Excellent questions as always Frank. You've put your finger on one of the biggest mysteries Frank. Where are the deficiency judgments and by what rationale are banks not pursuing them? Or if they are pursuing them, why are they not popping up in on-line foreclosure discussions?

One reason may be time and money. As most Virginia foreclosures are non-judicial, obtaining a DJ requires incurring additional legal fees for what in essence may be a 'squeezing blood out of a turnip' exercise. And yet, for a six-figure shortfall, it's hard to understand why a few more dollars isn't money well-spent.

Another reason may be 'first things first'. I understand there is a five-year window within which the lender can pursue a judgment. Maybe they are simply inundated with foreclosure activity such that a major 'Phase 2' exercise will involve a flurry of DJ's at some point in the near future.

My thinking is that if the bank issues you a 1099-C (debt forgiveness), this shuts the door on a DJ as they have effectively closed their books on the transaction, having taken their write-down.

The great frustration for many borrowers is that allwill be revealed post-foreclosure when it's too late. I can't imagine a scenario where, pre-foreclosure, a borrower can ask a lender, 'hey, do you plan on chasing me down if I decide not to honoe this loan liability?"

 By the way, I've learned more on your blog than the two hours I spent with high-priced (and low-value) attorneys. There's always a lawyer willing to do research on your tab. What is needed desperately is attorney not with 'real estate' engraved on his shingle, but with real-time in the trenches information, especially as the industry is changing its practices almost daily. So, will the real Perry Mason please stand up?

 Keep up the good work.

stan

Isn't it fun, dueling attorneys, and for $400/hr?

Yes Frank, I just spoke this morning with yet another attorney who sounded knowledgeable. He said he IS seeing DJ's and that the amount the lender bids (whether at face-value of loan or below) is immaterial. What will establish the 'cost basis' for a deficiency judgment will be the amount the bank finally sells the property for (including of course holding and transaction costs). Now, this figure cannot be known unitl the bank finally unloads the property. When will that be? I suppose that will vary from region to region.

So I guess your latest Realtor --as well as Century 21 above-- is confirming this information.

S-

Another point...

Admittedly, this is a Georgia interpretation (URL below). But I would imagine the implications of Federal Form 1099-C would be the same nationwide? Pre-foreclosure, if you can tactfully ask your lender "when they plan to send you a 1099", that may be a roundabout way of testing their post-foreclosure plans. I'm hesitant to ask outright, as why would a poker player share his hand with you mid-game? Am I wrong to apply a sort of game theory to this?

Hey I may be grasping at straws, but it's a thought. At any rate, the 1099 seems to end the nightmare and preclude the likelihood of a deficency judgment.

"The lender, if they issue a 1099 cannot then sue for a deficiency judgment. The lender can only pursue one or the other. In other words, Mary can't receive both a deficiency judgment and 1099 from the lender. You can always pray you get one:

Lastly, as you disclose to the homeowner this important information, you must inform the homeowner about the ramifications of the deficiency and the 1099. It is the homeowner's decision to continue working with you or not."

http://209.85.215.104/search?q=cache:ln4GEmEBu6IJ:www.gareia.org/web/L2.asp%3FSID%3D17%26CID%3D128+deficiency+judgment+courthouse+steps&hl=en&ct=clnk&cd=5&gl=us&client=firefox-a

Again Karen, and I'm no expert (nor are there many experts that I've been able to find), but the amount the bank buys the house back at --whether above or below the loan amt-- has no bearing on whether or not they pursue a DJ. This came out of the mouth of a lawyer today whose office I sat in. So I actually saw it come out of his mouth. Having said that, I keep hearing other parties say something different.

Furthermore as someone above also posted, the deficiency cannot be quantified until the lender has sold the property and can tally his total costs. How long will this take from foreclosure date? Who knows. That I suppose is a function of the distress of a particular region and just how deep the lender wishes to go on a distress sale price.

But what this lawyer told me (and he does primarily bankruptcy law) is that he's seen DJ's and that the bank is not shy about obtaining them. Now, this runs contary to a lot I've been reading and hearing where (for reasons unknown) the lenders have been reluctant to pursue DJ's and they are 'very rare'.

California's a whole 'nother kettle of fish. DJ's for a number of reasons are harder to get out there. Virginia clearly favors creditors.

Any attorneys want to chime in?

It speaks volumes about the legal community that two professed legal experts can offer diametrically opposed opinions on something that can hardly be called 'interpretational'. I also have noted that the guys who offer free advice are better informed than the guys who charge $400/hr before the first line of drivel comes out.

This pehnomenon extends beyond law. Competent people who are simply accustomed to knowing things are almost inadvertently generous with what they take for granted i.e. their competence. Whereas people who struggle to know things --even within their professed area of 'expertise'-- have to charge for every hiccup.

From a marketing standpoint, the guy who is a font of practically accidental information is the guy who will get real business in the future. On the other hand, the walking turnstiles are empty suits.

My vent for the morning.

-stan

I spoke in person yesterday with

William Lublin   CENTURY 21 Advantage Gold so I am confident that he is correct above. (IE I was wrong)

Frank, I tend to agree with Mr. Lublin too...

Let me also chime in (based on yet another attorney conversation) that the deficiency judgment is a negotiable instrument, that is, there will probably be a demand letter issued to the foreclosed-upon borrower before the lender goes to court (and incurs the cost) for an actual judgment. During this time and probabaly even post-DJ, there may be an opportunity to negotiate with the lender and pay for example "x% on the dollar". Of course the DJ is dischargeable in bankruptcy too. None of these are especially palatable options. But the world doesn't end post-foreclosure. Everything's a negotiation.

I'm also thinking the bank is no more a debt collector than it is a landlord. So it might sell DJ's to the equivalent of a bad debt collector for a % of face value. Then that entity will seek to negotiate a settlement with the debtor. This is my own speculation, but it makes sense.

--S

Thank you Frank, once again, for a great topic. 

A thought-- are some banks buying back foreclosures at more than current market value, because they're  just trying to protect their own "comps" for all the other properties they hold loans on, in that same area?

Local banks already know which of their loans, in which specific areas, are going delinquent.  So if that bank holds mortgages on 6 homes in a high-priced development, wouldn't they be cutting their own throats if they let one sell at a foreclosure auction for 200K less?  

Once a new, very low comp is set, it becomes the latest comp, right?

 And a 200K price drop really screws a McMansion neighborhood.

  Maybe its financially more profitable (accounting-wise) for the bank to buy back the property, even at an above -market price, and hold it on their books until such time as they need to write off the loss?  I'm guessing that what seems like peculiar behavior from the banks is more a function of generally accepted accounting principles.

rusty in Norfolk, VA

what are the rules for Dificiency Judgements in South Carolina. I own a lad there and about to go to foreclosure will the bank go after my house in NJ with DJ?

Thank you all! I just happened to stumble upon this website and it's been a revelation. I am in the process of going into foreclosure, and having been through a daunting and ultimately frustratingly futile short sale exercise with HSBC. Neither I nor the attorney I hired to negotiate with the bank could understand why HSBC did not seem interested in taking the offer we had--especially in this Loudoun Co. VA market which still seems to have yet found a bottom. The offer they made seemed designed to ensure I would not accept it. But it all makes sense now.

T

Thank you all! I just happened to stumble upon this website and it's been a revelation. I am in the process of going into foreclosure, and having been through a daunting and ultimately frustratingly futile short sale exercise with HSBC. Neither I nor the attorney I hired to negotiate with the bank could understand why HSBC did not seem interested in taking the offer we had--especially in this Loudoun Co. VA market which still seems to have yet found a bottom. The offer they made seemed designed to ensure I would not accept it. But it all makes sense now.

T

Thank you all for sharing your experiences and comments.  I just happened to be surfing the net and I found your site, which by the way is very informative.  I'm one of the ones who, unfortunately, are also going thru the scenario as Ben above.....I have a 1st with ASC and the second lender is HSBC.  We have been able to receive a contract on the property, which is in Prince William County, VA.  For those who know about home prices, Prince William has taken a beating with plummetting home values.  The company holding the 1st is currently reviewing the offer.  HSBC has made it known to my realtor, that they "prefer", not to work with the ASC (Lender holding the 1st) and file a DJ.  I'm concern that when all this is over, I still would have to worry about any DJ being filed 5 or 10 years down the road. 

These post have been wonderful. But I do have a question. What is the timeframe a bank has to come after the deficient amount?

My attorney tells me that, unless you file bankruptcy or get a form 1099 from your lender, they have 5 years to seek a DJ. At least that is the law in VA. I've been told it varies from state to state.

Here is a bit more detail about my particular situation.

Through job loss and a long period of serious illness that had a devastating impact on our finances, my wife and I found ourselves in a situation where we feared we would not be able to continue paying for our home. My salary was cut in half, and my wife too ill for us to depend on her income. We had already begun to supplement the mortgage with money from our savings. Trying to avoid disaster, we put the house on the market. But we weren’t panicked yet. We had plenty of savings. We had taken out a 2nd mortgage a year earlier to make some additions to the property which we thought would only help with the resale. But we were pretty confident we could sell.

Two of our neighbors had recently sold and done well. But right around the time we went to market the housing market was starting to dive, and dive hard. We put the house on the market and for two years (2006-2008) we tried to sell it without any luck. We worked with a very good realtor who knew the Washington DC suburban market very well. We priced aggressively to sell, we repainted, we updated, we consulted a “stager”. But the market was just stagnant, dead. After about 18 months, we were even willing to sell at a loss of $30K, but didn’t have the money to do more than that at settlement. We had not missed a mortgage payment, but we were running out of options and money.

Talking with a good friend in the mortgage industry, it was suggested that we contact our lender (HSBC) and work with them try to short sell the house. We went to a HUD website, read about short sales and then through HUD were put in touch with a credit counselor, who reviewed our financial status, and eventually acted as an intermediary in approaching HSBC. We were put in touch with someone in HSBC’s loss mitigation group, who agreed to support the short sale, dependant on their approval of an offer, an appraisal, and a hardship letter and a bunch of financial data from us. We submitted every thing they asked for, kept them apprised of our progress.

After trying to short sell for 5 months we finally got an offer. The buyers, a relocating family, were non-contingent, had financing secured, and were willing to go to settlement as quickly as we could. Our mortgage was $700K, with a first trust of $550K and a 2nd (both with HSBC) for $150K. The buyers agreed to offer $590, pick up any points. We sent the formal offer to HSBC with all the accompanying paper work they requested. They sent out an appraiser and told us they would be in touch.

I took them 2 months to get back in touch with us. I called the Loss Mitigation rep I had been working with and he told us everything looked good, although he would not tell us what the house appraised for. He then told us that HSBC would take the deal, only if we agreed to pay $1600 per month for 5 years. It was a high pressure, scare tactic approach. He began to go over our expenses, but wouldn’t share the document he was working from. I reminded him that he had told my wife that HSBC was not looking to recover the 2nd trust, but to cut their losses on the first. I told him we were willing to pay back some portion of the 2nd trust, but that we could not afford $1600 per month, and that it was a ridiculous amount. After a lot of insults and histrionics from him, I told him to send us an offer in writing and we would look at it and get back to him. He refused to do it, and told us that he would recommend our short sale offer not be accepted. We were dumbfounded by the guy’s attitude. He didn’t seem to care about the offer either way. So, we went to a highly respected real estate attorney in the area and had him negotiate with the bank. He advised us to move out of the house, and to stop paying on the mortgage—which we would have soon had to do anyway, as our savings were just about gone. He tried for weeks to contact HSBC and negotiate a settlement, while the buyer patiently held on. To make a long story short, the bank wouldn’t budge (their counter offer, $1000 per month at 3% for 10 years) seemed designed for us not to take. Our attorney, who had been practicing law for 25 years could not understand it. He was as dumbfounded as we were. He thought dealing with the Loss Mitigation rep was a waste of time.

Eventually, the buyers purchased another property. Our attorney sent HSBC a letter (faxed and mailed per HSBC) basically telling them that since they would not take the short sale offer, that they could foreclose on the house as we had move out and had the house professionally cleaned. He requested a deed in lieu of foreclosure, and that HSBC they should work with him directly as he was representing us in this matter. HSBC has never replied.

So now, the house has been vacant for 7 months. HSBC has not foreclosed, and calls us several times a day. At first, we’d take the calls, telling them the situation each time and referring them to our attorney, as he had instructed us to do. For a while, HSBC called the attorney too, asking him the same questions about the property, he explained the situation a few times and then asked them to stop calling unless they were planning to take some action. HSBC continues to call us several times a day. But we stopped taking the calls. This all seems so crazy. We feel like we tried to act responsibly in a bad situation that was largely beyond our control. It wasn’t ideal for us or HSBC, but we did everything the HUD website we initially went to had advised us to do.

We have no idea what is going to happen next with HSBC, or why they did not take the deal. As the attorney explained they could have taken the deal and still come after us for a DJ, but would have greatly reduced their expenses and loss.  It’s history now. But we’re left wondering they did what they did? Is this some sort of strategy on their part? We’ve bought and sold several homes in our lifetime, but we never dreamt we would find ourselves in a situation like this at this point in our lives.

You have and are going through a difficult situation.

I would encourage anyone who is going through financial hardship, or for those who are foreseeing hardship....CALL YOUR LENDER!!!!  They will know all the options they have available that could assist their customers.  Also, with the real estate market changes that are occurring, you should check back often with your Lender.  Lender's hardship programs are constantly changing.  What they may not accept in June, they may in July or August.

As far as the DJ is concerned, VA is wide open for banks to pursue judgements.  However that doesn't mean they will.  Just because they decide not to pursue a DJ doesn't release one of the deficiency balance.  The outstanding balance will collected on by the bank's internal collection team, agency, or they will sell the debt to a third party.

My husband and I make good money, have pretty much perfect credit scores in the 800's and have paid our mortgages (we have a townhome and a single family home) faithfully for three years.  My husband bought our single family home before we were married.  All his initial paperwork said he signed into a 5 year ARM.  His actual bank note said a 3 year which adjusts in August for both houses.  My husband realized this when we got the paperwork on our adjustments which will up our mortgage amounts $2500 a month for both houses.  We could afford to take a small loss up to $50,000 to get out of of our single family home but it has dropped $125,000 in value in the last year so we can't sell.  We can't refinance, obviously.  We make good money, $180,000 a year between the two of us but we have two kids that we pay about $20,000 a year for between baby food and diapers and childcare.  How the bank could ever think that we could afford an additional $30,000 a year in payments is beyond me.  So, for Tina Merritt, not ALL homeowners are just deadbeats that don't want to pay their loans.  The number of people escaping to second homes I believe is probably much smaller than people like us who will be "escaping" to a much cheaper rental home for the next few years until we can get back on our feet. 

In any normal market you could sell your home for a reasonable loss or refinance your home for a reasonable loss.  This is not a normal market.  Even without what I pay for my kids I couldn't afford an extra $30,000 a year and my husband without all of us and my income could NEVER have afforded the adjustment by himself.  The bank should never have given him a loan that could overextend him so much after adjustment.  There is a lot of shared blame between both the homeowners who bought in an overinflated market and the lenders who gave out ridiculous loans based on a profit giddy matrix. 

In Virginia, a deficiency judgement can definitely be pursued which we're terrified about as we've asked to work with our lender on our loan but I am not holding my breath that they will come up with a reasonable solution.  However, we've been told that we can pursue Chapter 13 if the lender does come after us after foreclosure to get the balance discharged.  It's a horrible last resort as my husband's perfect credit score would now be trashed for the next 10 years but it's better than not being able to feed our children or to have to have our family live in a slum when my husband's wages get garnished.    Who knows?  Maybe my bank will be reasonable and freeze my current payment on my home so we can stick it out and meet our obligations until the market allows us to sell 15 years from now.....but from everything I've read, that doesn't seem like it will happen. 

I am actually in the mortgage business and have looked at this from several standpoints.  My wife and I took out a loan in 2005 for 350 and a heloc the next year for 25K for improvements- the home appraised for 400 in August 2006.  As I write this I have gone through 3 arm adjustments have beend denied twice on a loan modification and have an offer on the home above for 195 cash. I took out a bad loan- period. They asked me why did I not want a repayment plan-LOL- I said because the home has dumped 200K- it's interest only for 10 years and the payment is 3600 per month and the terms have not changedPeople played lottery with real etstae.  It amazes me when people say I cant beleive or how dumb-talk to the agents and LO's who set records from 03-06 and the businesses that profited in the boom.  Everyone on this blog knows wether thier market will go back to the dprices they once were.  Mine is no- I have worked with agents who walked away because they put down money and will never recover it back- you can repair credit but even investors will tell u losing your cash is the worst of all.  Agents, LO's, all played the lottery on real estate and loss- so are we bad people - no- just made bad choices- Freezing rates, repayment plans do nothing for those with bad loans- In 2006 all we did were 80/20 2 year arms because no one was pushing FHA and sellers were only taking conventional contracts- We had situations where professionals told clients not to use the VA eligibility and do conventional arms- - It was a trend like anything else and now you cant even get those loans anymore becuase now the banks realize- hey we dont make money if people cant make payments- so now the subprime clients go FHA on a home that they can actually afford in a mortgage that wont change and they put 3 percent down or save money- 2 much new money not being educated on how old money did things and I was one of them.

Wow, glad to have stumbled across this forum.  We just received notice of foreclosure yesterday by the lawyers HSBC hired.  The letter was dated July 9.....just days before Indymac folded.

More details are below.

My mortage is with HSBC as well as some of the other posters on this forum.  After a layoff, and nearly one year with no income, my salary was cut by 60%.  I accepted a new position completely outside my field but it was all that I could find.  I had already been using my savings to pay the mortgage for the period that I was out of work and ended up depleting my savings when the ARM adjusted.  And this was after one approved loan modification.  I tried to refinance but the value of the house was just not there.  Moreover, I used credit cards to survive during my job loss (after depleting my savings) so my 786 credit score fell to 640.  Not sure what my score is now that I have a 30 day late for my mortgage showing.

I completed all of the paperwork for a short sale and had buyers ready to go.   HSBC would not approve the short sale unless I contributed.....but my savings had already been depleted and my credit card debt was ridiculous.  I worked with a short sale company who explained to HSBC that my contribution was already spent in keeping up with the mortgage payments through the date the short sale was to be approved.  Had it not taken about 6 months to get an approval, then those mortgage payments could have been the contribution.  I had not ever missed a mortage payment, even when out of work for almost 1 year, but that did not seem to factor into the short sale approval.

From what I understand (although I was never allowed to see it) the BPO came back at $275,000 and the offer was raised from $250,000 to $265,000.  The house was purchased by me for $377,500 but with the market the way it is, there is no way to get more than $300K or even $275,000.  The buyer was willing to settle ASAP but HSBC kept asking for more money.  By the time HSBC was done, they wanted $280,000 and the buyer walked.

The Loss Mitigation rep called me (and not my lawyer or short sale rep) to try to get me to agree to a $100,000 deficiency judgment.  I refused.  The next step was to ask me to cash in a retirement account and again I refused due to the penalties associated with cashing in and also the fact that the account was nowhere near $100,000 and I'd still have the deficiency judgment.

After a lot of back and forth, the house is now vacant (since April) and I stopped paying the mortgage.  I sent in a cease & desist letter to have the daily phone calls stopped.  The next step, now that the foreclosure notice has been received, is to request a deed in lieu of foreclosure.  Somehow I doubt HSBC will reply. 

I tried to act responsibly in a horrible situation but that did not matter.  The house has been on the market for nearly a year with no real bites.  I depleted my savings in trying to be responsible and keeping up with mortage payments. Even my short sale agent was confused and advised that I stop paying the mortgage rather than beg & borrow to keep up with payments.  Maybe now that Indymac has folded, HSBC and other banks will be more agreeable to short sales & a deed in lieu of foreclosure?

Hi Kat and Frank:

Actually, check with a lawyer on your retirement account.  Kat, smart decision not to tap into your 401k.  It is irresponsible to tap an account that may be the only way you'll eat something besides cat food in your old age as we all know Social Security will most likely not be available in the next twenty to thirty years.  I have heard that it is federally protected as long as your 401k was not listed as collateral for you to get your original loan from the bank for your home.  They may be able to garnish your wages....I did hear that but not tap your 401k.  They cannot take it from you.  Any smart judge would not require that you drain your retirement savings to pay for a bad situation for all involved.  If the banks didn't require other collateral on the loan besides the home, the banks deserve to eat the $100,000 for their risky behavior.  Sorry, Frank!

I wanted to take a moment to share with this group my personal experiences of having just gone thru a Short Sale.  See post on 6/23/2008 11:51am by Joe....

I finally closed on July 31, 2008.  The banks finally accepted the terms of the short sale.....In summary, they took the 203k being offered by the buyer and accepted to discharge the rest of the outstanding balance of 375k.....I didn't have much in my savings so they took it all $7100 as part of the settlement and forgoing a Deficiency Judgement....What I've learned in this episode is that having legal representation is your best option....Luckily, I had a real estate agent, that's been in the business for 20 years and suggested I also hire a Real Estate Law Firm to negotiate with both lenders on our behalf.  It also helps to keep in touch with your lenders and keeping them informed...

Good comments by all.  I am seeking information on whether or not a DJ can be exercised out side of the state that it was filed?  I.e. If i live in California and have property (Land) in Virginia.  While i realize the bank can file for a DJ in Va. can they come after me in Ca?  I have no other assets in Va. While I would like to continue holding onto this property and sell it before the thoght of foreclosure, I cannot see that the market will change in time to avoid this. The property although in a great location is just not what it was when i bought it 3 years ago. The plan (by my RE agent, I and my financial advisor was to hold onto it for 3 years and then sell it.  I could afford the 3 years, but of course we did not predict it was be this bad.   any thoughts?

Great reading, Scary as well. There is just not enough education for any of use to realy know what to do . I have been all over the web getting key points to research this topic. Really its a real no win at any level. Seems like they want you t pay up pay the balance and the govt wants the taxes on it !!! GEEZZ what are people to do. !

Alison Creamer
www.bzibee.com
REMAX Allegiance

Just wanted to post a follow up.

HSBC did foreclose and apparently bought the house back at the auction for LESS than what the short sale buyer offered.  I got a collection call & subsequent letter noting a $121,000 debt.  It's not a deficiency judgment - just a collection letter.  I spoke with the collection agency and explained that I had not received any litigation notice, default judgment or any indication that the house had even been sold....or for what amount.

It does not follow that they are seeking $121,000 from me as a deficiency when they have not even sold the house.  It's allegedly on their REO list.  I am going to ask for a debt validation.  I also called the county court and learned that the house is still in my name - weeks later.  The clerk said that his records are usually updated less than weekly such that any transfer of deed would be updated by day 4.

Just wanted to add that one can keep a retirement account through bankruptcy.  I spoke with my attorney about this.  I also learned that the creditor can put a lien on the account but they cannot actually take it.  The lien would stop the 401K account owner from cashing out the account.

Follow up from 06/25/2008 04:41 post

Last week our home was sold at auction by HSBC for $420K. The house has been vacant now since Feb. 2008. HSBC had send us mail in August, announcing that the home would be auctioned that month. But for reasons still unclear, the auction date was apparently changed to Sept. I was curious to see what the home would sell for, so I ask my old realtor if you would attend the auction and find out. The opening bid advertised in the newspaper was $550, but our realtor told us the bids opened at $430! Our realtor ended up buying the house himself. He told us he didn’t go there with that intention, but he said it was a ridiculously incredible deal. Honestly, something about that, was a bit disturbing.

I called our attorney and told him what the house had sold for and he was stunned into silence for a moment! He told us it made no sense. "The short sale offer was for $590K,” he again explained. “the buyers might have gone to $600K if the bank had taken any of this seriously. And even is they had accepted the short sale offer, they could have still come back for a deficiency on the difference between the short sale and the mortgage. I just makes no sense.” He wants us to get back to him the minute we hear something from HSBC.

We’re waiting to see what HSBC does next. Our current attorney says that there is a part of bankruptcy law that requires that a  lender make a good faith effort to mitigate or satisfy a debt when possible. He clearly believes HSBC did not do that. Another attorney told us, bankruptcy courts (under chapter 13) don’t care that the lender could have sold the home for more money and avoided foreclosure. They will make out a 5 year payment play to repay as much of the deficient amount as possible. We’re not sure what to believe. We’ll just have to see what happens. We did have an issue with paying back some portion of the debt—we just didn’t have the $1600 per month that they insisted upon.

Both attorneys believe that HSBC will eventually sell of their bad credit debt for pennies on the dollar, to a Liquidator, who would then pursue a deficiency. Both said they have never seen a bank do that in the past, but the number of foreclosures is unprecedented and they expect a more focused effort to mitigate loss.

Thanks for sharing your information. Yes I have heard of the concept of needing to mitigate the damages

We would argue that, the house bid for what it did because the market for homes in that  price range ($500K+) is still falling and has yet to find a bottom. Is short, it's worth less than it was in Feb. What remains baffling to us, and to our attorney (and another attorney we saw for a 2nd opinion) is why HSBC did not take the short sale offer in Feb. They would have gotten $200K more for the house and could still have come after us for a deficiency for the rest--which we offered to pay, just not to the tune of $1600 per month for 5 years, which we clearly didn't have.

In the rear view mirror now, but we're anxious to see what HSBC does next and what the VA court or bankruptcy court has to say about all of this.

Hey Ben, I was just thinking about your situation.

I thought that homes bought on the courthouse steps required like 10% cashiers check at the time of the auction. So the Realtor might have had to go to the bank, take out a massive bank check and then bid. I might be wrong. But it really isn't their fault. If they didnt buy it, the next person would have for $10k less.

Just seems shady to say that they just had to do it, when it might have been very planned.

I must apologize first, things written here are not intended for insult to injury, just had a story on a fella with a DJ and his coping and a few statistics to add to the books and i just got carried away.

I own a business in that is a service business. We cover Richmond to Lorton, had 13 trucks on the road daily and was well established. When all of this hit i saddled up and said its going to be a long ride, i had one employee who left his home and moved back to Fl., and i had 2 others forclose and start renting. I was trying to figure out what the heck was happening, and i noticed the time of employment, the money they were making and the homes bought. As an employer i always thought it was my responsibility to always have work for employees and to try and carry a few during bad times. I truly believe that the younger generation, who bought homes pre 2004 or so suddenly saw that they had $$$$$$$MONEY (equity)so to speak and everyone of them who had troubles were the ones driving to work in a new truck or motorcycle, heck we even had a guy buy his wife a BMW M3 from a refi.....i guess in short they went from refi to repo and looked to me to "HELP" them out. I decided that i would privately help an employee, word got around cause you cant trust anyone, and ones who were too far gone started to quit, they were jealous. I can see their point, why can't he help me or me or me, but we all have to look at situations 1 by 1. Keep in mind my lowest paid employee at the time was making 25k a year w/ benefits as a helper/apprentice. Thats roughly 2k a month full medical, and 401 k, my highest paid employee was a salesman making about 140k, full benefits and 401k, What i noticed was the guys having problems were the ones making the most money, the salesman never had nor has had any problems, but the guys making the 70 to 80k per year are the ones who had trouble. The helpers and the mid level guys were on track, secure in their jobs and budgeted their lives. I ended up helping out an employee who was making 45k per year, his wife got into a car accident and the car caught fire, her job was gone instantly, their 3 yr old suffered minor scrapes, god love car seats and quick responding EMS. Anyhow, this was a guy who needed help, and support, time off, i paid it, he worked every other day for 6 months always tired but had determination, i changed him to salary at the amt he was making w/ overtime for a steady check. With his wifes job gone, and dealing with surgeries and being a single dad for a few months he started to get behind, i got him an attorney, and then came some insurance money (too little too late)from the accident, well now its been 1.5 yrs, home foreclosed, he is renting, rebuilding and has a positive outlook on life, but he did get hit with a 30k DJ, and he is paying it at a tune of 500 per month garnished from his wages, this man has sucked it up and says it is what it is and actually puts the blame on himself for not being able to pay his debt. If anyone needed help it was him, i am tired of hearing about the guy who stated his income and signed on the line. Those loans NO DOC loans were designed for people with excellent credit, who pay bills and dont look at their money as how much can i spend. I have 2 sides to the forclosure and short sale, if you bought more than you could clean then you didnt need it nor could afford, now you have a mortgage 2 times the amount, you are in debt because you lived a lot on credit cards, you kept up w/ the Jones family and you want my taxes to bail you out 700billion hmmmm and this is the first wave, I say let it fall, just as equally dumb are the lenders, when i bought my first home for 40k i went through hell to get the loan, my parents had to co sign for me, then i sold it and bought a new home for 140K same deal, went through hell, this was pre Y2K and lenders were tight, what we are experiencing is a bust like 87 it will get better. I actually almost lost my home 5 yrs after, i was in a slump couldnt get business to save my life, i fought, sold cars, had a yard sale sold furniture started liquidating, when i was done catching up we had no furniture, just mattresses and crates, no tv no phone no nothing, but we made ends meet, we need to get back to basics. Priorities, if you bought it at 300k and its only worth 180k, keep it, the market will come back, but then again its not instant popcorn like the younger generation wants to hear. Or if you bought it at 300k and have only had it a couple years heck you basically lived free, you probably put no money down, or refied the heck out of it, go ahead walk away, if you refied 100 percent you probably got 50 to 100 k within 2 years blew it on a kitchen or a car, and only paid back a portion. Take the hit, pay the DJ if you get one and be happy that you are done with it. Quit asking how to get out, the only answer to that is IF you qualify you can file chapter 7 bankruptcy, and be free and clear the lenders will tighten up and you wont be having a huge mortgage in the near future but your stress will go away,  or you can sell the car, the bedroom suite, the plasma, the dining set and start digging. If you would get rid of what you do not need this forum wouldnt be around and people like Tristan & her husband are not dead beats they just dont know how to read a loan contract page by page, if it said 5 year when you signed then it said 5 years when you left with your packet and paperwork that you had in your hands with a recission notice, next time Open it up and re read the entire contract...duh, i highly doubt the mortgage company just said kmmm lets see if we can adjust this rate 2 yrs early.

You're right Frank. I don't really fault him. But it felt shady in that I believe he went there with the intention to buy it--especially know how much money we'd put into the place when we were trying to sell it those 2 years. We eve had it professionally cleaned when we moved out. My Mrs. is livid, and sort of blames this guy for not being able to see the house in the first place. I'm not in that space. I don't think anyone could have done much to sell in this market at that time. Bad things happen, people often look for someone or something to blame. I'm not in that space either. Just focusing on regrouping and getting back on my feet.

The only thing that bothers me still, is that fact that HSBC turned down the short sale for no reason, and then ended up selling the house at auction for almost $200k less! That and the fact that they didn't seem to care if it went to foreclosure or not.

Let me presage my comments by stating that I'm a Realtor, NOT an Attorney. IOW - I'm just a guy commenting on the internet. 

I realize that Attorneys can disagree on this issue, and like everyone, they can be informed, or misinformed. Whichever the case may be with regard to the said Attorney, a GREAT DEAL of trouble and expense can ensue from any attempt by a lender to SEEK a deficiency judgment, or to a borrower in DEFENDING against such an attempt. (Did I mention the potential involvement of Attorneys?)

In both instances, the matter is essentially a BUSINESS DECISION, and a negotiated settlement is the best course. I.e. - do a short sale and negotiate the matter rather than going through foreclosure.

Virginia is a non-judicial foreclosure state.  However, it does not have an anti-deficiency statute.  A lender may seek a deficiency judgment legally.  My understanding is that VA is a "Single Action" State, meaning that a lender choosing to foreclose does so in lieu of filing a judicial action.  I do not know that with absolute certainty. Here's a link discussing that: http://real-estate-law.justanswer.com/questions/182js-regard-state

Whatever the required procedure, it seems clear that a lender CAN seek a deficiency judgment.  It seems imprudent and unlikely that a lender would sue a destitute homeowner from whom the likelihood of recovery is minimal.  But Corporate America generally and Corporate Lenders particularly cannot be said to be steadfastly prudent!  (;->>  Clearly, if a homeowner has substantial assets, it would seem prudent to take legal action to recover some of a deficiency.  Again, negotiation is the best course.  Settlement is the best outcome.

The next issue with regard to deficiencies and enforceability is the nature of the note.  Is it Recourse or Non-Recourse?  Read the fine print.  The Devil IS in the details.  My undertanding is that  "Purchase Money" First Mortgages in VA are typically Non-Recourse loans.  If one has a second, or has refinanced, it is likely that the new second or refinanced new loan is Recourse.

An expert from Arizona comments as follows on that point:

"Is a mortgage by nature a non-recourse loan? Or can a creditor that secures a deficiency judgment go after the debtor's other assets?

A mortgage is not a loan; a mortgage SECURES a loan, and the loan is evidenced by a promissory note.  So, the mortgage secures payment of the note.  The degree of security a mortgage gives depends on the terms of the mortgage and the note, but a major distinction is between recourse and nonrecourse mortgages.  A nonrecourse mortgage is one in which, by the terms of the note and mortgage, the mortgagee (creditor) agrees to look solely to the secured property to satisfy the note, in the event the note is not paid when due.  That means that the mortgagee can seek to have the property securing the note sold and have the proceeds paid to the mortgagee to satisfy the note.  However, if the proceeds are insufficient, the mortgagee has no recourse to the other assets of the debtor.  Generally, a note is an obligation to pay and must be paid in full.  So, unless a note is explicitly nonrecourse, the creditor can seek to apply any of the debtor's property to its payment (subject to bankruptcy limitations).  The general rule therefore is that notes secured by mortgages on property are NOT nonrecourse.  The major exception comes from the antideficiency statutes, common at least in the western states, that apply generally to mortgages securing loans on personal residences. " http://homepages.law.asu.edu/~dkarjala/Property/Discussion%20Board/RecourseVersusNonrecourseLoans.htm

 Remember, VA does NOT have an anti-deficiency statute.

Here's some worthwhile commentary by a well-known CPA in San Jose, CA about tax issues and recourse and non-recourse debt in regard to foreclosures, short sales, and SOL (as Frank calls it) property in general. http://www.realestateinvestingtax.com/shortsale.shtml

Hope this helps!

Ernie Dill

Coldwell Banker Elite

Fredericksburg, VA

www.erniedill.com

emdill@gmail.com

540-841-1825

Thank you all for your help.  After a divorce I ended up with a condo that my Ex-wife insisted on buying as an investment.  We bought the condo in 2006 under my name and I take full responsibly for buying it.  Although, I was against the idea of buying any house/condo at that time.  Regardless, she ran away leaving the condo in my hands and I truly tried for a full year to be on time and make all payments.  The only way to do so was to use my income to pay for it and credit cards to survive... not adding divorce fees that I paid for. 

Long story short Bank of America foreclosed on the condo in August and now when I log into my Bank of America accounts I see a difference of 180K.  No one has called me and I did not hear from Bank of America.

It goes like this Used credit cards to live and income to pay mortgage when that did not work for over a year I left the condo and started to pay Credit cards, However, I was hit with school loans. 

It's sad no matter how I look at it because all I did was to trust my ex wife judgment and agree with her and today I am the only one suffering and about to file for BK. 

I am not sure what a BK would do to my job, new jobs, life but I think it's the only way out.  Although I can pay my credit cards and survive for the next 3 years but I am worried that Bank of America will come after me with DJ and then where will I get 180K!!!!

Bottom line is it was my mistake and some how I will pay for it in fact I been paying for it.

Oh her credit did not get damaged she was not on the loan

I guess this is fair life

 It is not about bad homeowners.

In 2006 I had a new born baby, and he had problem at the first month caused me to keep him in the emergency room, and as a result of his health status the Potomac hospital asked to transfer him to another better well-equipped hospital by air in order to get the proper treatment. During that year 2006, and as a result of the medical bills, loss of job and the mortgage payment adjusted to be $700 higher I could not make my payment, and I called my lender and they refuse to provide any solution except asking me to borrow from relatives or friends to make my payment unless they will foreclose the property. I tried to short sale it for a year and it is still on sale but the lender keeps delaying responses and asked higher than their appraisals and the agents estimated the price to be. After 1 year, I found the lending company sold its assets to another lender known as a collector, and I don't know what the next step is. I tried my best to make the short sale works but it did not. The price kept dropping and 2 buyers cancelled because they could not wait so long to get the response from the lender.

I live in Northern Virginia, and I tried my best to pay my bills on time, and sometimes I used to pay more than my mortgage payments, but that never counted with my lender and it did not help my situation. The lender started the foreclosure process and I had to rent a condo and live in it. At the same time my agent and I are trying our best to get an offer and avoid foreclosure and possible DJ or Chapter 13 because I read about Litton Loan Servicing that the sue homeowners after taking over their houses.

I have a condo in FL that I have tried to short sale for almost a year.  I have offered the bank a deed in lieu of and they claim they are willing but that the PMI insists upon a $10,000 note or they will not approve it.  Does a PMI have the right to approve or not approve a deed in lieu of?

Boy can I sympathize with everyone.  We sent paperwork to WAMU for our short sale back in May 2008 with a contract in place for $411k.  Our hardship letter specified to WAMU that we contracted with a builder in 2004 to have an addition done.  That builder (now one of America's Most Wanted, for real) took alot of money from us and about 60 other families in Northern Virginia.  He left our house in an uninhabitable condition so we had to refi with cash out in order to finish the addition.  It took about $60k. Then I lost my jobs (I was underwriter for several title companies) due to the fact that the companies I worked for closed shop.  Being in the real estate business there was no work to be found. 

We refinanced again to get an interest only loan so that we could afford to make our payments (so we thought).  It got to tight so we listed our house for sale and my husband got a transfer to the place that we would be going to live which is alot cheaper than Prince William County.  After a year with no sale we decided to go with the short sale process and lowered the price on the house  After getting a contract on the house we sent the paperwork to WAMU in May and they did not get back to us until August with a counter offer of $435k which is what their appraisal came in at.  Our buyers bank wanted to see the appraisal to justify the amount and WAMU would not release it.  Therefore, our buyers bank would not approve the amount.  We lost our buyers. 

We immediately found new buyers and sent in the new contract in August with the $435k price that WAMU wanted.  We thought it would be a quick process since the short sale was approved as long as WAMU got their $435k.  Well, we did not hear back from them until November and were told it would be a few more days. NOT!

Did I mention that I was diagnosed with a brain tumor in June and had brain surgery in Sept.?  They could not remove all of the tumor so I have been waiting around for the banks answer so that I know where to schedule treatments that I will be needing to go through and yes the bank is aware of this too.

Anyway, it is now January and the bank finally got back to me with a denial letter (from Bank of America?) saying that none of my reasons are valid for a default.  We have not paid our real estate taxes and now the medical bills are rolling in from my surgery and we don't have enough money to pay all of these things with just my husbands salary. 

The mind boggling part is....our loan payoff would be $453k and the contract is for $435k.  The bank would rather pay for the foreclosure and try to sell house themselves than take a hit of $18k plus closing costs.  I don't understand.

Thanks for letting me get that off my chest!  If anyone has any advice, please feel free.

CLAW

Frank,

Yes, we are still paying our monthly.  We completely drained our savings and have borrowed from relatives to do this.  Our reason being that after the short sale we wanted to be able to buy a MUCH smaller home in a much cheaper area that we could afford on my husbands salary. In order to do that we wanted to keep our credit score a good rating. We had people tell us that we needed to stop our payments but in the beginning we had a hard time accepting this because we are proud of our history of no late payments.  Our credit score is in the 800's or was until we made a payment late in November.

WAMU just called me this morning after receiving several emails from myself and my realtor responding to the denial of the short sale.  The investor has decided to review our case again and will get back to us in a couple of days.  We'll see what happens!

I want to thank everyone for posting this information. It is very helpful to me. Long story short, we are facing either foreclosure or bankruptcy. The loan is only in my name and we've just realized that the mortgage broker pulled a stated income loan to get me approved (we were trying to figure out how a bank approved me for a 348K loan when my annual income was 46K). We bought in Prince William and our home has now dropped almost 150K in amount owed vs. appraised value (as of 07 assessment). We have also struggled to make our payments as my husband works in finance and we didn't want to contribute to the failing economy but we are now completely out of funds. We relocated in 9/07 as it was the only way for my husband to keep his job (I'm lucky and was able to transfer he however interviewed for 2 months before he finally gave in and signed the relocation package). We rented out our town-home but are only able to get 1200 out of a renter and we actually feel lucky at that. There are close to 2000 pre-foreclosures/foreclosures/short-sales/bank owned/REO properties in our zip code alone (based on web-searches. I'm no Realtor :). We've gone through all of our savings and have roughly 1500 left. Aside from the house we are almost debt free (we pay cash for everything and always purchase used older cars. Our brand new car that we bought in October is a 2005. We have never refinanced as we were never able to (we have always owed more than the house is worth) and we've never taken out multiple mortgages, etc..)

I'm just wondering, someone from South Carolina had posted about seeking deficiencies against a property where the owner no longer lives. For instance our Town-home is in Manassas but we live in IL (and yes we rent. we did not buy as we knew we could not afford a double mortgage). Is anyone aware of how this situation would be addressed during a VA foreclosure and possible DJ? We have no assets that could be taken, unless they wanted to take our car but we really do need it as we also have a 9 month old son).

Any advice is greatly appreciated.
Frank - Thank you so much for this wealth of information that you maintain. I am definitely bookmarking this page :):)

My aunt is going through a divorce.  She recently moved back to California.  During her marriage, she and her ex purchased a 2nd home as an investment.  The mortgage is in her name only.  Now that second home is about to be foreclosed upon and her ex is trying to convince her to remove her name from the title of their 1st home (it is currently being rented out as her ex is living with his parents).  His rationalization is that if the bank comes at her with a deficiency judgment, they won't touch the 1st home because her name is not on the deed.  What should she do?

i'd like some advice, please.  i'm a social worker and have very little interest/knowledge about real eastate and foreclosure but here's the situation:

i have a home in va financed for $95k with a heloc of $35k.  my wife recently inherited her father's home and we moved there.  i am currently renting my house for roughly $300/month below the total mortgage payment.  i realize these are low numbers but remember my occupation.  my wife is a legal assistant.  our other bills, including car pmts, insurance, credit cards, medical stuff, and expenses at this house really have us living paycheck to paycheck.  i guess my question is this: am i stupid to consider walking away from my house and letting it go to foreclosure?  i can't sell the damn thing because of the market and i hate relying on strangers (the tenants) to keep me out of ruin.  any advice will be greatly appreciated.

If a bank gets a DJ, can it garnish wages to collect?

I wouldn't see why not. Sure. If a condo can garnish wages for unpaid condo fees, a DJ is much more powerful.

Another chapter in our saga, since our last post (#49) of Sept. 25, 2008. We've been able to pay off all of the debt we incurred over the two years we tried unsuccessfully to sell our home. HSBC's refusal to do the short sale and subsequent auction of the house for $200k less than the short sale offer, are now history. We've moved on. Life is getting back to normal, we're  renting a modest home, saving money, trying to get back on our feet again.

Last month HSBC sent us a form 1099-C, basically canceling the debt of the first trust on our former home. Our attorney says we are clear there, and our accountant says the new rules will make it so we do not get hit with a big tax bill as a result.

We've now begun to get calls from FASLO Solutions--debt collectors, we assume for the 2nd trust ($150K, also with HSBC). They call twice a day; once in the morning, once in the evening. Not sure how this will play out. Still kind of baffling (if you've been following my posts beginning with posts 21&25) since we offered to pay back the second trust--at least what would have remained of it, if HSBC had taken the short sale. We just could not pay at the rate of $1600 per month for 5 years, that they demanded! But it is what it is.

Stay tuned for the next chapter in this saga.

To:  Ben

This is real simple.  File a cease and desist letter with FASLO solutions.  After one to three letters faxed into them, they should stop calling.  Otherwise, your lawyer can create one inexpensively.  I fax in these letters quite often to collectors and they work 85% of the time.  Don't let your nice lives be concerned with low income filth (credit collectors). 

Take a moment to think back in your life, "Have you ever been taken advantage of in your past?"  I'm guessing the answer is yes (at least once).  Now, you are taking advantage of someone else and you are in the driver seat with the ability not to pay.  Get the phone calls stopped and never think of them again.

We have an attorney, who has been with us through this whole ordeal. It is my understanding that the collector has the right to try to recover the debt for 5 years, in VA anyway. So while we made the bank an offer which they refused, I'm not sure there is anything we can do to get them to stop calling. Honestly, they can call until the stars go out for all we care. Our consciences  are clear; we made a good faith offer to settle the debt and the bank refused. There is not really anything more we can do.

Besides, the calls are meaningless unless they are willing to take us to court over the 2nd trust debt. And that is out of our control. As  mentioned in our last post, HSBC sent us a 1099-C, effectively canceling any debt on the first trust. At this point, we're not even sure whether FASLO has purchased the 2nd trust paper from HSBC or is merely acting as their agent to collect? Either way the next move is theirs. We'll deal with it when and if we have to.

Wife and I have a great 32 year marriage and have been through a lot together. We've come to recognize when an issue is ours and when it belongs to someone else. We try to focus our energy on what is in our control to fix. We're optimistic that things will work out for us, as we've seen that most doomsday scenarios do not come to pass. Worry and fear of the future don't do anything but prevent you from thinking clearly about your situation and your prospects, and enjoying what you have to enjoy.

My wife has a sister slowing dying of MS. I'd take our problem over hers any day! Attitude of Gratitude here!

Ben

Ben,

I can appreciate your good attitude.  However, there may be a point where the calls upset you (such as if you have visitors and the phone rings) or my recent situation:  The collector called, I answered and hung up (he felt he could call back my work phone 6 times - I didn't like that).  So, I asked him for my account number and the fax there.  I faxed over a cease and desist letter in five minutes and I never heard from him again. 

Please be aware that this letter exists in case you are upset in the future.

Thanks

Thanks J, that's good to know.

Ben

This is some very good info.

Are most of you subscribing to the 'new comments' notification ?

Today is 09/10/2009 - the blog does not show date stamps on the entries, is this a current blog ?

Will update with my position and info if this is an active / current blog.

Thank you.

Hello all, and yes another one bites the dust. I short sold my 2nd home - before I get flame, it was a property where my mom used to live, but she couldn't afford it anymore, I did not buy it to flip it, but to live there. After realizing that I needed to move closer to my work, I purchase another condo (one bedroom one bath) and not a Mega McMansion closer to my work. Well, it tanked, no news there.

So moving on, I short sold the 2nd home - a condo, and the bank GMAC/Homecomings then agreed to the contract. There weren't any discussions with them about DJ or any sort of agreements to pay monthly or anything of that sort. This might have been answered, so for asking again, I apologize, but is DJ an option for the bank on the short sale?

Upon a short sale, it is a good idea to negotiate for no deficiency judgement.  It sounds like you did not do this, but that is okay.  The chances of a DJ are extremely unlikely, especially since you did your best to assist the mortgage company in getting rid of the home.  I think you are a quite safe and I sure would like to hear the outcome down the road.  Please note there will be a 1099 generated (income) for the loss that the mortgage company took.  Hopefully, that will be non taxable for you, but you need to contact a cpa or tax attorney.  One of the laws states that it is non taxable if it is your primary residence (there may be a grey line as to whether this is a rental property or not).  Good luck!

I am freaking out!!!  I am being FORCED into a foreclosure by VHDA (Virginia Housing Development Authority) because I have a second mortgage on my house.  I did not overbuy or go crazy....I owe 233,00 on a five bedroom house in Virgina.  Unfortunatly, similar houses are only selling for 190,000.  18 months ago, I had to move to Washington State.  After 9 months of trying to sell my house for what was owed...I was left "pennyless".  VHDA does not allow for ANY short sales if there is a second mortgage.  I did everything I could, includind applying to my second mortgage lender for a release from the loan.   Super long story short--my house is about to go up for auction.  I CANNOT afford anything more than the bills I already am paying off.  I don't know what I will do if they go after me for a deficiency judgement???!!!  And how can they have 5 years??  I am trying to do a debt management plan, and they advised me to hold off until I find out if there will be a JD, because I would have to declare bankruptsy in that case.  How am I to figure out what the bank will do??  I can not hold off on paying off my debt to wait.....This is outrageous...especially since they FORCED me to foreclose.   

Hi, all!  So glad to be able to come here and read through other people's experiences.

I was on the first wave of the market crumble, so I didn't get any benefit from the "stop foreclosure" programs.  My house was foreclosed. The bank (a bank - I'm not even sure it was the lender) bought the note at the auction. I never received any verification of the sale, etc. from the lender. I tried contacting the loan servicer and the lender (GMAC) to get some information, paperwork, etc. but the former said they no longer had any interest in the account and the latter said they wouldn't speak to me as I had no account with them. I've received no 1099-C, there's no DJ (as far as I know), nothing.  About 6 months after the foreclosure, the house was sold for about $130k less than my loan amount. Still nothing from the lender.  Now, however, I notice that the lender has been checking my credit scores. Is this a sign that they are getting ready to take some action?

I have talked to lawyers, but I get no consistent answers. Have no idea what is going on or what might happen. Anyone seen this sort of thing?  Also, how do you find out if a DJ has been filed against you in VA?

Thanks.