Affirm New Note on Ride-Through?

[Snax]

Perhaps there's a thread on here covering this issue, and I would appreciate a link to it if this has been addressed within the last 6 months, but consider our current circumstances:

• Chapter 7 discharge 4/4/11
• Property Lien 33% Over Market Value
• No Second Mortgage/Lien
• Market Rents 30-50% Less Than Current Payment
• Current Debt to Income Ratio (including ride-through) Is 30%
• Solid Employment History
• Reaffirmed Auto Loan (payoff w/in 2 years)
• Eligible for VA Guarantee (4/5/13)

We are not committed to staying in the current home, however our current lien payment is so much higher than rents, it's tough to justify paying it for the next two years while we wait to move on to another home under a VA loan. We stand to save about $500/month by renting similar digs.

So the question is, as we remain current with payments on the lien going forward, is it likely or possible that the bank would be able to write a new note based upon current market value? It seems to me they would have little to lose in doing so if the risk is that we ultimately walk away without it, the only question being when.

Short of forcing their hand with a threat of abandoning the property and ultimate foreclosure, what other options might we have?

[sofarsogood2]

AHHH..... if it were only so easy, we wouldn't be in a foreclosure crisis right now.

Banks (servicers) have more incentives to foreclose, than to modify or write down principle. The servicer makes more money during a foreclosure (off fees) than on a modification.

The losers are the homeowner and the actual investor or trust on the mortgage.

You will not "force the banks hand". They ( the servicer- the entity that you make that check out to each month) are the middle man between you and the real owner/investors, and the servicers don't play nice. The odds of getting a principle write down are almost nil.

Only stop paying if you are prepared to leave.

Do some research on the foreclosure timeline for Oregon so you know a bit more. Also, google "modification with bank XXX" to see how others have fared.

You need to do a lot more research before you make this decision.

The foreclosure could take up to 2-3 years, then 2-3 years after that you can qualify to purchase a new home- so you are most likely looking at 5-6 years before you can purchase again. So, if you stop paying, don't leave until you have to.

Best of Luck!

P.S.
Even if you keep paying on the house, the VA isn't going to give you a loan in 2 years- they are going to want to know what you plan to do with the current house that is still in your name- telling them you are bailing on it because it was discharged probably isn't going to impress them.

[Snax]

I WISH you were full of it. ;)

I do know that in Oregon the normal minimum time they need to put us out of the house is 130 days from our first missed payment. It's your P.S. that bugs me though.

Thanks for the insight.

[sofarsogood2]

Wish I was full of it, too.

I do think that in the next 2 years or so we will see "special" loan programs for former owners who defaulted under "special circumstances" such as reduced income, unemployment etc. Especially for people who had great credit up till that point. It will probably be costly in terms of interest rates and require at least 20% down, but housing prices should stay low enough that the monthly payment won't be prohibitive. I think the only reason we haven't seen such a program yet is because housing prices are still sliding and 20% may not cover a potential default.

There is just way too much potential money to be made for the banks to ignore such a large group of people for too long. Eventually, greed will overtake their fear. Always does.

Best of Luck!

[Sweetpea3829]

I can tell you that there are ways around that whole "can't get a loan because we're ditching our discharged property but it's not yet foreclosed" issue.

It depends on your circumstances though. I should say...I can't really answer specific to VA because I don't know how they roll...

But...we're in the middle of a USDA Direct loan and we stopped paying on our BK7 house last August. What we did was we pulled my husband's name off the title through a quit-claim. He's the one applying for the USDA loan. Nothing shady here folks...we spoke at length with a USDA loan officer supervisor...person...back before we ever applied for a loan because we knew our situation was kind of "different."

In our situation...we had the BK7 in 2007 and allowed one of two houses to foreclose. We stayed and paid on the second house. Actually, we thought we had to pay...we didn't realize the loan had been discharged (but that's a whole other story). When Citi refused to modify the loan, we stopped paying.

THEN...my husband took a job out of state and we moved. USDA is asking a heck of a lot from us as far as documentation, but it appears we're going to be approved.

So...bottom line...you can get around the whole issue of having another home that's been discharged in the BK but not yet foreclosed. It ain't easy...but it's doable.

[Snax]

Thank you very much for that insight.

A quit-claim deed seems like a very viable solution. It would likely require the new VA mortgage to be in my name only and may exclude my wife's income for approval, but we won't even have the auto loan to pay off by that time anyway, so it would not be likely to cause hardship there.

[Snax]

Building on the idea of a quit-claim, it seems establishing a living trust and reassigning the deed to that would provide an even greater degree of separation in the event of foreclosure.

[Sweetpea3829]

Snax, I'm not sure if you can reassign the deed to the trust...honestly I have no idea how that would work. I know that for us, when I was conversing with the USDA supervisor, she had said that we wouldn't be able to be approved for a loan until the property was no longer in our names...whether by short sale or deed in lieu (but not by foreclosure because USDA would require a 3 year cushion from the date of foreclosure sale...though I think they make exceptions to that).

I came here and started doing some additional reading and read about some folks that were frustrated because the banks wouldn't foreclose, or were taking forever to foreclose. Some of them were asking if they could just quit claim the deed to the bank (you can't just do that). I researched what a quit-claim was and realized that I could just quit-claim my husband off the deed for the home in RI.

So...what happens is this...my husband is the only one applying for the loan. His name will be on the mortgage. Later, I we can quit-claim my name onto the deed (though I haven't done enough research into that just yet).

As my husband is the only one applying for the loan, they are looking at his credit report and seeing that the mortgage was discharged BK7 in 2007. When they check to see if his name is on the title of any properties, he comes up clean.

For what it's worth...I ran this by the USDA supervisor and asked if this would be sufficient...she indicated it would be.

As far as income...I am a SAHM and my husband is the wage earner. But...they wanted to know the income of everybody in the home. Now...the property that we still own in RI is a multifamily and so there is income that "I" am earning from rents. So that had to be reported. I'm not sure if they are going to count it as income for the purposes of DTI ratio, but I do know they were counting it for income eligibility.

So that's USDA...I'm not sure about VA, though I imagine it's probably pretty similar. What's that saying, "Birds of a feather, flock together."