Selling house after not reaffirming HELOC?

[azpt22]

I will be filing Ch 7 in about a month. I plan to reaffirm my first and not the second. My first is with Wells Fargo for $145K and second is a HELOC with Principal Bank at $113K. My house is worth about $230K or so. I'm in Az if it matters. I want to keep the house so I will continue making payments to the HELOC even though it is not reaffirmed. A couple of questions...

1. How likely is it that Principal Bank will try to foreclose if I am still continuing to make payments?
2. What happens if I decide to sell? I figure selling it may be better on the credit report vs. walking away?

[pepperoncini]

How did you arrive at your house being worth $230K?

You cannot sell your house unless you make good on BOTH mortgages via settlement or otherwise clearing up the lien attached with the 2nd mortgage. But if you did not reaffirm, you can walk away without fear of a deficiency judgment or further damage to your CR.

However, I would personally be very nervous if I had $85K in equity in a house that has a defaulted 2nd mortgage. The second mortgage can foreclose if they determine that there is enough equity to go after. But they would have to buy out the first mortgage in order to do so.

But $85K is quite a bit of equity...

[azpt22]

I used zillow.com. I am nervouse about it thats why I'm trying to plan ahead. Will they foreclose even if I continue to make payments on the HELOC? I guess I can try to buy out the lien but from what I've researched I'd be best off not paying for 180 days (so it is written off) then making an offer. The problem is I could only make an offer of about $10K or so and I doubt that will fly. Worst case.... I walk away but I'd like to stay! Any other advice much appreciated!

[pepperoncini]

Zillow is not a very reliable source for placing a value on a house. For instance, it puts a value on our house that is $50K MORE than I know it would sell for based upon realtor info and the selling prices of other houses that are similar.

The 2nd (HELOC) will not forclose if you're current. They don't want your house, they would much rather have your money! If your house is worth less than you are estimating, then there is less equity, and your risk of the 2nd foreclosing is lower.

For instance, we have friends that just filed a BK7 in central IL district. They approximate that their house is worth $100K, the first mortgage is $72K and the 2nd mortgage is $52K. They didn't reaffirm on either mortgage and stopped paying on the 2nd mortgage. Their risk of forclosure is low - they only have about $28K in equity if their estimation is correct (and I actually think it's less than that...). The 2nd is unlikely to forclose because it would cost them a bunch of money to foreclose and they would have to payy off the first mortgage to take the house.

Could you maybe have a realtor do a walk though to get an idea of how much they would list your house for if you were selling it? That would give you a better idea of how much it's really worth.

[keptdigging]

How do you determine that not reaffirming is a default?

[StartingOver08]

As long as you continue to make the mortgage payments on time you don't have to reaffirm. In general, the second mortgage is the one that pushes to reaffirm because they are in second position. There is no good reason for you to reaffirm either the first or the second mortgage.

IMO it is better to not reaffirm either mortgage, continue your payments and then sell at your convenience. If you have equity, then the equity is yours once you sell. If you have to walk away at sometime in the future due to changing circumstances, then the mortgages are already discharged and you can not be held personally liable for any deficiency. You have the best of both worlds this way.

[azpt22]

Ok looks like I just need to continue payments then. Here's another question..... My HELOC right now is at 2.5% Variable interest rate but my balloon payment is due in three years. Can I just continue to make small payments forever? Once the debt is discharged do they still calculate interest and do I still have the balloon payment?

[StartingOver08]

Both your first and your second mortgage have liens on your home. Your personal liability to repay the mortgage has been discharged (or will be discharged) in your BK. HOWEVER, the liens remain. What that means is the lender can still foreclose if you do not pay. In order to get the collateral (your property) back they have to foreclose. So, if you stop making payments they can begin foreclosure. If you do not pay what is due under the terms of the note, they can begin foreclosure. Yes, interest still accrues just like a normal loan and you still have all of the terms and conditions of your note that you signed.

If you sell the house for less than the outstanding amount of the liens, then you need to go through the short sale process or just walk away and let them foreclose (since they can't come after you for the deficiency).

If you sell the house for more than the outstanding amount of the liens, then you get the remaning equity after your selling expenses, just like a normal closing.

[keptdigging]

Unfortunately the HELOC holder's rights against the property are unaffected. They absolutely can foreclose if you don't make the balloon payment. You probably want to try to negotiate with them--perhaps there's some good advice in the foreclosure or mortgage sections of this forum.

One obvious reason to not reaffirm is that it gives them an incentive to renegotiate your loan: a new loan wouldn't be included in your bankruptcy. A more obvious reason is that you would be on the hook personally for the balloon payment that is not that far off.

[imdk2005]

I have a simular question, Filed BK7 on the 60day waiting list no assest case and the house is about 40,000 under what we own. We plan on keeping the house for now did not reafrim so my two home equity loans will be included in my BK discharge. one is 112,000 @ 5.99% for 30 years and the 2nd is 135,000 @ 7.24% for 20 years. The total monthly payment is 1900 dollars and I'm afraid once my unemployeement checks run out and if I don't find a job we will not be able to keep up this payment so I would like to work something out with the bank to re-modify our loans both loans are with citizens bank. any suggestion on how to work with the bank to get these payments down ? I know we woould have to reaffim to get a new loan but I wouldn't reaffirm unless we got a new loan that we could afford on my partner income which is only 2100 a month take home.. which means we would need the loan to come down to about 1000 to 1400 what do you think are chances are? Much thanks in advance for all feed back.

[Pandora]

I have a simular question, Filed BK7 on the 60day waiting list no assest case and the house is about 40,000 under what we own. We plan on keeping the house for now did not reafrim so my two home equity loans will be included in my BK discharge. one is 112,000 @ 5.99% for 30 years and the 2nd is 135,000 @ 7.24% for 20 years. The total monthly payment is 1900 dollars and I'm afraid once my unemployeement checks run out and if I don't find a job we will not be able to keep up this payment so I would like to work something out with the bank to re-modify our loans both loans are with citizens bank. any suggestion on how to work with the bank to get these payments down ? I know we woould have to reaffim to get a new loan but I wouldn't reaffirm unless we got a new loan that we could afford on my partner income which is only 2100 a month take home.. which means we would need the loan to come down to about 1000 to 1400 what do you think are chances are? Much thanks in advance for all feed back.

Why would you reaffirm the loan if you included it in BK? You can pay and stay without reaffirming - but from the looks of what you posted, the house is not sustainable on that type of income. However since you asked about mods - if you're looking at a possible modification - for HAMP 31% is the max for PITI (PMI is additional if you have it) - and at $2100 a month, that would be 651 max - PMI is additional and outside of your 31%. If you're talking about your payments being at the 1K - 1400 range that is still over 50% of your partners income - and its not sustainable in the long run. In-house mods work along the same guidelines in most instances but not always.

I think you really need to look at things long term and the ramifications of if you reaffirm.

[imdk2005]

I still have an additional 3 months left on unemployment and I hope to find work just not what I was making before being layed off, and if we get an extention even longer. Plus I do have some savings to tap into plus 2 401k plans.. So I could keep the 1900 payment going for awhile maybe a year Max however this is not something I want to do.. I am hoping I can get the two Home equity loans modified... but i think i have to wait until discharge to start working with the bank unless anyone has started doing this before discharge and I would need to be sure it will be modified or I wouldn't reaffirm.. I feel confident that I will find work at some point just not the 4000 range I was use too.. and I hope in the next year we can sell and maybe make a few dollars and rent for a couple of years... while trying to save again... trying to stay wishful and postive.

[Pandora]

If you're filing CH. 7 - why are you paying on your 2nd and 3rd mortgages? You should be concentrating on your 1st mortgage if you want to stay in the house as they are the first lien holder. Now that doesnt mean the junior lien holders cannot foreclose, they absolutely can - however they'd have to pay off the 1st in order to make any money at all. What is your 1st mortgage at and what is your house worth currently? Are you in a recourse or non-recourse state?

As far as savings and the 401K you plan on tapping into - that may not be so easy as you think given you're filing BK - have you exempted both of them in your filings?

[imdk2005]

I only have two home equity loans. with the same bank. my total for both are 245,000. the house is worth maybe 220,000 to 230,000. my 401k, and pention plan and a routh account we'er exeampted. the Trustee already sent a Report of No Distribution for our chapter 7. discharge won't happen until end of Aug.

[Pandora]

ahh - okay, so you owned it outright and took out the equity. Well - you still have a 1st and a 2nd essentially....and your right, you need to pay them both if you want to pay and stay without reaffirming - given they are so close to each other in value - either can foreclose if you dont pay them both.

Bottom line is once you reaffirm (which you will be doing with any type of mod) you're on the hook and cannot walk away if you sign paperwork again once the house is discharged. You still need to look at it long term and understand how the programs work (HAMP or in-house modifications) as well as the % of income it will take up to make the payment.

ETA: modifications (under HAMP at least) usually are for 1st mortgages only - so your 2nd will have to wait until the 1st is modified usually and I havent seen many 2nd's that have gotten modified.