Trying to settle discharged 2nd mortgage (DCU)

[MrsDixon]

I am trying to settle a discharged 2nd mortgage w/DCU. I am currently 120 days behind. It was discharged 20 months ago and the loan was not reaffirmed.

They want me to fill out paperwork for a short sale, which I refused to do. I am either going to settle with them or I'll let the first mortgage holder foreclose. DCU will get $0 since I am underwater on the 1st.

I emailed a hardship letter explaining what I want to do and then they responded that they wanted the short sale package filled out, bank statements, taxes, paycheck stubs, 401K info, etc.

I told them that my finances were irrelevant because my personal obligation was discharged 20 months ago. The loan specialist said that they will not even consider an offer until I fill out the paperwork and give them the requested information.

I don't know what to do next. I emailed the CEO & VP to ask for assistance but who knows if they'll respond.

Any thoughts?

[BCA2009]

I am trying to settle a discharged 2nd mortgage w/DCU. I am currently 120 days behind. It was discharged 20 months ago and the loan was not reaffirmed.

They want me to fill out paperwork for a short sale, which I refused to do. I am either going to settle with them or I'll let the first mortgage holder foreclose. DCU will get $0 since I am underwater on the 1st.

I emailed a hardship letter explaining what I want to do and then they responded that they wanted the short sale package filled out, bank statements, taxes, paycheck stubs, 401K info, etc.

I told them that my finances were irrelevant because my personal obligation was discharged 20 months ago. The loan specialist said that they will not even consider an offer until I fill out the paperwork and give them the requested information.

I don't know what to do next. I emailed the CEO & VP to ask for assistance but who knows if they'll respond.

Any thoughts?

From my research, (I'm in a similar situation) I think that is common for them to request that info. That "specialist" is just going down a checklist. She probably has no authority other than entering data into a system and reading what it spits out.

Alot of Banks have executive resolution departments that can cut thru most of that red tape and give you an answer. The hard part is getting in touch with that department/person.

You may also have to wait until they decide to foreclose, then negotiate with them. If you just called them up and started the process, you are not even on their radar screen. They may have no incentive to open your file and put any effort into your loan.

I would keep trying and try to get to a decision maker. But I would not send them any personal info. I can't see how it would benefit you at all, but it could give them information to try and hold out for a higher amount than they otherwise would take.

Good Luck and keep us updated. I am 4 months behind, but I am not going to contact them for at least three or four more months, maybe not at all until they contact me. I want to be in the best negotiating position I can be in, before I start talking to them.

[jadams]

Your finances do have a bearing on it. They don't want to accept a settlement from someone with the resources to clear the lien in full when some future event happens that requires selling/refi/etc. Or accept 10% when you should be able to afford 20%. You will need to prove to their satisfaction that the settlement you have proposed is their best choice.

More likely than not the short sale packet is just the easiest way they have to get all the information they need for loss mitigation to evaluate and decide if and how much of a loss the bank is willing to take. Your houses value, your resources, etc.

It likely goes through a standardized review that results in an "acceptable loss" figure, and is then returned to one of the workers you've dealt with who then has the power to negotiate up to that figure. Whether they get there through short sale, lump settlement, payments, etc. Being determined at that stage.

[MrsDixon]

But the credit union already took a loss when it was discharged in BK.

They won't get anything if I let it go to foreclosure. Not a penny. I would think that they could run a value on the house and see that it's underwater and then make a decision based on that.

[catleg]

Even if it's underwater they have no incentive to settle until a foreclosure is filed by the first. Unless you make a really wild offer.

[jadams]

You are neglecting the third option. They wait. Values may come back up. You may need a quick sale and have to clear the lien, etc. Even though it's been discharged, they can still play your desire not to leave the house against you and hope for a better offer. If they wait, they won't really be worse off.

Once you document how unlikely a value recovery is, and the real possibility you'll just let it go to foreclosure -- they'll likely come around.

By accepting the settlement they are locking in their loss, losing the possibility of future gains. You and I may realize how unlikely that possibility is, but they need to be able to document and substantiate that to their members/investors. And it has accounting implications too. They have your loss on their books, but also the asset at it's previous inflated value. Once they take the settlement they need to fully realize the loss that is currently "hiding" in a way.

I'm sure the only problem here is the credit union needing to determine how low of a settlement is acceptable vs taking the chance, however remote, that the future will be better. Once you satisfy the beauracracy with their stacks of paperwork, things should start falling into line.

[BCA2009]

You are neglecting the third option. They wait. Values may come back up. You may need a quick sale and have to clear the lien, etc. Even though it's been discharged, they can still play your desire not to leave the house against you and hope for a better offer. If they wait, they won't really be worse off.

Once you document how unlikely a value recovery is, and the real possibility you'll just let it go to foreclosure -- they'll likely come around.

By accepting the settlement they are locking in their loss, losing the possibility of future gains. You and I may realize how unlikely that possibility is, but they need to be able to document and substantiate that to their members/investors. And it has accounting implications too. They have your loss on their books, but also the asset at it's previous inflated value. Once they take the settlement they need to fully realize the loss that is currently "hiding" in a way.

I'm sure the only problem here is the credit union needing to determine how low of a settlement is acceptable vs taking the chance, however remote, that the future will be better. Once you satisfy the beauracracy with their stacks of paperwork, things should start falling into line.

It is a business decision. If they wait and don't take an offered settlement, thay are giving up the time value of the money they could have recieved from the settlement. In other words, they could take the settlement amount and reinvest it. They have to decide if they are better off sitting on this bad loan or get what they can and move on. They have already written the loan down to fair market value. In the case of a totally underwater loan. The market value is basically zero. Whether or not the original loan is still on the balance sheet as an asset with a 100% reserve against it, if it has been totally removed from the balance sheet (both the asset and the reserve), makes no financial difference. It is not "hiding" a loss. They is no net value on the balance sheet.

As far as providing the bank with your personal information, the bank doesn't need this to decide whether or not they are going to settle. In any business decision both parties want as much infomation as possible to get a better out come for themselves. The bank would love to know that I have lots of money saved up and now have a high salary.

I would love to know that the bank is in a desparate cash flow situation and needs cash any way it can get it and will accept 5 cents on the dollar. But they are not going to tell me that.

I'm not going to tell them my personal financial situation. The banks are not accepting settlements out of the goodness of there heart because you are in dire straights. It is a business decision.

I'm going to wait until they contact me (or at least a 10 months to a year) before I offer them a settlement. They may tell me to pound sand but I am going to offer them something that is fair. I don't expect them to just give away the lien rights to my HELOC. I will offer them close to what they could get in foreclosure (there is some equity in my loan). In order to gat that equity, they have to foreclose, buy out the first, sit on it a while, then pay realtor fees. I will offer them the same as they would get after all their legal and realtor fees. They either will or won't take it, But they can avoid the risk of investing more money and putting the house on the horrible Florida real estate market by taking my offer. I'm hping that it will be to my benefit that there is some equity (about 60K) in my loan. They want that money and may not want to sit on it for a long time. Our real estate martket is not expexted to rebound for a long time.

I expect it will be a while before they contact me, but I will keep you updated as it progresses.

[jadams]

In theory there is no net value on the balance sheet. In practice, that's not the case. Speak to some people in the industry. DCU is popping up in several lists as problematic and massaging their balance sheets to look better.

There's a good chance DCU securitized the loan anyways, and doesn't really care about one particular loss. In a securitized loan situation they can't just decide to settle the loan because it makes sense -- things get much more complicated and options limited.

That's why I cautioned against not following their advice to submit the packet. More likely than not it's a required process to show X, Y, Z before anyone has authority (either by the board or investors) to modify/settle.

Your modern HELOC is a very complicated piece of financial wizardy. It is no longer the case that you go in and speak with the loan officer who pulls some files, runs some numbers on the calculator, and can make independent decisions.

[BCA2009]

In theory there is no net value on the balance sheet. In practice, that's not the case. Speak to some people in the industry. DCU is popping up in several lists as problematic and massaging their balance sheets to look better.

There's a good chance DCU securitized the loan anyways, and doesn't really care about one particular loss. In a securitized loan situation they can't just decide to settle the loan because it makes sense -- things get much more complicated and options limited.

That's why I cautioned against not following their advice to submit the packet. More likely than not it's a required process to show X, Y, Z before anyone has authority (either by the board or investors) to modify/settle.

Your modern HELOC is a very complicated piece of financial wizardy. It is no longer the case that you go in and speak with the loan officer who pulls some files, runs some numbers on the calculator, and can make independent decisions.

Points noted. Common sense and good business practices are no longer required to run businesses. They'll just let Uncle Sam Bail them out.


Ok, just for hypothetical purposes. How would the bank know if you didn't fill out that paperwork correctly. If they are just requiring it because it is part of the "process". How would they know if any of the information was incorrect?

Just thinking outloud.

PS. Not that it would effect our conversation, but the OP was with DCU. My loan is with Chase.

[CCsAreEvil]

I expect it will be a while before they contact me, but I will keep you updated as it progresses.

BCA, I might be missing some information from an earlier post from you, but I don't think they can contact you about the mortgage note since the 2nd has been discharged in BK? I think we have to contact them 1st?

Anyways, I'm at about 6 months now having stopped paying on my 2nd. Balance on 2nd is $110k or so. Today, Zillow claims my home to be worth $20k over my 1st. The only thing I've received/heard is a letter at about 3 months of non-payment. It was just a default letter (I don't think it was an actual NOD where they will officially foreclose).

I'm still current on my 1st. I'm also trying to decide when's the best time to contact Chase (my 2nd) to offer a settlement. I'm thinking later this year. I'm still taking the risk of maybe the 2nd is already moving forward with foreclosure proceedings.

On another note, a home on my street has been empty for about 2 years. The NOD was barely placed on that home's front door this month.

[dm415]

My theory on it is you have to be for sure ready to walk from 1st if 2nd doesnt play ball,be confident of this when talking on the phone to them,dont give up.

[BCA2009]

BCA, I might be missing some information from an earlier post from you, but I don't think they can contact you about the mortgage note since the 2nd has been discharged in BK? I think we have to contact them 1st?

Anyways, I'm at about 6 months now having stopped paying on my 2nd. Balance on 2nd is $110k or so. Today, Zillow claims my home to be worth $20k over my 1st. The only thing I've received/heard is a letter at about 3 months of non-payment. It was just a default letter (I don't think it was an actual NOD where they will officially foreclose).

I'm still current on my 1st. I'm also trying to decide when's the best time to contact Chase (my 2nd) to offer a settlement. I'm thinking later this year. I'm still taking the risk of maybe the 2nd is already moving forward with foreclosure proceedings.

On another note, a home on my street has been empty for about 2 years. The NOD was barely placed on that home's front door this month.

I don't expect them to try to collect, but because there is some equity, I expect them to send a default letter or something eventually or NOD. I will use that as an opening to try settlement. It may not work, but I'm going to try.

[BCA2009]

My theory on it is you have to be for sure ready to walk from 1st if 2nd doesnt play ball,be confident of this when talking on the phone to them,dont give up.

I would hate to move, but I'm willing to take the risk. There is plenty of stuff to rent around here. I could also catch up all of my missed payments and start paying them if I decide to try and stay. I doubt they would go thru with foreclosure, if I brought it current and started making payments.

But the house is worth about a third less than what I owe on, so I hate the idea of continuing to make payments on something that will be years and years before the value might come back.

[BROKEDED]

To the original poster, enjoy your new found money. I doesn't sound like they're in a mood to foreclose so if it were me, I'd save the money for negotiations or for a down payment elsewhere. As long as the the first is underwater it sounds like you can enjoy partially free rent.

Of course if the market stabilizes and you continue to pay on the first, you are essentially bailing yourself out and negotiating may be more difficult with the second.

[iv65536]

I am trying to get across to the thick-headed holder of the 2nd on my house that I can stop paying the 1st and they would get nothing. I even alluded to sending the 2nd "to the guillotine" and included the URL to the Wikipedia article on Marie Antoinette (beheaded in the period of the French Revolution) in a letter I recently sent. I also included this New York Times article.