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Home Equity Loan Default Question

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    Home Equity Loan Default Question

    Some background...

    Three years ago we were behind on our mortgage but were able to qualify for a loan modification. We have paid on time each month since the modification was approved. Our home is significantly underwater. Our home is worth about $110K less than what we owe on it. We have an outstanding home equity loan of $35K that went into default at the same we fell behind on our mortgage. The home equity lender wrote off our loan and sent it to internal collections. It has been two years since we have heard from them. I do know that they had correspondence with our mortgage lender about the time the modification was finalized. I made one attempt to work out payment arrangements with the home equity lender but they told me that loan had been charged off and was in their legal department. That was two years ago.

    We are working with a financial counselor who believes the reason the home equity lender is not coming after us is because they know our home is underwater. The odds of them collecting anything is remote, so they are biding their time hoping that a) the house appreciates in value, making foreclosure worthwhile ~or~ b) we try to sell the house and are forced to pay off the home equity loan in order to close on the sale. While my financial counselor has done a great job helping us negotiate with our creditors (and avoid bankruptcy to this point), I am not totally sold on her hypothesis on why the home equity lender is laying low.

    I don't like the idea of a ticking time bomb coming back to bite me over the next few years. If this lender all of a sudden files suit then I may be forced into bankruptcy. I am fearful of talking to their legal department because I may wind up kicking a sleeping dog. I know I can't sell this house while there is a lien against it, but so far the lien is just sitting there. Nothing is happening.

    I am interested in reading your comments.

    Thank you.

    #2
    Originally posted by RockyMtn View Post
    We are working with a financial counselor who believes the reason the home equity lender is not coming after us is because they know our home is underwater. The odds of them collecting anything is remote, so they are biding their time hoping that a) the house appreciates in value, making foreclosure worthwhile ~or~ b) we try to sell the house and are forced to pay off the home equity loan in order to close on the sale. While my financial counselor has done a great job helping us negotiate with our creditors (and avoid bankruptcy to this point), I am not totally sold on her hypothesis on why the home equity lender is laying low.
    Why else would they be laying low? Her hypothesis sounds correct to me. Eventually you will have equity, either from an increase in value or from paying down the first. It really is a ticking bomb, even if it were discharged in BK. The only way to diffuse it is to pay it or get the lender to agree to settlement.

    If the lender wanted to sue you, they would. If you have cash to offer to settle, you might as well make an offer.
    LadyInTheRed is in the black!
    Filed Chap 13 April 2010. Discharged May 2015.
    $143,000 in debt discharged for $36,500, including attorneys fees. Money well spent!

    Comment


      #3
      Lady, thank you for responding. I suppose you're right. I'm so caught up in the situation that I can't see my options clearly.

      I don't have a lump sum cash amount I can offer the home equity lender. I am spending 92% of my net income on my mortgage and debt payments. I looked into a short sale but my lender shot that down quick. "Too much negative equity" they said. My financial counselor told me that the 1st mortgage note takes precedent over the home equity loan. If the the latter sues they only get paid after the mortgage lender is paid. In this case the mortgage lender would realize a loss, so nothing for the home equity lender. Short of bankruptcy I really don't have any other option than to let the sleeping dog lie.

      Comment

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