My initial question is, if the loan was 80/20, was your HELOC used to purchase the property?
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Yes, the critical question is really the nature of that 80/20 loan ... was it a purchase money second or was it cash taken out after the purchase of the home? Was it refinanced, etc.
If this really is a purchase money loan, there is a strong likelihood that they cannot collect anything from you at all. I have dealt with several lenders where one "kindly" worded letter was all it took to help them realize that they could not pursue the homeowner. I strongly suggest speaking with an attorney and determining whether or not you really owe anything. It would be sad to see you agree to pay a few thousand dollars if you owe nothing.
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I have had this situation come up before. The case law says, it does not matter what the bank calls the loan - it is essence of the loan that matters.
If the essence of the loan is purchase money - meaning money that purchased the house and land (not improved) - then you will be protected.
I have never have it go any further than an exchange of letters.
1845 S. Dobson Rd. Ste 201
Mesa, AZ 85202
We are a debt relief agency. We help people file for relief under the Bankruptcy Code.
Please contact me directly with document for a free 30 minute consultation to get more concrete advice. This is not legal advice. I don't have enough information to give actual legal advice. I can only take the limited information presented and provide a framework to know how your situation may turn out. I may have questions that bring up issues you did not think were important but make a big difference.