time frame for release of lien

[jimbo101]

i just finished ch 7 last year. i did not reaffirm my 2nd on personal residence, of which the whole amount is underwater. i have not been making pmts, nor have i heard from lender(WF). i am making 1st pmts.

i was wondering if there was a time frame in which they have to file foreclosure, after which time i can have the lien removed?

jim

[justbroke]

I don't understand your question. After who forecloses? I don't know what you're trying to ask as the question doesn't make sense if you're trying to keep the property.

First, a creditor/lender is not required or compelled to foreclose on a property. They can let you just keep missing payments and do nothing. The reason your 2nd mortgage lender is not pursuing foreclosure is becuase a.) you probably live in a State that doesn't have "strict" foreclosures (don't worry about what that is), and b.) the home is worth less than the value of the first mortgage!

It is likely that they'll sell the 2nd mortgage to a "junk debt buyer" who will sit on it until the earlier of the home appreciating enough to foreclose the 2nd and make some money, or you go to sell the home. Understand and know that the interest is still accumulating on the 2nd!

If the home is not too far underwater, some folks have found success in settling with the 2nd mortgage holder for 10% or so. All of this is "asset planning" related and you should consult an asset protection specialist (attorney) if you're thinking of doing any sort of settling with the 2nd.

Generally speaking,

[Brazzy]

Hopefully we'll get more info so this will make a bit more sense. Overall the lien will not be released until the account is satisfied.

As for just broke, these things are a bit too valuable for the typical junk debt buyers. These account down the road could potentially trigger a nice recoup. Im sure some banks are selling some, but for the most part they know its too good to just let go unless the deal is a good one. You do see that scenario more often with cars and other items that are pretty much worthless and will only continue to depreciate in value over time. The junk debt buys the auto loan and just prays that you total your vehicle and the insurance pays it off or you need the title to junk it. Unlike a house, the car will continuously decline in value. Over time the house will regain its value and these accounts will be worth something.

[justbroke]

As for just broke, these things are a bit too valuable for the typical junk debt buyers. These account down the road could potentially trigger a nice recoup. Im sure some banks are selling some, but for the most part they know its too good to just let go unless the deal is a good one.

Banks can't hold on to too many toxic loans. There are ratios imposed by the Federal Reserve and United States Code that won't allow a bank to lend more money if it doesn't have enough reserve. This is why they sell it so they can get it off their books and back to business.

Banks just don't have the generation that it's going to take to recover the housing market.

[Brazzy]

True, but they cherry pick what is sold and what is not. They sell the junk. A lien on a piece of property doesnt really fall under the category.

[justbroke]

True, but they cherry pick what is sold and what is not. They sell the junk. A lien on a piece of property doesnt really fall under the category.

What category? For junk debt buyers? Please let me know which Banks are sitting on toxic assets and want to "wait" and not be able to lend money until their ratios are better! I want to make sure my money is not in those banks.

A lien that can't be collected (due to the permanent discharge injunction from the bankruptcy), is junk by definition. Unless and until it becomes worth it's value, it is junk by definition. With housing prices down 60-70% in value in some areas and 2nd mortgages having no value and won't have any value for 20-30 years... is by definition... toxic, and junk.

If there are banks holding on to junk junior liens... I feel sorry for them. I consider any junior lien with no value and no potential to appreciate in value worth 100% of the balance of the lien (or at least initial value of the lien) to be junk.

[Brazzy]

any junior lien with no value and no potential to appreciate in value

What houses dont have potential to appreciate in value? Dont think short term. Keep in mind that the financial institution that has the lien on the property will typically also invest in credit cards, unsecured loans and lines, checking accounts, overdraft protection, auto loans, student loans, small business loans, etc. If you were to rank these accounts coming out of a BK where do you think home loans would rank?

Well its not some super financial wizardry. Its just common sense. Lets take BK out of it because it does complicate things a tad but the idea stays the same. Financial institution takes their portfolios and ranks/scores/rates each account depending on certain criteria (balance, days past due, credit score, property owned, etc) to determine the likeliness of funds to come in from each account. The higher rated accounts are held in house for their collectors. As time passes the ratings drop (days past due) and they get kicked to a collection agency (some go straight to agencies). More time passes and no payments are received its pushed to another collection agency so on and so forth depending on how many agencies are signed up for that institution. Only when all efforts are exhausted is the account considered junk and considered for sale.

Now you like back at BK home equity loans. Its not that banks wouldnt want to sell them. However since there is a lien on the property that can be used as leverage the recovery from these loans far exceed that of stuff like credit cards. There is still money to be had on these loans and over time their value will increase. With that said, to purchase these loans would be relatively expensive in comparison to the other loans that could potentially be sold. Paying top dollar for paper that is intended for long term potential recoup is not a junk loan buyers style. You asked which bank is sitting on toxic assets and I'll get to that. I in turn ask you which junk loan buyer is going to want to sit on these toxic assets? In terms of loans these have a high potential for future returns and are pricey. In fact its a bit too expensive for the typical junk buyer. Dont get me wrong its a great investment and eventually there will be someone who has the capital to cash in on it but its not prominent at this point.

So to answer your question as to which banks have bad jr liens sitting on their books? Well just about every lending institution that wrote them is. In short thats just about every major bank.

[justbroke]

What houses dont have potential to appreciate in value? Dont think short term.

You're not thinking about how banks are regulated. Has nothing to do with appreciation over the long term. Has all to do with their portfolio and what percentage is non-performing. This is not a question of it will appreciate back to what is was worth in 30 years.

It's a question of toxicity and cash reserves. Once those are depleted, the bank is dead.

If you were to rank these accounts coming out of a BK where do you think home loans would rank?

The most toxic and most damaging to the Banks operating income.

Well its not some super financial wizardry. Its just common sense.

There's no common sense in banking regulation. It's about rules and reserves. It is a requirement of banks.

I think you're having a philosophical discussion and mine is regulatory.

So to answer your question as to which banks have bad jr liens sitting on their books? Well just about every lending institution that wrote them is. In short thats just about every major bank.

Once they charge-off, they sell them. Yup... every lending institution that has to maintain a reserve, which is just about every financial institution, sells the debt once it charges off.

Now philosophically, and in the long term, would it be in the institutions best interest to sit on a bad junior lien for 20-30 years? Probably not. It could be, but it's probably a bad idea. That's like holding Enron stock thinking it would improve. (By the way, my brother held 3,000 shares and rode it all the way down, thinking it would "appreciate" again some day. He was a banker/investor and an attorney. I'm glad I never banked with him.)

[Brazzy]

There are only two things correct in your post. One is the closing statement, the other is in regards to regulation existing. My previous post is the SOP for every major bank. Not open for debate, not in a philosophical sense, its fact... Its what I do (my main job focus is dealing with charged off loans). Now it would be WAY too long to get into OCC requirements and the whole Basel nonsense, but you might want to take a look at what a charge off is and how it affects ratios. Essentially speaking the charge off itself negates most of your points and the fact that all charge offs are sold is simply incorrect. Yes some smaller institutions do not have in house methods of collecting on charged off loans so they end up at agencies or sold. However, many institutions have a well designed departments or even divisions whose sole purpose is to recover funds from charged off loans. They use a process similar to what I described previously. Once again in regards to all other charged off loans where do home loans rank? Pretty much near the top in terms of potential recovery. In some cases these loans are getting paid in full. The lien on the property is simply leverage to recoup as much funds as possible in the event the property needs to be moved. Yes people could walk away, but in most cases dont. They usually try to sell it first and get an agent involved and when they get involved they will get a deal done even after the seller has given up. The seller doesnt give a rat's ass cuz they filed BK but an awful lot of people stand to make money from the deal and the seller doesnt have to do a thing so the deal goes on. Since the Sr lien holder does NOT want to go to foreclosure the Jr lien holders dangle the potential sale over their heads to recoup some funds. I give you a simple example:

1st lien owed $100k
2nd lien owed $20k
Sale price: $100k (after fees and commissions)

So the typical person would jump to the conclusion and say well the first gets the $100k and the 2nd gets nothing... But wait if the 2nd says NO then the deal falls through. OK so we look at another option. Foreclosure! Yes! so given the offer on the open market of $100k the lien holders know that if it does go to foreclosure that the recoup (after auction pricing, commissions and fees) is about $60-$70K. The Jr lien holder demands that they be paid in full from the proceeds of the sale. The Sr lien holder looks at its options and tries to negotiate, but the Jr is firm (they already wrote this thing off as a loss what do they care?). The Sr lien holder agrees to the sale, pays off the Jr lien in full ($20K) and still recoups $80K ($10-$20K more than foreclosure). Everyone wins in that deal and that is why these loans are NOT as toxic as you think they are. Change up the numbers themselves, this situation occurs constantly. This is happening TODAY... Never mind 30 years down the road. The future will only makes these things more valuable.

[justbroke]

I don't recall saying that all charged-off debt is sold on secondary or "junk" markets. If that's what I implied, sorry about that. What one national bank does and another does can be different, so what I wrote shouldn't be for all banks (national, regional or State chartered).

Your scenario is just one of many and for foreclosing first mortgages it doesn't really matter. I think the point that I wasn't making is that the lenders don't want to hold on to them, and what you write elevates that position.

I also don't know if you're talking about "short sales" or (strict) foreclosures because what you're writing about is not how it works in Florida for foreclosures. Or am I utterly confused at this point.

Remember, my posting was specific to charged-off mortgages that were discharged in a bankruptcy.

[Brazzy]

Remember, my posting was specific to charged-off mortgages that were discharged in a bankruptcy.

Thats actually exactly what I am talking about. I understand what your saying 100%. I'm just trying to show that in terms of what banks put their money into that the 2nd mortgages, HELOCS, etc are not the most evil thing in the world. When you look at the other BS they threw their money into, these still have the potential for recovery. In terms of sales, stuff like credit cards, overdrawn checking accounts, overdraft accounts, small business loans, unsecured loans in general are gonna be sold first. Try to collect on em and throw em to an agency. After that sell em before the borrower files BK. Throwing any type of lien (home or auto) into the mix and the value on the loan increases. It will probably have to be a pretty juicy offer for them to let go of these charged off 2nd liens, even ones included in BK. They are making good money off these now with people trying to settle on them and short sales. Their value will only go up as time goes on. They have no reason to ditch em unless someone will pay top dollar for em. If I had the funds I would love to get my hands on these, but thats not gonna happen. LOL

[jimbo101]

i'm sorry if i wasn't clear. i have a $442k 1st, $188k equity 2nd(after purchase). i just went thru ch 7 and reaffirmed 1st, but not 2nd. i have quit paying on the 2nd since nov. the house is probably worth $440k.

what i was wondering is, if the lender did not foreclose, and since they can't come after me personally, if after a certain time(say 2 years) nothing is done by them can i file for a release of lien? this is assuming they have not sent it to collection.

it seems i read somewhere there is a term for this, but i can't find it.

also, how can i find out if they have just charged it off as a loss? this might have something to do with whether or not i can do this.

jim

[justbroke]

No, you can't file for a release of lien. You'd have to satisfy the lien somehow. Like an approved short sale or a settlement.

[HHM]

i'm sorry if i wasn't clear. i have a $442k 1st, $188k equity 2nd(after purchase). i just went thru ch 7 and reaffirmed 1st, but not 2nd. i have quit paying on the 2nd since nov. the house is probably worth $440k.

what i was wondering is, if the lender did not foreclose, and since they can't come after me personally, if after a certain time(say 2 years) nothing is done by them can i file for a release of lien? this is assuming they have not sent it to collection.

it seems i read somewhere there is a term for this, but i can't find it.

also, how can i find out if they have just charged it off as a loss? this might have something to do with whether or not i can do this.

jim

Jimbo

The 2nd lien holder has a valid security interest, notwithstanding the BK, it will sit there until it is satisfied in some way. What many people are doing in your circumstances is approaching the 2nd lien holder and offering a settlement for them to remove the lien. The typical settlement is 10% of the balance owed.

The BK does not effect the 2nd lien holders security interest. And there is no statute of limitations or requirement that the lien holder do anything. More directly, the passage of time without action by the 2nd lien holder is not going to invalidate the lien.