My house is in foreclosure and going to...

[rwayne45]

...auction in 3 weeks, can the mortgage company come after me for...? My house is in foreclosure. It will be auctioned in 3 weeks. The bank would like me to try and sell it in the next 3 weeks, which is impossible. They have said if there is an offer made on the house before the auction, they will forgive the difference in sale price vs. mortgage balance. If I let it foreclose they are saying they will come after me for the difference. How do I know if I have a non recourse loan-I live in Calif. or what can they expect to get from me if I don't have even enough money to pay my mortgage. I am definitely worried about them trying to take what little amount of anything I have left or garnishing my wages. Can anyone help or know the answers?
Thank you!

[Alex G]

It is rare for a lender to file for deficiency judgment. It costs them money and if they don't have reason to assume you can pay them, they generally will not file for deficiency.

As for your "short sale", you may ask an investor to make an offer.
If your house is currently listed, drop the price 20% and see what happens.

[meg b]

I would venture a guess to say that if the bank says they can do it, they certainly can, I'd do my best to sell, even if you have to sell cheap.

[Ms. C]

I work for a loan company, and we will tell our customers whatever it takes to make them pay. How long have they been threatening you? How far are you behind? If they don't send you something in writing that has been NOTARIZED, then they can't do anything. But until then, to keep your credit in good standing, try to sell the house if you can't afford the mortage, and maybe someone will buy it for more than you owe on it. And you can use that money for a downpayment for a apartment or something...just a suggestions

[Corey1023]

If you cant pay your mortgage, is it likely you can pay a deficiency judgment in the tens of thousands?

If you cant pay your mortgage, and the bank comes after you for a judgment you cant pay, what would be the most logical course of action for the borrower who cant pay?

The answers are no, its not likely and bankruptcy would be the most logical course of action. Banks already know this and rarely choose to throw good money after bad. They typically cut their losses. Having said that, its not difficult at all for them to file a 1099 C. In the past this was something that was also rarely done, however since foreclosures have become a headline item they are becoming more common. If this happens talk to a CPA about whether or not you are insolvent and how the rules of a 1099-C affect you in that state.

[Gonetodocs]

Just to clarify on this I don't think you are suggesting to file bankruptcy after the foreclosure are you Corey? It just doesn't make sense to me if the bank isn't going to aggressively to seek the deficiency judgement then a halfhearted 1099-C from them shouldn't influence any foreclosee (is that a word?) to file for BK. Did I read you correctly on this? Please advise

In other words the banks know the BK strategy of borrowers very well and don't want to take the chance of the borrower tying up the property in a nasty Bankruptcy and holding onto the house while this is resolved? So the bank/lender shouldn't threaten to go after the borrower for the deficient amount. Am I channeling you properly Corey or not? Let me know man.

To put on my lender hat for a minute the way I understand their point of viewis so:
If a borrower is all of a sudden 3 month's late and I am filing an NOD (Notice of Default) I want to work diligently with them to either:
A. modify the loan (if and only if I can feasibly qualify their income to a point where they may continue to make payments to me) and continue to receive monthly payments from the borrower. If this happens problem solved from a servicing standpoint (receiving all of some lower modified interest rate is better than receiving none of the current higher interest rate) This is the best for me as a lender to cut the losses quickly and continue to service the loan. about a month and a half to get back on track.
or
B. Work with the borrower to Short Sale the property as quickly as possible if I can't diligently determine that they can afford to continue to make more in monthly payments even after a reasonable loan modification. If they work this out then I (as a lender) get a large portion of the money owed in a relatively short time. Say three to 4 months after the borrower lists the property (hopefully).

Worst case scenario for me as a lender is foreclosure because:
first 3 months no payment from the borrower, then 3 more months and 21 days for the foreclosure process (still no monthly payment), I then take over the house and list it immediately in a declining value market (market time here in southern Calif. approx. 6-9 months 3-4 months aggressively priced). Total time without payments is approx. 10-12 months.

Too long and can harm a lenders servicing portfolio business.
Thanks again for letting me unload again guys (and gals)

Later,
Gonetodocs

[877YouKeep]

No, Gonetodocs I do not believe he is advocating bankruptcy, I think his position (Corey you can speak for yourself though) is that banks have had a mindset swing and are not going after homeowners for a deficiency. Borrowers that can not pay their mortgage are definitely not going to pay for a house they no longer own. They are now issuing a 1099 and moving on putting the ball in the court of the IRS. Now if congress passes some law to eliminate the 1099 then you better bet banks will reinstate their procedures and issue a deficiency judgment.

An additional point is that BK does not scare any loss mitigators, in fact BK puts homeowner on repayment plan and payments again are being made and the trustee is now responsible. So all of the talk about threatening a BK is just talk from a few that do not dig in and understand what really happens.

Taking a house to sell is not optimal but a short sale or any other workout will not happen and a bank will take a house to sell if their numbers are not met. The banks know their numbers and if you do not hit their numbers then they will continue. They base much of their decision on REO and it seems like they are a little behind in reporting from that department.

Good questions though, you are going to make a great mitigator with the right tools!

Back to the question from the homeowner, I know people in California that do short sales so if you are unsuccessful let me know and I will provide you with investors in your area. Another point get a second opinion there are many solicitors that say just about anything because they are not highly skilled or trained, call back to see what the next loss mitigation phone solicitor says. You must remember lenders have a tiered system and it is difficult to pierce to get to the next level.

[Corey1023]

I definitely am not advocating bankruptcy in that scenario. What I was trying to convey is that you have to see it from their perspective (the bank) so that you can properly asses your risk of either option. In other words whats more likely to happen; the deficiency wherein they are squeezing blood from a turnip, or the 1099 which is quick and easy for them (relatively) and they get to earn more of their income because they can take the loss.

The only thing I am not sure about is Don's scenario where they pass a law and everything reverses. I don't think they will ever take that option away from banks, I just think hey will change the rules so that its more clear, and perhaps a bit easier to qualify for absolution of the tax liability. Even though id say that 90% of people doing short sales or going in foreclosure should by definition already fit the criteria thats in place now...that of either being insolvent or having BK'd on the debt.

[Gonetodocs]

Man this is good good solid stuff. I am going to earmrk this thread for future reference. Thanks guys again. I need a little time to let this knowledge soak in and process a few more and grow more. Then I can come back and ask some better questions. Thanks guys for the detail and depth.

Sincerely,
Gonetodocs

[nevadachick]

Can you talk to another person in the Mortgage company. Someone that is higher up and get something in writing to them. To document what is going on?