Home Equity Loan Foreclosure

UpdatedFeb 9, 2010

I cannot afford my mortgage. What will happen to me if I turn over my house to the bank? How much will I owe?

I have no first mortgage. It was paid off. I do have a home equity loan that I owe $320,000 on. I do not have to make principle payments on the loan for many years . The interest rate is 2.25% variable. (about $620 per month). My line of credit is $333,000. My home is in great disrepair and is nowhere near being worth the amount I owe so selling is not an option. Soon I will not be able to pay the interest as the loan interest is added to the balance each month. What happens if I chose to give the house over to the bank? Can they sue me for the money still owed? (Home previously was valued around $475 to $525).

You wrote, "Home previously was valued around $475 to $525," which does not mean it is worth that much today, especially if, as you wrote, the home is a victim of deferred maintenance. This answer assumes that the market value of your property is at or below the balance of the equity loan.

Unfortunately, you do not mention what state you are in, so you must consult with an attorney in your state to determine if your home equity loan is subject to any anti-deficiency statute, and whether the bank can sue you for the difference of the sale price and what is owed. Every state handles this differently.

Information on foreclosure

I have answered questions from other readers regarding the issues you raised in your message. See the following six Ask Bills resources to learn more:

• Background on Home Equity Lines of Credit

• Information on consequences of home equity loan default

• Judicial foreclosure

• Refinancing home equity line

• HAMP program

• Bankruptcy

Recommendation

Call your mortgage servicer, which is probably a bank, and discuss your payment options. Given that you are already in an interest-only loan at rock-bottom rate I doubt the bank has any program to help you, but you can try. You may be able to make payment arrangements until your situation improves.

Review the above sites to attain valuable information about the consequences of foreclosure and bankruptcy, and how you may be able to avoid them with the Home Affordable Mortgage Program. If you become delinquent in your payments, the bank can foreclose upon the property. Hopefully, the bank will be willing to work with you so that you can stay in the home. As mentioned in the links above, should the bank foreclose and the property is sold for a price less than the balance of the loan, it is likely that you will be liable for that deficiency.

I hope this information helps you Find. Learn & Save.

Best,

Bill

www.bills.com/

5 Comments

SShannon, Mar, 2010

Thanks for the response! I wish I had a lump to offer them, but I don't. I will try and negotiate something - it seems ridiculous for them to foreclose, when surely it would cost them money in the end, instead of being able to recoup any loss. Thanks again.

BBill, Mar, 2010

Maybe, but I hasten to say that I cannot predict the behavior of a creditor. I have observed many behave in manners that defy either economic or legal reason. Continue to negotiate with the second. Offer them a lump-sum settlement of the balance of the loan. Explain that if you two cannot agree to terms you will allow foreclosure, and based on the depressed value of homes across the US they will lose 100% of the value of the loan, and they will never collect a deficiency judgment because you are prepared to file for bankruptcy. You have leverage to negotiate.

jjo, Feb, 2010

I have a 1st mortgage of 255k, and a 2nd of 75k. If wesold our home today, we might break even. We have never had a 30 day late on our 1st or 2nd mtg. We did, however, experience some financial hardship due to the loss of my job and it took 18 months for me to find full time work again. This drove up our credit card debt and hurt our credit. We are currently not delinquent on anything, but have had a few 30 day lates on credit cards, and have 1 collection acct for $125, which we are fighting. Our HE has matured, and now the bank won't refi due to past delinquent credit cards. What will happen now? Will they foreclose?

BBill, Feb, 2010

Chase has the option to foreclose under the law, but it has little economic incentive to do so. See the following answer I provided another reader with a similar question: Second Mortgage Foreclosure to understand your options.

GGina, Feb, 2010

I have a first with bank of america $187,000 which is 30 days behind, I also have HELOC that i took out in August of 2004 of 55,000. Made timely payments on the second of between $150 -$250 until August of 2009 when the payments re-amortized to $540 per month. I am now six months behind. I submitted for a loan modification and received a 60 day letter of offer which is due to expire in the next 3 days - offer was $404 per month at 3.75% until 2027. I had been reading about settling a 2nd mortgage, recourse and non recourse loans and thought I might try that route. In the meantime I am affraid the offer will go away. I received a bankruptcy discharge in 2009 in August. Can CHASE foreclose on my house. According to zillow.com the home is valued at $165,000. I lost a home in the same neighborhood and zillow estimated it at 165,000 and it sold for 95K. In California please advise.