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Cram down of mortgages, only good for bankruptcies? I'm in a MESS


shrinkingvioletssad
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Hello everyone,

I hope this subject hasn't made you all weary, but I was very curious about eventually trying to get my Big Name mortgage Lenders to modify my mortgages. We have lived in our home since '89, and raised our 3 boys here, very lovely, vintage home, much love put into it.

I have a first mortgage fixed rate that has another 8 years to go at 6.5% balance of around 65k.

I have a HELOC since early 2007 which is up to its limit of 250k. Yes, you read that right 250k. Wonder how the heck my hubby and I even qualified for that amount because my husband only makes 42k anually, and I am a housewife. (I am ill)

I stupidly put all my credit card debt when the HELOC insisted in order to get it at the tune of 119k.(particial reason for the 250k) Then of course the previous HELOC that I had with them got absorbed into it also. The HELOC is tied to the prime rate, which at the moment is saving my a$$ but when that goes up, I'm toast.

My business has failed, as I was a realtor. I am too sick to work and in order to just live, I now have 45k more credit card debt...which covers even the HELOC payment.

I don't want to declare bankruptcy, but was hoping to settle the credit card debt.

The million dollar question now is.....Will the HELOC bank ever consider the 'cram down' stategy on my home...as it is not worth the both mortgages Or do I have to declare bankruptcy? I don't understand what to do. I have soooo much debt, but never have had a late payment, because I use the credit cards to help pay the debt!!!! I have been entangled in credit card/ heloc debt for soo dern long....

I don't want to declare bankruptcy because I managed to thru such HARD TOIL, TEARS AND WORK to buy 2 small income properties that I have tried to sell, but NOBODY is buying. The renters are themselves struggling, and are basically only covering the carrying costs, so no profit there. I don't want to lose those properties on top of losing my business, the credit card/heloc hell etc...etc...etc.

I now ahead of time, some of you are going to think what an IDIOT I am to be in this mess, but HONESTLY I have truly tried thru hard work and trials to get out of this mess. Now that real estate is dead, I am hoping to at least save my home by maybe getting a HELOC loan modification of something. I heard of 'cram downs' but I wondered if it is only for bankruptcy cases. I can't believe this mess. Any advice? Sheesh, I need a drink. HA. just kidding.

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Doubtful your lender will allow you to mod to stay in your house. Highly doubtful. In fact, you may not get a response either way unless you are down several mortgage payments already.

You might look into the possibility of a short sale. You should call some of your past Realtor contacts and get the name of someone specialized in this. They will already be familiar with the process and what is required to gain an approval for a short sale. See, to have any hope, you need to put a package together documenting your lack of ability to repay the mortgage and submit it to the Heloc lender. if approved, you will be able to sell the house for whatever market value is, and the second mtg holder will take a short payoff and forgive the rest.

The good news is if you go this route, you wont have any tax liability. Technically, since your second mortgage was "cash out", the IRS would have considered the difference between money owed and and money paid off by sale to be income...Bush has removed this, so even your investment properties are safe from tax liability. There is really no need to file BK unless the creditors involved will pursue you in court for the balance. For that decision, please contact an actual bankruptcy attorney.

If you cant swing the payments, you cant swing the payments. Perhaps consider a signing a 2 year lease and letting them all go. i dont know you valuation scenarios but it sounds like you would have sold if you could have.

You have repeat problems with credit cards, and quite frankly, you have used your house like an ATM and now it is time to pay. Luckily for you, there is a full scale bailout for people in your exact hole, and the price for your admission is trashed credit.

Conscience yourself and make a decision.

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I just wanted to thank you for the great advice you gave. I have read it with great interest. Yep you are right, I have used my home as an ATM, and now its payback time.

I am still a bit fuzzy on the advice you gave on the income properties, but I am gonna try to take this one step at a time.

I feel like the circus performer with the spinning plates all ready to come crashing down.

I have heard that banks are not liking the 'short sale' idea anymore. But it won't hurt to try. Have you heard anything new on it?

What did you mean by a 2 yr lease? That is interesting. Any details?

Thank you so much for caring.

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The good news is if you go this route, you wont have any tax liability. Technically, since your second mortgage was "cash out", the IRS would have considered the difference between money owed and and money paid off by sale to be income...Bush has removed this, so even your investment properties are safe from tax liability.
Just a bit of a different perspective than oompa here. The forgiveness of COD income is only for primary residence recourse debt (not for investment properties). "In December 2007, President Bush signed the Mortgage Forgiveness Debt Relief Act of 2007. It will rescue many families facing foreclosure on their personal residences (see H.R.3648 and S.1394, Mortgage Forgiveness Debt Relief Act of 2007)." http://www.nysscpa.org/cpajournal/2008/408/essentials/p44.htm

And just an additional note about the COD income: it does not matter if its "cash out" or not. It is the discharge of liability that gives rise to the "income" that the IRS is taxing. With $42k in income, less schedule E above-the-line rental property "losses", less hefty primary and secondary mortgage interest, less two personal exemptions, the amount of tax paid on this capital gain may find itself primarily in the 0% tax rate anyway (another goodie that went into effect this year for lower income recipients of capital gain). Plus, you can always argue that you are insolvent at the time of 1099-C and that is it not taxable anyway. But all that doesn't matter here...you aren't seeking non-bankruptcy loan modifications on your investment properties (which would give rise to 1099s) but on your primary residence. So you are covered by the new law in full. Without BK. However, I don't think they'll voluntarily agree to a change in the second mortgage terms imo. It is cash in the bank for them with payments you are making right now.

And bankruptcy will not be a walk in the park here. BK judges cannot force a "cram down" on the portion of the loan that is an allowed secured claim on a primary residence. 1322(B)(2) prevents it:

1322(B) Subject to subsections (a) and © of this section, the plan may

(1) designate a class or classes of unsecured claims, as provided in section 1122 of this title, but may not discriminate unfairly against any class so designated; however, such plan may treat claims for a consumer debt of the debtor if an individual is liable on such consumer debt with the debtor differently than other unsecured claims;

(2)modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor’s principal residence, or of holders of unsecured claims, or leave unaffected the rights of holders of any class of claims..

(*this highlighted phrase is what the fight is about with the new bill this month that allows BK judges the right to modify mortgage terms, which they cannot do right now).

I think you need to see a BK attorney pronto. My guess is your attorney will put together a plan for you that will shed the investment properties (who cares if they are breakeven or worse) but save your house. And based on income, your unsecured creditors are about to get pennies on the dollar if anything.

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Just a bit of a different perspective than oompa here. The forgiveness of COD income is only for primary residence recourse debt (not for investment properties).

Sorry OP, Jq26 is on the money here, I apologize

And just an additional note about the COD income: it does not matter if its "cash out" or not. It is the discharge of liability that gives rise to the "income" that the IRS is taxing.

Correct again, to be clear, about the cash out part I wasn't referring to IRS liability. If your loan is "non-recourse" your lender is not allowed to sue you for the remainder of your debt if the home is foreclosed. If its a 'recourse' loan they can do whatever they want. In CA pretty much only owner/occupied purchase loans are non-recourse.

The insolvency argument is an excellent point also, I have heard of that but didnt know enough of the details to point it out. A BK attorney would certainly be able to cook that up for you.

And bankruptcy will not be a walk in the park here. BK judges cannot force a "cram down" on the portion of the loan that is an allowed secured claim on a primary residence.

Spot on again. I was suggesting BK as a means to avoid collection activity after foreclosure. IE, you get foreclosed on then file BK to shield yourself from getting sued or judgment slapped on you for the balance.

Adding mortgage intervention to a BK judge's plate I am certain would be a nightmare with no good end guaranteed.

Way i see it OP, these are your choices:

1 Attempt renegotiation, and/or try to obtain say a FHA bailout refinance and save your residence

2. Short sale and get out that way and go rent (the 2 year lease, you'd want to sign it prior to your credit getting destroyed)

3. Let it foreclose and let things shake out.

Unfortunately, short sales are appearing the same generally on credit reports and foreclosures. The banks are marking them the same, and for lending they are considered the same. But, banks are jumping on whatever they can to keep people in houses. They would rather loose a little than ALL of their investment. Please believe they will take a short sale seriously.

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