Dont Understand my Home Equity Loan, post discharge ch7

[Moneypenny]

Hi there,

I dont get my loan as I heard about loans "maturing" but was not aware of this process. I have two BoA HELOCS, one has a regular payment schedule so I am good there I think. The other, I pay interest only. I thought that sometime down the road (i think it's about 6-10 years from now, I dont have access to my records right now), this "line of credit" would cease to be available, not that I would have to pay off the balance at that point.

Of course it ceased to be available the moment I filed ch7, but I am confused as to whether on this date down the road I am expected to pay it all back.

At the moment I am in my home which I guess technically these loans are discharged. I have been paying my 1st and these BoA loans on schedule.

So, does anyone know what, typically, is the case with BoA home equity "line of credit"? Is the closing date the time I am supposed to pay it all back? or can I continue paying the interest only indefinitely?

This is important since I need to figure out what to do, I will never have this money. Plus, my home is worth 100k less than what I bought it for now. I think I owe about 230K on the 1st, and another 100K on these HELOCS, while the market value is around 180K.

So, should I just assume I am going to bail out of this house, or is there some point to continuing to pay? But really my first question is just the first one about the loan.

thanks! you guys saved my life in getting through ch7 a couple years ago!!!


Mr. Moneypenny

[Drazil65]

Hi, your obligation to payback the debt was discharged. You obviously choose to stay and pay (the 1st and the 2nds) so everything is as usual and will carry on as before. If you choose to stop paying the 2nds I believe they can only file a lien against the property as they cannot foreclose ahead of the 1st, and this is why many choose to pay only the 1st mortgages to continue to stay in the house. If you stop paying the 1st then eventually the 1st will start foreclosure and if it is BOA it will be quite sometime before you need to worry about moving. If you are that underwater and do not plan to keep the house anyway then stop paying and start saving the money for your eventual move. At any rate your obligation to payback the 2nds is discharged with all your other debt so you do not have to worry about paying anything now or down the road unless you want to. Good Luck!

[Moneypenny]

Hi, your obligation to payback the debt was discharged. You obviously choose to stay and pay (the 1st and the 2nds) so everything is as usual and will carry on as before. If you choose to stop paying the 2nds I believe they can only file a lien against the property as they cannot foreclose ahead of the 1st, and this is why many choose to pay only the 1st mortgages to continue to stay in the house. If you stop paying the 1st then eventually the 1st will start foreclosure and if it is BOA it will be quite sometime before you need to worry about moving. If you are that underwater and do not plan to keep the house anyway then stop paying and start saving the money for your eventual move. At any rate your obligation to payback the 2nds is discharged with all your other debt so you do not have to worry about paying anything now or down the road unless you want to. Good Luck!

Thanks, that sounds great, but... in theory BoA could foreclose. They don't have to wait for 1st. But I guess they would need some incentive, like property values rising to where there is some equity in the 2nd.

So, my first question is: does anyone know if BoA Helocs (mines from 2004) typically balloon totally right at the end? If so, I will not be able to pay, rendering me in default at that time about 4 years from now, no matter if I pay. If at that time there is some equity, they might foreclose.

I didn't know that people typically don't pay their 2nd after ch7. I would like to either stay in the house or get a new one, but I still don't get this whole 2nd mortgage and heloc thing. Have I been stupid paying 470 a month to BoA these last 2 yrs since Bk7? So, if I just stop paying I won't have any trouble until home values rise?

My 1st, which I am current on, will foreclose only in the most extreme cases-- a special loan from my employer-- basically no way they will foreclose since I will always be able to pay.

[msm859]

Actually, the first question you should be asking is what is the FMV of your house and how much do you owe on it? If you are significantly under water you should stop all payments, continue living there and save your money until they get around to foreclose.

[Drazil65]

I think what I was trying to get across is that the 2nd cannot foreclose on top of the first mortgage (in most cases). I believe the most they could do is attach a lien to the property so that if or when the deed tried to change hands (whether thru sale or foreclosure) title would not be clear and the 2nd could kind of hold that situation hostage so to speak to get money or whatever at that time. That is why many just go ahead and make sure the 1st is paid because there are very few instances where someone can come in and foreclose on top of their 1st place lien (ie: tax sales and in some states HOA's can).

I agree with the other post that you should just go ahead and stop paying all of the mortages (1st and 2nds) and save the money to move in the future. You will probably have time on your side waiting on the banks to foreclose so take advantage of it.

[Moneypenny]

The second always has a lien on the property from the moment they issue the loan, during, and after ch7 discharge. They may foreclose at any time after you breach the terms of the original loan.

But then if they foreclose they owe the 1st and must pay it back in full, then keep the rest, if there is any. Obviously, if you are under on the 1st: no way will they foreclose.

As long as the value doesnt rise and my payments on principle in the 1st also dont shrink the 1st too much, then they will not foreclose.

The zillow price, which seems not far off where I live (sacramento, CA) is 190K. Just checked my credit report and I owe 215 on 1st, and 70 on 2nd, which is split evenly between installment payments and HELOC which I think may balloon in a couple years.

So you think I should just stop paying, let it balloon, let the whole thing run its course? In just a little while the whole 2nd debt will be well over 100K I imagine with interest and penalties, and even if I settled one day for pennies on the dollar, I would never be able to pay the income tax on the 100K plus "savings" I just made.

Or does the fact that ch7 discharge means I did not "get" anything tax-wise, since I did not owe anything. I know normally a debt settlement means you have to pay tax (less money spent in purchasing the home), but I wonder if it is different if the debt has already been discharged. Anyone know? That would make a huge difference.

[Moneypenny]

Just found out I won't owe tax on the settlement. So, the big question is what to do with FMV of 190K, current 1st 215K, current 2nd 70K. Just stop paying and let the debt and interest and penalties pile up?

Walk away completely?

median homes rose this past year, but maybe that's a rebound, or I don't know. Another wildcard there...

[HHM]

Since you are also underwater on the first, (and not insignficantly so), I would, at least, consider walking.

I guess in the short run, you should compare your 1st mortgage payment (and all the associated home ownership expenses) with what it would cost to rent. But keep in mind, with the 2nd mortgage lingering around, you are essentially renting from your self anyway, because until you resolve that debt, you will NEVER realize equity in the house. At some point, you will need to deal with the 2nd, as you point out, it is $70K now, in a few years, it will probably be $100K if you were to stop paying.

Also, do you like where you live. Since your home is so upside down (even without the 2nd), do you see yourself living IN THAT HOME, for the next 15+ years.

In your case, it is a judgment call. If you have the money, about $7K, I would get your ducks in a row (get an appraisal) and approach the 2nd mortgage with a settlement now. You might have to stop paying to motivate them to do it, but you should strike while the iron is hot, so to speak.

But, if you don't like where you live, or rent would be cheaper (also, don't just compare mortgage payment to rental payment, homeownership is generally more expensive than renting due to the various expenses associated with owning that you do not incur when renting), then just walk.

[Moneypenny]

Thanks so much!

This is so hard. On another forum which discusses settling 2nds I hear very bad things about BoA's willingness to settle. I think if they were more willing like other banks-- I would definitely go that route. On the other hand, i AM renting from myself.

I could easily settle for 7k or 17k in a pinch-- but I don't know if they will go for it. I do believe that my 1st will achieve equity in 3-6 years, which is not too bad, if I got out of the 2nd.

My other thought is to do a ch13 to stay in the house, but I am scared about what the court/legal rules will deem "enough" for us to live on.