Southern Foreclosures
Southern CA: HELOC & Mortgage foreclosure issues?
I have a mortgage and HELOC with same lender for total ballance of $423,000. The current market value of my house is about $375,000. Will the lender pursue with Deficiency Judgement for the rest unrecovered ballance? if they decided to foreclose my house and its obviously they will loose some money. I want to know what is going to happen to me as home owner. Will they try to take money from my bank account trying to make up the money they lost? And what if I have another property that is current. Will they put a lien againt my other property? And what if I m going to buy another house after this foreclure, will there be any lien against my new house?
HELOC Subordinance and Recourse
There are two factors to consider when facing foreclosure:
First, HELOCs are subordinate to primary home loans. This means that the HELOC lender has claim to any money generated by a foreclosure, only after the primary mortgage lender recoups their full loss. The primary mortgage lender will also use up thousands of dollars to sell the foreclosure home. In many cases, this means that the HELOC lender will not see any money when a property is foreclosed upon.
Second, almost all HELOCs are considered “recourse loans.” The borrower is personally responsible for paying recourse loans in full, regardless of their property’s value. If the lender doesn’t recoup the full cost of the loan during foreclosure, they can sue the borrower for the remaining money owed. The lender may be able to recoup its loss by garnishing the borrower’s wages or even placing a lien on a future property. Collections can continue for up to 20 years. (Note that in some states legal statutes require that all first mortgages are non-recourse. See: List of Non-Recourse States).
If a HELOC lender forgives a recourse loan, the borrower is generally required to include the forgiven amount in his taxable income. Based on the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to avoid paying taxes on the forgiven amount if you can prove the HELOC money was used to fund home improvements. (The act applies to those paying taxes in 2007, 2008, and 2009). http://www.irs.gov/individuals/article/0,,id=179414,00.html
Additional info from the article & HELOC Foreclosure Options can be found here: http://www.helocbasics.com/what-happens-to-a-heloc-in-case-of-default-or-foreclosure/
KNBC News Conference: Southern California Foreclosures
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