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Settlement Of Mortgages

Submitted by on Fri, 02/27/2009 - 09:00
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I have 2 mortgages that if the lenders would settle for 50%? 75%? would consider paying off. The loans are not in arrears and never have been. Both amount to around $100,000 each so have an encentive to pay off. Is this possible?


I own a mortgage company and provide clients with loan modifications. There is a possibility to do a "short sale" in which the lender takes less than owed. If you are planning on staying in the home they will not settle for less.


Submitted by on Sat, 02/28/2009 - 13:50

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I've put a lot of thought into this scenario, will a mortgage lender settle on a home rather than foreclose? Conventional wisdom is that they will not. But this is not an environment for conventional wisdom. And while I think a very strong argument could me made, in certain cases, that settling rather than foreclosing is a better option for a lender... the problem will be to find a decision maker with authority who will pull the trigger on such a transaction. And very few bankers will stick their head out to support a non conventional tactics to deal with these "bad" mortgage loans.

But consider this situation: $200k mortgage, FMV of home now $100k. Probably 4-6 months to foreclose (i.e. loss of cost of funds approx $7k). Bank must pay back property taxes before they can sell it ($2k). Commission to brokers at 6% ($6k). Assume on the market for about 4 months (another cost of funds loss $4k). That's like $19k in costs to the bank, on a $100k sale, they net about $80k on their $200k loan. So you can make a case, that any settlement offer at $100k or higher, would be more beneficial to the bank than a foreclosure. But it doesn't mean they will consider such an offer.

Although somewhat of a different situation, a HELOC lender will definately consider settlement, particularly if the first mortgage is well under water. My Wells Fargo HELOC contact gave me a fax number where I could just fax in a settlement offer for their consideration. But that was back in November, so I'm not sure if they are considering these at this time or not.


Submitted by ball_mich on Mon, 03/02/2009 - 08:13

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Have you taken any steps to show hardship, like not paying on the Heloc? If so for how long have you not been paying? I am trying to build a stategy for modification for my WF heloc.
Thanks


Submitted by mtsims on Mon, 03/23/2009 - 10:34

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Quote:

Have you taken any steps to show hardship, like not paying on the Heloc? If so for how long have you not been paying? I am trying to build a stategy for modification for my WF heloc.
Thanks


Yes and No. I am now four months delinquent (Dec, Jan, Feb, & March). Granted, dollar wise it's not a huge amount even with the $10/month late payment fee they keep charging... something like $500 overdue.

The thing is, you don't really have to prove any kind of hardship, in most cases the facts are enough. In my case, there are extenuating circumstances that have cause the non-payment. But even with out it, the first mortgage is $200k and the market comps show that a sale price of $120-140k is likely (not including agent commissions, foreclosure expense, etc). The HELOC of $25k has no chance at recouping funds in a foreclosure sale. The thing with my house is also that it has a substantial water problem with the master bedroom flooding when it rains, which cannot be fixed on my property. I'm currently in litigation with the neighbor over this issue, as the source of the groundwater is their property. Litigation has been going on for 2+ years. Some real estate agents that I trust indicate that in the current impaired condition, the property is really only worth the value of the land... about $40k. But neither the first mortgage or the HELOC have cared much about my story regarding the flooding and water problem. And the first mortgage holder has sent the case to their lawyer to start foreclosure proceedings, per their most recent letter.

Anyway you slice this, the HELOC is toast in a foreclosure. But I want them out of the way, so I offered an insultingly low figure to settle. If I can get a settlement from them, the door is then open for me to sue the first mortgage holder to stop the foreclosure process (temporarily).

FYI - In terms of modification of the HELOC, if that is your goal, have you talked to their collections people yet? Man, every time I do, they try to force me into a modification process. They keep asking about my income, expenses, for copies of my tax return and pay stubs. After I decline to provide that information, they say something like "we're taking note that you are declining modification assistance". Then I tell them that isn't true, I'm just declining to provide personal information. What kind of HELOC modification are you looking for? When I asked them what kind of changes a modification would make, it seemed like it was mostly a very small interest rate decrease and pushing the maturity of the line out a year or two. Nothing that seemd to help me much.


Submitted by ball_mich on Mon, 03/23/2009 - 11:13

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Here's how alot of banks view modifications. They don't have to do them.

I have yet to hear of a successful mortgage settlement. I only hear of loan mods being successfull. They are kinda viewed as a second chance to get back on your feet. Most banks will want to know, how did you get 4 months behind? What has changed now?

You get the idea.


Submitted by sassy_lil_brandy on Tue, 03/24/2009 - 10:27

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Quote:

I have yet to hear of a successful mortgage settlement. I only hear of loan mods being successfull.


That is because very few people who are in the situation of not being able to pay their bills/mortgage, have access to $100k or more to settle a mortgage. Because if you have access to that kind of money, you are probably still paying your mortgage.... But mtsims and I are really talking more about settling on the HELOC, which isn't quite the same. Secured yes. However, in my case, they are certain to come away empty handed if they don't settle.


Submitted by ball_mich on Wed, 03/25/2009 - 14:10

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i work in foreclosures and have seen successful settlements, though most people do short sales and end up moving.
these days the houses are not even selling at the auctions and to be honest, the banks really do not even want the house as they already have too many that they cannot sell.
what state are you in? i know in NJ the governor set a program that pretty much forces the bank to show up in court and meet with the deft and a mediator to try to work out options.


Submitted by bea2ls on Thu, 03/26/2009 - 07:19

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Quote:

what state are you in?


I am in California. We are a non-judicial state, so the lender can ask the trustee to foreclose on a property without ever going to court. And the whole thing can close in roughly 90-120 days I believe.

I expect that if/when they move to foreclose, I will probably have to sue Wells Fargo to drag out the process. It's the only way you can get in front of a court in a foreclosure here. That will give me the best leverage to work a modification. The longer the process can be delayed, the more willing they should be to modify the loan.


Submitted by ball_mich on Thu, 03/26/2009 - 08:36

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Update: I have some movement from Wells Fargo on settlement of my HELOC. I got a message and returned a phone call to their "Loss Prevention" group. And they assigned a Settlement Negotiator. She said they received my hardship letter and my settlement offer.

The unfortunate part, is that they need a lot of information to consider a settlement: 30 days of pay stubs, 3 months of bank account statements, and a financial statement or budget showing all income/expenses.

And I don't think I'm going to provide that. I have no idea what their little black box formula will spit out after they input my data, and frankly I don't trust it. Plus, I'm hesitant to provide any personal information that can be used to "collect a debt" as they warn you every time you call.

Has anyone had any luck arguing with creditors, secured or unsecured, to get around their request for this financial information?

In my situation, it just isn't applicable anyway. The home is already in the foreclosure process, and the HELOC is going to get nothing in a foreclosure and subsequent sale. Their verfying of my income and expenses, isn't going to change the fact that their asset securing the loan is going away to the first mortgage lender really soon.


Submitted by ball_mich on Thu, 04/09/2009 - 08:05

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I met with my CPA and he said he has other clients that have settled Heloc's for 10-20% lump sum payments.

I plan to approach Wells Heloc and see where they stand on settlement and if they balk then I will most likely quit making the payment to show distress.

I will keep you posted as I get more info.


Submitted by mtsims on Tue, 04/14/2009 - 14:25

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UPDATE: I received a v-mail from my settlement negotiator from WF Home Equity. She stated that the lowest they can go is 20%. I can't settle for that much and it wasn't exactly an offer but more of a statement, however it gives me hope that I can get it settled.

I am likely to have to fight them over a deficiency judgement, if the home actually forecloses. It was not a purchase money loan, and they will likely be considered a "sold out junior" in a foreclosure by the first mortgage holder. So hopefully they will eventually be more reasonable.


Submitted by ball_mich on Thu, 04/23/2009 - 09:39

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Again, it wasn't exactly an offer, but more of a comment of that the lowest they go would be 20% of the balance. For example a $20k debt, the settlement would be $4k.

I am going for lower than 20% on the basis that they won't get anythign from a foreclosure sale (the first won't get out in full), and they can't seek a deficiency judgement under the California Code of Civil Procedure. But their ability to seek deficiency judgement is an area that is gray, so I'm sure they think they will get it. So we will see.


Submitted by ball_mich on Fri, 05/01/2009 - 08:45

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Update: Well, not so much of an update. I'm still working on settling my HELOC. I'm at 160 days right now, and have about 30 days before the home gets listed for sale under deed of trust by the first mortgage holder. If a settlements going to happen, it's probably going to happen in the next 20-30 days.


Submitted by ball_mich on Thu, 05/14/2009 - 15:15

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This is an interesting thread!

I'm in Calif. with a GMAC $508,000 1st and a Wells Fargo HELOC at $120,000 on a house that might sell for $475,000 today.

I'm up to date on both loans. I want to remain here. I have some cash set aside.

So... I stop paying the Wells Fargo HELOC but continue paying the 1st and HOA?

My goal? settle for $15K to $30K with Wells Fargo.


Submitted by on Sun, 05/17/2009 - 12:04

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As I said in my response to your private message, there's a lot of pitfalls in just trying to settle your HELOC when you can afford to pay it.

Know your state's deficiency laws. In California, look at CCP 580b and 580d. In some cases, mortgage lenders can sue you for a deficiency judgement, if the proceeds from a foreclosure do not cover the loan balance.

Be prepared to explain to Wells Fargo why you can't afford to pay them, when you are paying your first mortgage and your other creditors (if you have any). They will pull your credit report and see that no one else is delinquent.

Also know, that once you go delinquent on a mortgage loan, it may take you out of the possibility of doing a government program, like HARP... which many homeowners are now using to lower their payments.

There's just a lot to think about here, so tread lightly if this isn't a last resort for you.


Submitted by ball_mich on Mon, 05/18/2009 - 08:51

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I am also trying to settle my 80K for about 10%. I am 60 days behind and I have made it clear to them I wont pay unless they want to settle. If they dont, I will ultimately let the house go....mine was a purchase money loan.

Someone in this forum has posted updated messages on dealing with WF HELOC. He said something should work out in about 30 days. I would be very curious to know if he was successful in getting rid of the HELOC for less than 20%. If you read this message, please do update on what happend.

thanks,


Submitted by on Sun, 06/14/2009 - 12:24

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Quote:

Someone in this forum has posted updated messages on dealing with WF HELOC. He said something should work out in about 30 days. I would be very curious to know if he was successful in getting rid of the HELOC for less than 20%. If you read this message, please do update on what happend.


And update I shall...

Basically, it hasn't gone according to plan and has been really tough to work out. If you are in California and your HELOC was a purchase money loan, it is non-recourse, so you will probably have an easier go than I do. Mine was not purchase money and is a recourse loan, and they continue to make clear that they have other options after foreclosure happens (i.e. sue for deficiency judgement).

As far as my situation, it's getting strung out a bit. Apparently there was some moratorium passed which bought me about 90 extra days before foreclosure... so now it should happen sometime in October, according to Wells Fargo's lawyer (who I talk to directly -- better source of information that Wells to be honest). Originally it was supposed to go to foreclosure sale in early July.

So, even though my HELOC charged off about 7-10 days ago, the HELOC lender can't do much until it forecloses in October. Only then can they seek the deficiency judgement, or that is my understanding. So the process goes on.

At this stage I'm dealing with the "Recoveries" department. They are offering a 30% settlement, but also saying they need income verification, copies of bank accounts, etc. And I'm telling them I'm not providing it and can only afford something around 20%. We'll see how it goes.

After dealing with them for quite some time, I think a settlement for less than 20% probably just isn't going to happen for me. But if you have more leverage, like in your case with the purchase money loan, you might get lower. I actually do think I'm protected from deficiency judgement here given a 1992 California Court of Appeal ruling for George V. Simon vs Bank of America, but it's not as clear cut as saying it was a purchase money loan.

Anyway, I'll post updates when they occur.


Submitted by ball_mich on Wed, 07/01/2009 - 16:54

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Thanks for your reply....I am currently going through the exact same situation. I am 90 days past due since yesterday. They called me a couple of times and told me they are getting ready to charge off...I said good, go ahead and do what you want to. I am willing to settle for $3k on the $84k HELOC. They balked at me and said there is no way they will settle for that much. They asked for the same info like paystubs etc.....and belive it or not but I actually provided that to them today. I talked to a lawyer and he said its ok to provide that to them.....but here is the interesting thing that he told me. As per him HELOC may or may not be considered a purchase money...its a grey area with not a lot of evidence to lean on either side. What he said though was that both my first and second are with Wells and they only have one action against me.....so either they can foreclose or file judgement. They can do both only if they try to file a judicial foreclosure.

I have faxed in my information and asked for either settlement of the HELOC or conversion of the full loan including 1st and 2nd into a fixed 30 yr loan at 2% interest. I don't think that will fly....lets see what happens. I will keep you posted to on the progress.


Submitted by on Mon, 07/20/2009 - 17:26

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Thanks for your reply....I am currently going through the exact same situation. I am 90 days past due since yesterday. They called me a couple of times and told me they are getting ready to charge off...I said good, go ahead and do what you want to. I am willing to settle for $3k on the $84k HELOC. They balked at me and said there is no way they will settle for that much. They asked for the same info like paystubs etc.....and belive it or not but I actually provided that to them today. I talked to a lawyer and he said its ok to provide that to them.....but here is the interesting thing that he told me. As per him HELOC may or may not be considered a purchase money...its a grey area with not a lot of evidence to lean on either side. What he said though was that both my first and second are with Wells and they only have one action against me.....so either they can foreclose or file judgement. They can do both only if they try to file a judicial foreclosure.

I have faxed in my information and asked for either settlement of the HELOC or conversion of the full loan including 1st and 2nd into a fixed 30 yr loan at 2% interest. I don't think that will fly....lets see what happens. I will keep you posted to on the progress.


Submitted by on Mon, 07/20/2009 - 17:29

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Hi,

Thanks for the update. I've been assigned a negotiator on my account and I believe I will be in the same process in a couple of days. Would you mind advising on what are the things I should be asking for and whats the first settlement offer in terms of percentage that I should start with.


Submitted by on Wed, 07/29/2009 - 09:39

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Quote:

Thanks for the update. I've been assigned a negotiator on my account and I believe I will be in the same process in a couple of days.


Well, from my experience the settlement negotiator was not helpful. She rarely returned my calls. She didn't confirm my faxes. She never answered when I dialed her extension. It was pretty lame actually. I spent a couple of months in that group until they charged me off. At that time they sent me to the Recoveries Department. I had much better luck talking with them. They answered when I called. They were serious about settlement. I told them what I could afford and stuck to it. After politely declining their initial offers, they called back about 10-15 days later and eventually they met me at my number.

I'll give you my settlement % when it's final. I'm just cautious until it's paid and final, as I'd hate for anything to jeopardize my settlement.


Submitted by ball_mich on Wed, 07/29/2009 - 13:30

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Thanks ball_mich. That is some good information. I was wondering if I should pay my 1st until they charge-off my second so that I can keep my house and get rid of the second. I am not sure as to when they will charge off...I am at 97 days so it maybe a while. When did they charge off your acc? Once you are through with your settlement, please do post your %. I appreciate all your help.
Thanks,


Submitted by on Wed, 07/29/2009 - 14:54

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Quote:

Thanks ball_mich. That is some good information. I was wondering if I should pay my 1st until they charge-off my second so that I can keep my house and get rid of the second. I am not sure as to when they will charge off...I am at 97 days so it maybe a while. When did they charge off your acc? Once you are through with your settlement, please do post your %. I appreciate all your help.


Sure thing. In my experience, they charge off at 180 days, but I think they can do it sooner if they have reason to.

The last 10 days or so I've just been waiting on getting the settlement in writing and having difficulty catching up with the lady I've been working with, due to my work hours and the limited time she works (I think she might be PT and only work evenings). I'm ready to pay and put this one behind me...

As far as paying your 1st and not the 2nd, I can't answer that one. I stopped paying both. Depending upon what kind of leverage you have, that might work, but I'm sure they won't like it and probably will threaten to foreclose the home (if they haven't already). Although, if they know there isn't enough equity to cover the 1st and 2nd loan, they probably won't really go that route. But that's just my opinion.


Submitted by ball_mich on Thu, 07/30/2009 - 09:03

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Thanks Ball_Mich. Seems like they are just threatening to charge-off but they probably wont do it just yet. I have submitted my financials so lets see what they come up with for modification. I am going to offer 5% for settlement on the HELOC and in the worst case scenario I will start paying the 1st and wont pay on the HELOC, that might just do the trick.

They have been threatening to foreclose too and I have calmly told them each time that I do not intend to keep the house unless I am offered a significant modification for long term.


Submitted by on Fri, 07/31/2009 - 15:03

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Okay, it's settled. Well, the funds haven't come out yet from what I can tell, but I did check by phone with a payment for today... so it's pretty much said and done now.

I did inquire about some of the language in the settlement letter, but it obviously was going to be a big hassle to get it changed so I just rolled over on that. It's written fairly straight forward.

Anyway, my settlement was for 17%. I feel pretty good about it. I didn't have that much leverage in my negotiations, since it wasn't purchase money. And whether it was covered by California anti-deficiency law was question at best. So given that, I'm happy with where it came out. I didn't think I'd get it below 25-30%, based upon some conversations I had with Wells a month ago when it charged off.

The rep said that the settlement is final once the payment is received, but that there will be a few letters forth coming. I should have a lien release letter come within 30 days and they will finalize the reporting to the credit agencies within 30 days as well.


Submitted by ball_mich on Sat, 08/01/2009 - 10:13

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Congratulations. Its good that its out of your way and you are ready to move on. I appreciate your effort of posting all this online for helping other going through the same situation.

I will post an update if I am able to settle with them.

Good luck Ball_Mich,

Thanks,


Submitted by on Sun, 08/02/2009 - 15:18

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Thanks. Glad, I could help out with my experience. Happy to answer any other quesitons about my settlement process, if people have anything to ask.

Now, I need to settle my Wells Fargo credit card. And if I can get that done soon, there just might be enough time left to short sell this property. But we'll see, time is running short.


Submitted by ball_mich on Mon, 08/03/2009 - 08:31

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Hi Ball Mich,

I just got to know that I was assigned a Negotiator called Amy and she has requested Broker Price Opinion and is waiting for some internal documents. She might contact me around a week from now. Do you know if they did that for your property too i.e requesting a Broker Price Opinion. If they did, how long did it take for you to settle with them after the BPO? Just trying to prepare and see whats coming next.

BTW good luck on settling on the WF credit card. Am trying to do the same with CITI!!!

I hope you do check your messages on this site now!


Submitted by on Fri, 08/07/2009 - 15:24

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Wells did not request a broker's price opinion in my case, which is essentially just an appraisal.

Do you have equity in your home? Or is it close (i.e. FMV close to the debt on the property)? I only ask because in this market, a BPO seems like a wase of time. In most cases it is pretty self-evident whether there is equity in the home or not to cover a HELOC loan. In my case, the 1st mortgage was underwater by about $50k in the best case scenario with the 2nd getting nothing (and this presumes an optimistic sales price). I'm sure they didn't need a BPO to figure that out that they would get nothing in a foreclosure sale.

So sorry, can't help you with this one. You probably should watch your statement though, as they will probably charge you for the BPO, and that charge MAY not be allowed under your loan agreement. Any kind of discrepancy like that can help you to gain leverage with these guys.


Submitted by ball_mich on Fri, 08/07/2009 - 16:49

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Ball Mich,

Thank you so much for all the info you have provided here. I am talking to a Settlement contact at WF right now. They aren't returning my calls at this point, vmail is full. Either way, I have a first with another mort. company for close to $700k which would be about $100k under if house short sold tomorrow. The second with wells is a recourse loan that we owe close to $200k on at this point. We have no equity in our property. We have offered the settlement department 10% on the second loan but haven't been able to connect again with them at this point. Our neighbors did say they saw someone taking pictures of our house recently and the person was also asking about what our HOA dues were. I am guessing that this was someone from WF who was doing their own appraisal. I am curious on your loan at this point how long did it take before you were able to settle, two or three months..? The other question is whether you were able to avoid any negative credit ramificiations as a result of the settlement? Finally, do you know if WF will be able to sue you in the future for a deficiency on the settled loan....? Finally, did you provide full information to WF in the form of all assetts and debts, etc. They are asking me now for a list of 401k's and want to know about all my assetts, which I haven't shared, however I have given them my personal income situation.

Thanks very much.....ChrisF


Submitted by on Sat, 08/08/2009 - 21:51

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Ball Mich,

Thanks for the reply. Yes, value of my house is below the 1st Mortgage so HELOC is completely wiped out. Even I was surprised as to why they would waste time on a BPO but on a second thought, that could be a legal safeguard for them against their investors, maybe?

I was told that I will hear from my negotiator or she will update my account next on the 12th of August. Will see what she comes up with.

My loan is purchase money and there is no equity in the house so I used to think I may have leverage but seems like banks are willing to take loss but they are not willing to bend...maybe they don't want to give out a wrong impression that they are willing to take what they get.

Will keep the forum updated with any new information I have


Submitted by on Sun, 08/09/2009 - 14:41

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Quote:

I am curious on your loan at this point how long did it take before you were able to settle, two or three months..? The other question is whether you were able to avoid any negative credit ramificiations as a result of the settlement? Finally, do you know if WF will be able to sue you in the future for a deficiency on the settled loan....? Finally, did you provide full information to WF in the form of all assetts and debts, etc. They are asking me now for a list of 401k's and want to know about all my assetts, which I haven't shared, however I have given them my personal income situation.


I was assigned a negotiator about two months before I charged off, call it roughly at 120 days past due. But I settled it about 20-30 days after I charged off, so roughly 200 days past due in total. That last 20-30 days I was dealing with people in the "recoveries" group, and they were much easier to work with than the settlement negotiator that I had been assigned previously.

My understanding is that they cannot sue for a deficiency judgement. The settlement letter was not written as clearly as I would have liked in that regard, but it did state that the unpaid balance was "forgiven". I think they'd have a difficult time taking me to court and winning. I also did ask the person who I was working with in the recoveries department, and they told me that no further collection action would be taken. It was nice to hear that, but ultimately all you have to go by is what is in writing.

I'm not sure how to avoid negative credit ramnifications from settling debt. When I started out, I was ambitious and thought I could negotiate all that stuff. But I've found that it's hard to have your cake and eat it too. I don't think any of my creditors would accept a settlement where I walk away with a clean reporting history. My thought is that I'll deal with this down the road. Much better to get the debt taken care now if possible.

I didn't provide them with any documents to support my situation, but I did give them some verbal indication of my income, debts, monthly expenses, etc. I couldn't get around this, and I did try. But other than a 3 minute conversation about this stuff, I provided nothing else.


Submitted by ball_mich on Tue, 08/11/2009 - 12:05

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Quote:

My loan is purchase money and there is no equity in the house so I used to think I may have leverage but seems like banks are willing to take loss but they are not willing to bend...maybe they don't want to give out a wrong impression that they are willing to take what they get.


Well if your HELOC is non-recourse, and there is no equity in the home to cover them in a foreclosure sale, they are between a rock and a hard place.

But even then, they probably do not want to take a loss on the loan. So for example (and just my estimation), if at 120-150 days past due, they keep the loan on their books at 25%(i.e. 25 cents on the dollar), and you are offering to settle at 10%, accepting your settlement results in a 15% loss. Most likely they will have a difficult time approving it.

If you wait until they charge you off, this implies they have marked your loan down to zero. If you then settle at 10%, they get to record income from realizing value on an asset they wrote down to zero. It sounds silly, but I really do think this type of accounting comes into play.


Submitted by ball_mich on Tue, 08/11/2009 - 12:12

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That makes so much more sense now. I guess, this is precisely the reason they are not willing to negotiate at a lower amount. I've had so many conversations with their reps and each time they say settlement is not acceptable even if they end up foreclosing and not getting anything.

I would scratch my head to understand their logic....but the accounting gimmick you pointed out does make sense.


Submitted by on Tue, 08/11/2009 - 18:19

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Guys, all you need to do is talk to the Loss Mittigation Dept. Have all your facts straight and simply tell them you are looking to settle out of bankruptcy court and offer them 5%. This means (as in my case) a 50k HELOC can be settled in full by simply sending them a casheir's check for 2500.00. Doing it for friends and family now... Mine is done.


Submitted by on Thu, 08/13/2009 - 11:25

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