibitors there for debt collection. The investor will eventually "sell" these notes if they haven't already and they will haunt you for a long, long time. Eventually, you may want to opt for Bankruptcy. I just don't see how many of us with HELOC's are going to get away from this. There is already a website called www.debtdepot.com where these loans are commodities and collection companies buy them, try to collect, and then sell them when they feel they've squeezed every last ounce of blood out of you (as far as they're concerned). Just remember, once you are past the statute of limitations date for collection (if you ever reach it) DO NOT PAY THEM A DIME or they can "reinstate the debt" and it's away you go again. Sorry to be so grim. It might be better to get the BKY out of the way after the "judgment balance" is determined and get on with your life, I know that's what I'm going to have to do.
I live in FL and have a 1st w/ Wells Fargo ($306,000) and a 2nd HELOC w/ BOA ($59,000) where the funds were NOT used to purchase the property. I qualify for the HAFA program (per Wells) however I am not sure if FL law allows/requires BOA to settle on the 2nd. Does anyone know of recent rulings that would guide this decision?
Regards - Dale
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