House sold for more than we owed on 1st!

[hnhlvr]

So, what happens now? We had both a first and a second mortgage and the first an IndyMAC loan and Fannie Mae bought the house and paid $34,000 more than what we owed on the loan. We have a HELOC that we still owe on that's gone to collections. Will any of that $34,000 go to paying down the HELOC?

[StartingOver08]

Fannie Mae doesn't buy the house - it acquired the house in either foreclosure, deed in lieu of foreclosure, or forfeiture.

The amount of the transaction probably reflected the total amount of the final judgement which includes attorney fees, late fees, default interest rate payments, and other arreages and fees.

This 'sale' has nothing to do with your second (HELOC).
Have you also filed for BK?

[hnhlvr]

Okay, thanks. I was just reading and found that out.

We're not filing for BK unless we have to. We owe $128K on our HELOC and already got a letter saying they'd settle for 1/2 of that.

[StartingOver08]

You can do better than that with the HELOC. They got nothing when Fannie Mae got your house. Right now they are an unsecured creditor in a terrible position.

In a successful short sale (just to give you an idea) for a HELOC your size, the creditor gets anywhere from $1500 to $5000 (max). So naturally they would settle for half. I know that the phrase 'successful short sale' is an oxymoran, I was just trying to give you an idea of the reality of the lender in 2nd position.

Check your note to see what it says if the house is lost to foreclosure. I will do some research, maybe the HELOC does not have a leg to stand on if it was your primary residence and the first has already claimed the collateral. IDK.

Well, I found an interesting article about foreclosures and HELOC's. See this link:

http://www.helocbasics.com/what-happens-to-a-heloc-in-case-of-default-or-foreclosure/

You may be able to not have to pay taxes on the debt foregiveness if it can be proven that the HELOC was used for home improvements. See this link:

http://www.irs.gov/newsroom/article/0,,id=174034,00.html

Also check out IRS.gov and publication 4681 for additional details

http://www.irs.gov/pub/irs-pdf/p4681.pdf