I have a purchase money first loan and a HELOC 2nd taken out 3 years after I purchased to improve the home. I attempted to short sell but the first would only allow $5000 to the HELOC loan which wants $13,000. Needless to say, the sale will not go through. Can I modify the first? The HELOC is threatening to send it to charge-off status. If the HELOC goes to charge off, what will happen? Can I negotiate with the charge off company to pay off the $13k (in lieu of the full balance)? If I can't do that, how long will the loan remain in collections? I heard from someone that after 7 years if drops off the credit report and will no longer be due or collectable. Is this true? Thank you for your help.
Don't confuse credit report with your legal obligations to repay debt. The first is based on credit reporting laws, which provide that negative items stay on credit history for 7 years. The second is more complex. The statute of limitation for breach of written contract in California is 6 years. If creditor sues before statute of limitation expires, a judgment in California is good for 10 years and can be renewed for additional 10 years unlimited number of times. How long loan will remain in collections, when it is charged off, whether and when you will be sued, whether a settlement, short sale or loan modification is possible are all unanswerable questions because depends on creditor actions. If the second mortgage has no equity in the property and it is your primary residence it is possible to lien strip the mortgage from the home in a chapter 13 bankruptcy. Talk to a local attorney to learn more.
Negative information can stay on your credit report for 7 years after the debt is charged off. However, if they sued and got a judgment against you, that judgment can be on your credit report for 7 years after it is entered. See 15 U.S.C. § 1681c.
To negotiate a short sale you would have to get the approval of both lenders. You ask if you can modify the first? Yes, you can modify, but you have to meet the guidelines for that and I don't know any of your circumstances. I would talk to a non-profit Hud-approved housing counselor in your state or contact your state's housing finance agency.
If a debt charges off nothing happens. The debt just sits there as being unpaid. If the lender is going to charge it off, it means they are not going to foreclose. They are probably going to send this out for collection. Can you negotiate? Maybe. The problem is that you still have the house and the loan is still secured by the house. Under those circumstances, what incentive do they have to negotiate with you? At some point, you will not be underwater if you continue to pay on the first mortgage. However, you can always try. Some of my clients in North Carolina have received letters from banks just releasing their liens and allowing property owner's to keep the property provided that the property owner pays a certain amount of the debt because the properties have so little value. So it is definitely worth a shot.
I am not licensed in California but all states have statutes of limitation. This means that they can sue you on this obligation. You will need to speak to a foreclosure defense or real estate attorney about the statute of limitation in your state and find out how long they have to sue you. It could be as long as 10, 12 or even 15 years for this kind of debt.
Even if you are not sued and the 7 year period passes regarding your credit report, this does not mean that you do not owe the debt or that it is no longer legally collectible. Again, you need to speak with an attorney in your state to find out the California statute of limitations on a HELOC debt. If its longer than 7 years, then you can be sued. Even if the period is shorter, you still can be sued (unless the law provides otherwise). The statute of limitations is generally a waivable defense that you have to raise in an answer. If you do are sued, then immediately go to an attorney about this. Othewise, if you have a valid defense like the statute of limitations and you do not raise it in an answere, then its waived and the lender or junk debt buyer can get a judgment against you even on a time-barred debt.
Years licensed, work experience, educationLegal community recognition
Peer endorsements, associations, awardsLegal thought leadership
Publications, speaking engagementsDiscipline