Can bank foreclose if I'm current?

[destitute]

Hi everyone,

I've come up against a strange situation and I don't know how I can handle it. I was discharged from a chapter 7 in late 2009 and am a resident of Ohio. At the time I had a first mortgage with Chase and a second HELOC with a local bank. I did not reaffirm either as my home was seriously underwater. Chase granted a mod and I have been current on payments ever since. The second was a bit more difficult to work with. They decided to convert to a fixed monthly amount for 10 years and gave me a coupon book so I could make "voluntary" payments.

Here's where things get a bit strange. After the first year of making payments to the second I called to ask why I had not received an interest statement for my taxes. I was told that the loan was charged off and that no further interest would be accrued. I was skeptical of this great news and continued to make my monthly payments. 6 months later I called for a balance and confirmed that 100% of my payments were going to principal. YAY!

Fast forward to last month, I ran out of coupons and went to the bank branch to make a payment and find out how to get more coupons. After an hour of the teller and manager discussing things behind closed doors I was handed a printout of my payment history/balance and told to call a specific collections manager. A review of the account history shows on time payment history for all payments and shows no interest being charged. Then in 2012, for no apparent reason, my balance jumped from 16k to almost 22k. Since that time interest is sometimes charged and sometimes not. The whole thing is a huge mess.

I called the collections manager who immediately started berating me for not reaffirming the loan and when I told him I was under no obligation to do so he really didn't like that answer. He can't provide any answers as to what happened with the account charges and said he would have to look into it. He said they were not charging interest initially but they had the right to. I told him that if I was paying interest then I had a right to an interest statement so that I could deduct it from my taxes and needed to get this fixed. During the conversation he repeatedly said I was making voluntary payments and the bank did not have to accept them. He then threatened me multiple times with foreclosure because the bankruptcy created a default under the loan documents. Can they do this? I've been paying monthly, I've never missed a payment but now this guy is angry and threatening. I now have a significant amount of equity in my home so I'm worried the bank sees me as a good target.

Any advice?

[justbroke]

I want to respond even though I don't have much information. It is certainly a tough place and the bank is entitled to collect anything under the existing terms of the promissory note (such as interest, late fees, etc). The collections person was out of line to demand payment or otherwise criticize you for filing bankruptcy or not filing a reaffirmation. Perhaps they are as frustrated with your account because it does not make sense. Given that most homes, since 2009, have actually appreciated, the bank may have decided (somewhere deep within the bank) that they may be able to collect at some point.

Your issue is that they have a valid lien and a valid mortgage to enforce their lien. Even though they accrued the interest, you're not paying the interest. They may be expecting a balloon at the end of the note since you are paying down the principal without the interest. (Yes, it's strange.) I don't think you (can) claim interest paid if you aren't actually paying interest. If you go to the final "balloon" and it's all interest, I suppose you could then claim interest paid on real estate if you in fact paid the balloon (which is... the interest).

Unfortunately you are not (still) seriously underwater. What most people have done in your case is NOT PAY the second and then offer a lump sum. I do not know what your end-goal would be, but you'll need to decide where to go from here. As you speculate, the bank would probably not settle on that second given that you actually have equity (above the second).

At least that's my view.

[Drazil65]

Hi ,I am of the camp that I would not have paid anything to the 2nd once discharged. Even if they still have a lien, its a lien in 2nd place and I cannot imagine the 1st mortgage will allow the foreclosure when you are current and paying with them. I would not continue to pay them at this point and wait to see of they want to settle at some point (especially with the way you were treated by the manager which seems to me is borderline harassment to some extent and none of his business why or how). Something does seem a little out of sorts but I am not sure you can ask them to distribute things a certain way at this point. I think they just lucked out that they found someone who would pay them after discharge and went with it. Good Luck!

[bcohen]

Hi ,I am of the camp that I would not have paid anything to the 2nd once discharged. Even if they still have a lien, its a lien in 2nd place and I cannot imagine the 1st mortgage will allow the foreclosure when you are current and paying with them. I would not continue to pay them at this point and wait to see of they want to settle at some point (especially with the way you were treated by the manager which seems to me is borderline harassment to some extent and none of his business why or how). Something does seem a little out of sorts but I am not sure you can ask them to distribute things a certain way at this point. I think they just lucked out that they found someone who would pay them after discharge and went with it. Good Luck!

This is GREAT advice to follow...if you want to lose your home to foreclosure. While it's true that a junior lienholder isn't going to foreclose while a house is "underwater", the problem is that OP's house isn't "underwater". In fact, by his admission, there is significant positive equity. Therefore, the junior lienholder doesn't need the primary lienholder's permission to foreclose. As long as they pay off the first mortgage, they can foreclose. If the house has appreciated enough, and/or the first mortgage has been paid down enough, then there will be sufficient equity to cover the costs of foreclosure.

I would keep on it with the bank, and politely but firmly demand to see a detailed accounting of the charges and payments made on the account. The bank is not legally permitted to declare you "in default" solely because you filed for bankruptcy and did not reaffirm. They are required to let you pay off the loan subject to the original promissory note or any modification which you have signed.

[LadyInTheRed]

I suggest you go above the head of the collections matter to get things straightened out, somebody who cares more about collecting on a debt than berating a customer trying to pay it.

I agree with bcohen that you should not stop making payments when there is equity.

[destitute]

Thanks for all the replies. I have no intention of stopping making my payments. I plan to continue to make the payments until the debt is satisfied and the lien is released. What I was trying to get a handle on was two things.

1. Can the bank foreclose even though I am making regular monthly payments in the amount they requested?

2. They told me they were not charging interest and did not send any tax statements for the past 5 years but it turns out they have charged interest. My complaint is that since they were actually charging me interest they were required to furnish statements that I could use for my taxes. Their failure to do so resulted in me not being able to legitimately deduct interest from taxes. How should I handle this?

Thanks again!

[justbroke]

Thanks for all the replies. I have no intention of stopping making my payments. I plan to continue to make the payments until the debt is satisfied and the lien is released. What I was trying to get a handle on was two things.

1. Can the bank foreclose even though I am making regular monthly payments in the amount they requested?

2. They told me they were not charging interest and did not send any tax statements for the past 5 years but it turns out they have charged interest. My complaint is that since they were actually charging me interest they were required to furnish statements that I could use for my taxes. Their failure to do so resulted in me not being able to legitimately deduct interest from taxes. How should I handle this?

Technically you accrued interest but you didn't "pay" interest. In order to make a claim on your taxes against interest which you paid, you actually must pay the interest.

I would make sure that you and the bank are under a good understanding regarding the correct payment amount. You may also want to explore, maybe, refinancing either the 2nd or the entire debt at today's rates. If the bank did attempt foreclosure, you could show, I would think, that you were to pay "principal only" and any accrual of interest was not in the coupons that they sent you!

Your problem now is that if you keep just paying principal you may end up with a large balloon at the end. If you want to paydown the entire amount, you may need to start making principal plus interest payments. Is the overall balance decreasing at the expected rate (so that when the loan matures you'll owe nothing)? Or is the overall balance increasing like a reverse mortgage? Either way, I would want to deal with this interest accrual now unless I'm sure that when the loan matures I could refinance the entire debt.