Engage an experienced Lawyer to arrange a cash-out refinance and SETTLE your HELOC or 2nd. Mortgage
The devil is always in the details. There is no substitute for a deep drill down into the unique facts of your case. Every homeowner in financial distress was different needs, goals, property values, loan balances, income and history. HOMESTEAD SPC is a one stop shop: Law Firm, Mortgage Broker and Realtor all in one. Get yourself acquainted with the law and read the SEVEN FACTS below.
For immediate assistance, Call\Text Attorney Joseph Arthur (“Joe”) Roberts at: (714) 374-3500
After years of rising real estate prices, the “owners” of HELOCs & Second Mortgages want to be repaid
In the wake of the Great Recession, California Homeowners defaulted on their First Mortgages and many received loan modifications from their loan servicers. Distressed Homeowners with Second Mortgages or HELOC’s (“Junior DOTs”) also defaulted on those debts. For a variety of reasons, folks ignored their Junior DOT obligations. Typical reasons are based on misinformation and bad advice:
The mistaken belief that the Junior DOT was included in the First Mortgage Modification because the loan servicer was the same company:
FACT #1: Each mortgage is a separate promise to repay a debt, independently secured by the collateral (your home). Each mortgage debt is an asset that can be bought, sold or traded.
The mistaken belief that a “Discharge” of personal debt in Chapter 7 wipes out the Junior DOT:
FACT #2: Chapter 7 wipes out your personal liability to pay mortgage debt, only. The home still “owes” the money. Junior DOTs can be wiped out in a successful Chapter 13 case, sometimes.
The mistaken belief that your debt was forgiven because you received an IRS 1099 “Cancellation of Debt” notice:
FACT #3: A 1099 is a reporting device used by the owner of the debt allow them an IRS tax deduction for the losses related to your default. It is not an enforceable forgiveness of debt agreement or a reconveyance of a DOT. The device allows the lender to pay less tax in the present or defer tax until they actually recover the defaulted debt.
You granted a “property interest” in your home when you signed the Junior DOT
Unfortunately, you did much more than make a promise to the repay debt and pay interest: you pledged your home as collateral. A Deed of Trust (“DOT”) “secures” your promise to repay that money you’ve already received or used to buy your home. The DOT is a voluntarily “property interest” in your home that you voluntarily granted to the lender to induce them to trust you would repay the debt. Generally, interest rates are much higher on riskier “unsecured debts”.
FACT #4: A Junior DOT is a recordable instrument that clouds clear title to your home. It is an agreement between a lender and a borrower to transfer an interest in the borrower’s real property to a neutral third party, a trustee, to secure the payment of a junior debt by the borrower. The DOT contains a “power of sale” clause wherein you grant the lender (and any subsequent owner of the debt), the right to force an auction sale without going to Court.
A Deed of Trust protects the lender and reduces the risk of lending money to homeowners. Once the debt is repaid as agreed, the owner of the debt is obligated to “reconvey” the DOT back to you. Unless a “reconveyance” or Court Order has been recorded on title, the DOT remains. Without a reconveyance or Court Order, no title insurance company will insure the transfer of your title to a new buyer or lender. You must clear title to sell or REFI.
Junior DOT Statute of Limitations: Personal Liability vs. the Power to Foreclose
In California, the statute of limitations for a creditor to sue to try to collect a debt evidenced by a writing is generally 4 years. A bankruptcy discharge is also a legal defense to enforcement of a debt and enjoins a creditor from suing you personally. In Chapter 13, an underwater Junior DOTs can be “stripped”; but only if you successfully complete a 3-5-year repayment plan.
FACT #5: Even if you are “off the hook” personally for a Junior DOT, your home still “owes” the growing debt you originally promised to repay. The owner of the loan can only recover the debt by foreclosing on the home…or making a deal with you. This is where we can help.
California Civil Code §882.020 provides that a DOT has a statute of limitations of 60 years following the DOT’s recording if the DOT neither includes a copy of an underlying promissory note nor indicates the date the obligation matured. Otherwise, the statute of limitations is 10 years from the maturity date (the last payment date under the terms of the contract. Therefore, it is highly unlikely that the statute of limitations will have any impact on the Junior DOT’s right to foreclose on your home.
Junior DOTs foreclose “subject to” the 1st. DOT
The Junior DOT is a contract you signed and which typically contains a “Power of Sale” clause. The DOT authorizes the owner of the loan to sell your home involuntarily at a Trustee Sale (or by filing a lawsuit). The California statutory non-judicial foreclosure process is quicker, cheaper and most common.
The Trustee Sale is an auction where the full balance due the Junior DOT (including principal, interest, advances and all the junk fees described in the contract) is usually the “opening bid”. The owner of the loan hopes an investor will bid more than their debt and may opt to lower the opening bid to ensure an overbid. The winning bid is given a “Deed Upon Trustee Sale” and is entitled to possess the home and begin to evict you on 3 days’ notice. The Trustee Deed is presumed to be valid and effectively strips off any other junior DOTs. However, the new Trustee Deed owner takes title “subject to” the 1st. DOT.
FACT #6: Less cash is generally needed to buy a property at a Junior DOT Trustee Sale, but there is more risk for potential investors. The new owner of your home must either pay off, re-sell or make monthly payments on your 1st. DOT or risk a second foreclosure. But if the 1st DOT is willing, the new owner can simply resume your monthly payments.
How to Settle your Debt, REFI and Keep Your Home
The goal is to negotiate a flat fee payment and a reconveyance of the Junior DOT at a DISCOUNT. We will explore refinancing your home to free up the cash to fund the SETTLEMENT. If you are no longer personally liable for the Junior DOT, then you are not obligated to make any payments. The lack of monthly payments to Junior DOT will not prevent you from qualifying for a conventional REFI. The details matter. There is no substitute for a deep drill down into the unique facts of your case. Every homeowner in financial distress was different needs, goals, property values, loan balances, income and history. The first step is a consultation with Attorney Joseph Arthur Roberts.
FACT #7: HOMESTEAD SPC is the first of its kind, ONE STOP SHOP: licensed as a LAW FIRM (SBN#156180), a REAL ESTATE BROKERAGE (CA DRE #01833748) and a MORTGAGE LOAN ORIGINATOR (NMLS# 857418)
HOMESTEAD SPC is a California Social Purpose Corporation devoted to promoting financial literacy in all real estate and mortgage transactions. Joe created HOMESTEAD SPC to serve California Homeowners trying to escape Financial Distress and in real estate transactions long after they recover. Joe always answers the question: “Knowing what I know, what would I do if I were you?”
For immediate assistance, Call\Text Attorney Joseph Arthur (“Joe”) Roberts at:
(714) 374-3500
