Deed In Lieu.....

[oldtestamentman]

You might have something there.
The max LTV in Texas for a Home Equity Loan is 80%.
If they went up to 100% with the HELOC, you may have a legal case?
Was it your primary house when you bought it?
Is the home in Texas?

[Stan R]

The 80% rule only counts for refinances


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[NMStickFlinger3]

Do you have equity in your new home? How much down payment did you make on that one?

Yes, we have probably around 35K in equity in our new home.

[Ryan81]

You don't have a 20% HELOC, that is a home equity line of credit. You have a 20% second lien.



I assume the first lien is fine with a long term rate and you are making payments on it as agreed. The second lien is now at its adjustment period and the rate will change and due to this the payment will increase.



You are in a unique position (if the liens are held by different lenders). The second lien holder is actually over a barrel on this and you should have some play with him. He can only foreclose his lien and can only do so after you are 120 days past due. In order for him to foreclose on you he must first buy the first lien. This is a PAIN for him. Plus, as part of their due diligence they will get an appraisal done and see how far upside down you/they are. I'm not sure what your numbers look like or how much your second lien was but it may be in their best interest to walk on it.



Example: 2nd lien is $25k and first lien is $100k. total liens equal $125k. home is worth $40k less meaning its worth $85,000. it is unreasonable to incur additional expense to foreclose (attorney fees) and pay the other lender off to now have loans totaling $125k (plus fees) on a house that is worth $85k. they are now on the hook for a larger amount and larger possible loss if the home is really $40k upside down. They would be better off letting the $25k lien go.



The second lien lender is in a horrible position (again assuming it is a different lender). They should do all they can to work something out with you. If you are current right now they may not work with you, but as you become past due they will. I would contact them and tell them the situation to see if they will drop their rate and work it out with you until values rise or you get it paid down.



Deed in lieu is a way to work with a lender on a foreclosure. It saves them some expense and time. It should be worth something to them if you agree to it. If the same lender holds both notes, a deed in lieu is possible. If not, the second lien lender will want to purchase the first lien and then have you do a deed in lieu of foreclosure (again this puts them deeper in debt by buying the first lien). As a side note, if your first lien is performing and at a big bank, chances are they will NOT sell the lien to the other lender until it is very delinquent (nearing 120 days). makes no sense, but trust me I have been there. They are hard to deal with.



You will not be taxed on any write off unless the bank forgives you of the debt. If a banker knows he can get nothing from you, sometimes they will do this to get back at you. Just sayin.....



If the second lien holder washes his hands of the mess its just one bad line of credit and credit scores change quick these days. Id like to know if the liens are held by different banks and if so is the first lien also worth more than the house is worth or is that just the second lien holder that has the upside down portion?



Also, to say a person was "prayed" upon is a little unfair. everything was disclosed and the borrowers have an opportunity to change their mind/walk away at any point. lenders ought to realize an 80/20 loan is ridiculous product and people ought to realize if they cant save down payment money they shouldn't be buying a new home. so its really on both parties.

Good advice.

I could be wrong but I think they can foreclose before 120 days past due in this situation since it's not the borrowers primary residence.


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[flatlander]

Can you tell me what predator lending is? Never heard of it.

That's when the bank doesn't do the math that the purchaser should have done and said no to the purchaser who shouldn't have applied in the first place

[12RingKing]

Yes, we have probably around 35K in equity in our new home.

Sell the old house then, and take out a second mortgage for the loss utilizing your equity in your new home?

Something of that nature

[nchunter]

Warren buffet famously said, when you are in a hole, the first thing you should do is stop digging.
My simple advice is try to sell the house asap, then work out the details of the deficiency with the bank. Either way, if you've made peace with a credit hit, do t give them any money. Worst thing you can do is pay partially and still take the credit hit. Get everything in writing and be prepared to get a new cell phone number because the bank will probably sell your deficiency to a collection agency and they will hound you.