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Loan modification or default? What will lenders do and what should I do?

Los Angeles, CA |

I have a client who bought a house for $500K five years ago. Put $100K down and financed $400K with a no doc loan @ 6.75% for 30 years. House is worth only $275K now and the loan is $375K. Indymac refuses to refi since the client doesn't qualify due to income and client doesn't qualifiy for HARP. HAMP was denied because their was no "death, divorce or BK" so Indymac said client didn't qualify. If client plays hard ball and stops paying the mortgage will Indymac be forced to refi at a current 4%? Is default an option if client has other assets and another property?

Attorney Answers 3

Posted

Where is the home?

Is there any prospect of this home ever turning positive?

It is non-recourse, so walking is always an option.

I suppose you can play hard ball and try to coerce consent to a short sale out of the hated Indymac. List contingent upon Indymac agreeing to take just enough to allow escrow to close at net zero. That at least would preserve their credit. It would also relieve the lender of one more piece of property to manage. If your clients walk lender gets zero now, a headache and who knows what who knows when.

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Posted

If you client has the financial ability and is considering walking have the client purchase a substitute residence while credit is still good. That way, no matter what happens down the line whether it be a deed in lieu, short sale, or foreclosure, your client has a principal residence at favorable rates and the new loan will re-build credit after only a few years.

I am licensed in California only and my answers on Avvo assume California law. Answers provided by me are for general information only. They are not legal advice. Answers must not be relied upon. Legal advice must be based on the interplay between specific exact facts and the law. This forum does not allow for the discussion of that interplay. My answer to any specific question would likely be different if that interplay were explored during an attorney-client relationship. I provide legal advice during the course of an attorney-client relationship only. The exchange of information through this forum does not establish such a relationship. That relationship is established only by personal and direct consultation with me followed by the execution of a written attorney-client agreement signed by each of us. The communications on this website are not privileged or confidential and I assume no duty to anyone by my participation on Avvo or because I have answered or commented on a question. All legal proceedings involve deadlines and time limiting statutes. So that legal rights are not lost for failure to timely take appropriate action and because I do not provide legal advice in answer to any question, if you are an interested party you should promptly and personally consult with an attorney for legal advice. Also, see Avvo's terms and conditions of use, specifically item 9, incorporated by this reference

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Posted

Assuming that Indymac is the original lender, and borrower purchased as owner-occupant on the Indymac loan app, the loan is purchase money, non-recourse under CCP 580b. This results in no deficiency after foreclosure. Assuming that there are no other loans against the home, then borrower can either try to short sell or allow property to be foreclosed. Either will result in zero deficiency as well as no income tax on forgiveness of debt (caution: tax law set to sunset 12/31/12) However, credit implications will vary; short sale will be loss of 150-200 pts for 18 mo-2 years; foreclosure will be loss of at least 200 pts for 3-5 years, the key being continued payment of all other debt on a timely basis. If, however, there is more than one loan, and we are talking about refinanced loans or HELOC that came into existence after borrower acquired title, or, if Mortgage Debt Forgiveness Relief Act of 2007 is not extended by Congress past its 12/31/12 sunset date, all of the above answers could change substantially.

Disclaimer: I am licensed in California only and my answers on Avvo assume California law. Answers provided by me are for general information only. They are not legal advice, as competent advice requires personal review of the underlying transaction or loan documentation. Accordingly, answers in response to AVVO inquiries must not be reviewed by counsel who has undertaken a full review of the applicable documents and current facts. This forum does not allow for that level of due diligence. Accordingly, my answer to any specific question could differ, depending upon such a review. I provide legal advice during the course of an attorney-client relationship only. The exchange of information through this forum does not establish such a relationship. That relationship is established only by personal and direct consultation with me followed by the execution of a written attorney-client agreement signed by each of us. The communications on this website are not privileged or confidential and I assume no duty to anyone by my participation on Avvo or because I have answered or commented on a question. All legal proceedings involve deadlines and time limiting statutes. So that legal rights are not lost for failure to timely take appropriate action and because I do not provide legal advice in answer to any question, if you are an interested party you should promptly and personally consult with an attorney for legal advice. Also, see Avvo's terms and conditions of use, specifically item 9, incorporated by this reference

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