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deed in lieu

Posted on: 31st Jul, 2007 07:30 pm
bought a house 2 years ago with an all interest loan. big mistake.the market plunged recently. tried to refinance 3 times, but not enough equity. finally put house up for rent. found a family who wanted to rent the fist house. we then downgraded to a less expensive home with a fixed 30 yr mortagage. shortly after moving to the new house, the renters from the first hose backed out. we cannot afford both motgages and are already past 30 days on the 1st house. we can't sell because the market had dropped so much and have not been able to rent the house to another party. we are fast approaching foreclosure. we have no other options. we want to willingly give the first house back to the bank. we have contacted the mortgage company and this deed in lieu is a possibility. what will most likely happen?
Hi Yahooz,

If you are not able to continue the loan payments further and also not able to sell your house, then a deed-in-lieu of foreclosure might be the right option for you. It is one of the last try you can make before the house goes into foreclosure. By this process, you will hand over your property to the lender.

A deed-in-lieu may have a negative affect on your credit report thereby lowering his score.
Posted on: 31st Jul, 2007 08:23 pm
Hi Larry,
We really have no choice. I would rather just hand it over and take the loss. It's just credit which can be built back up in a few years. The bank made over 100k in interest on it already, so they could sell the home for less than we owe and still be in the black. The DIL seems to be easier on everyone. It depends if the bank will be willing do it.
Thanks, Yahoozle :O)
Posted on: 31st Jul, 2007 08:41 pm
Hello Yahooz,

Welcome back to the forum.

The bank considers a DIL when one have defaulted on a loan. And your payments are already due for 30 days. So, you don't have to worry much. The bank will surely accept it.
Posted on: 31st Jul, 2007 09:07 pm
We had a home equity line also which may prevent the DIL. We are to up to date on it. We are willing to continue paying it. It may complicate things. I've read that the home equity goes from secured to unsecured once the home forecloses. We will be liable for it. Not sure how that will work or if it will hinder the DIL alltogether. I think the home equity line is considered a jr loan to the mortgage.
Posted on: 31st Jul, 2007 09:15 pm
Yahooz,

It is true that a Home Equity Line of Credit (HELOC) is considered as a junior lien to the first mortgage. And the lender may not also accept a DIL as he does not intend to pay for this HELOC in return. Thus, it can prevent the DIL. In that case, you have to negotiate with the lender regarding an alternative option befitting your condition.
Posted on: 31st Jul, 2007 09:46 pm
if a second mortgage exists then the first mortgage holder own't agree to a dil.

"i've read that the home equity goes from secured to unsecured once the home forecloses."

the 2nd mortgage holder will try to get a judgment against you to recover his balance or charge it off. but it is likely that he will attempt the first option.
Posted on: 01st Aug, 2007 05:33 pm
Hi,
We are current with the HELOC from the 1st huse and can continue to pay. Maybe the HELOC company will work with us if we agree to pay? My concern now is what happens to the 2nd house. We are current on all payments on the 2nd house. Maybe the HELOC from the first house will put a lien on the 2nd house we have??? Very likely since it is no longer a secured loan once the 1st house forecloses. The bank associated with the 1st house already told us today we cannot do a DIL, so we have to either short sell the 1st house or we start the foreclosure process at 90 days. It is unlikely the house will sell in enough time or that it will sell for even close to what is owed. The mortgage company advised to put the house on the market ASAP. They dont care. They just want their money. We just have to see what happens. Should we even bother to sell the first house?
Posted on: 01st Aug, 2007 07:38 pm
Welcome Guest,

Your second house has already a 30 year loan with a different lender. So it is not possible for the HELOC lender to place a lien against the second house even if he losses the security on the first house.

Now as DIL is denied on the first house, you may proceed for a short sale by which you will be able to pay off the HELOC loan on selling the house at a lesser price than what you owe. You may also go for a lease-to-purchase option. It allows you to initially rent your first house to some other person who will in turn purchase it for a set amount at a predetermined time in the future. In this way, you can avoid the foreclosure procedure.
Posted on: 01st Aug, 2007 10:40 pm
Hi Larry,
Thanks for all this information. You guys are very helpful. This stuff is so confusing! The rent to own idea for the 1st house sounds like a good idea. We will look into listing that as an option. We will be listing the house for sale this week. As far as the HELOC goes, we want to try to do the right thing and see if they will work with us because we can still afford to pay that loan. The mortgage company told us told us the HELOC will get wiped out completely. We don't believe it just goes away. When that loan goes unsecured if the home forecloses, we believe the HELOC bank will try to go after us and we do not want to file chapter 13 or have wage garnishments. That would be horrendous to have a 13 and foreclosure at the same time. I will keep you guys updated on what happens next. We hope our learnings and experiences help other folks avoid this type of situation. Thanks :O)
Posted on: 02nd Aug, 2007 06:03 am
Yahoozl, please do let us know what happens. If you are able to find some willing for the lease to purchase option then it will be beneficial for you.

Miller
Posted on: 02nd Aug, 2007 04:26 pm
Sure yahoozl, yours is a learning experience and it will help others avoid such situations.
Posted on: 03rd Aug, 2007 05:56 am
Hello Yahooz,

Welcome again to the Forum.

Even after the foreclosure, you will have to pay for the HELOC loan. And if you can still afford to pay for the loan, then there is no point to think of filing for chapter-13 bankruptcy.

Please always feel free to update the community about any further steps on your side. Your experiences will surely help other people to avoid this type of situation in their life.
Posted on: 04th Aug, 2007 02:20 am
Hi yahoozl,

If the mortgage company has already declared foreclosure, then it won't allow you to include the house into the listing. Otherwise, you can move forward with the listing.

"The mortgage company told us told us the HELOC will get wiped out completely"

It probably meant that if foreclosure takes place, the company will be able to recover the unpaid debt on the first loan as well as what is left to be paid on the HELOC. But considering the dropdown in the home sale prices, I don't think it is possible.

Now, as far as filing Chapter 13 bankruptcy is concerned, you need to pass through the Means Test, which will actually determine whether you need to file bankruptcy. However, I would suggest that you look towards offering the property for lease to sale instead of going for a bankruptcy filing.

Regards,

Jessica
Posted on: 05th Aug, 2007 08:46 am
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