I Need to Walk Away From My Old House in a Crime Ridden Area. What About My HELOC? – Lynn

“Dear Steve,

First let me tell you Your site is so helpful and informative. A great service.Thank You I hope you can give me an answer, there are so many different opinions about this, but I trust yours.

Live in NYS,went bankrubpt 2010,chap 7 discharge,no reafirm on mortgage. Heloc only 48000, no first. Have made all payments since. Things have changed, lost my job,house very underwater and very crime ridden area.

Bank said they would settle account for 10,000. First why would they accept so little? House value maybe 25,000. Makes be nervous.

Second would I have to pay tax on forgiven amount as it was already discharged? And would my credit now take another hit as a foreclosure if I just walked away?

I don’t live there, not renting, house is empty because of area, just an albatross. Want to get lein released so I could dump it quick if possible. Is trying to come up with cash payoff a good Idea, what about taxes and my credit? Thank You

Lynn”

Don’t miss our free Get Out of Debt – “How To” Guide Series on a number of topics, for loads of practical advice, tips, and help to beat back debt. – Click Here

The Answer

Dear Lynn,

Thank you for sending in your question.

Was the HELOC taken on after your bankruptcy? Is this something that was not included in the bankruptcy? I’m curious how else it might not have been discharged in the bankruptcy.

Did the bank ever take back the house or is it sitting there in your name?

If both loans were forgiven as part of your bankruptcy, then no tax would be due.

I think we can get you where you want to go but I need more clarity on the bankruptcy and the inclusion of the HELOC in the bankruptcy.

Please post your responses and follow-up messages to me on this in the comments section below.

Big Hug!

I Need to Walk Away From My Old House in a Crime Ridden Area. What About My HELOC? Lynn
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need to walk away from my old house in crime ridden area.

Jan 26, 2013 by Lynn

This is one place you can go to for the truth !! Steve is great. Steve what you should do is have a television show so more people can share your knowledge. Thanks from us all, for all the good you do.

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  • Lynn

    Steve, still looking for one more answer to help me decide if I should settle or let them Foreclose

    I am pressed for time with the banks offer. Thank You so much

    Would it show as a foreclosure on my credit ? I was told my credit would drop another 250 pts in addition to the hit I already took in bankruptcy. I don’t want another hit, I worked hard to improve it. The bank wants to settle for 10,000.why so little? Is this a good Idea? It would get the lein released, then I could try and sell quick.

    • http://GetOutOfDebt.org Steve Rhode

      Why is the bank willing to settle you ask. The answer is that it’s because the loan was apparently discharged in bankruptcy and you don’t owe it anymore.

      If they would agree to release the lien, in writing, then settling the HELOC and selling the house is certainly a possibility as long as their are no other liens on the property.

      The issue of the foreclosure at this point is really not much of a consideration since we don’t even know if the payments you are making are being applied to a loan you don’t owe that was discharged in bankruptcy.

  • Lynn

    The Heloc was included in chap 7 discharge,shows on credit report.They would not reafirm. So A relative needed a place to stay so they were paying mortgage up until they had to move (crime too much) last month. I obtained the Heloc a few years before the bankrubtcy. The first was paid off 10 years ago, so I guess that now make the Heloc the first. It is still in my name, bank was happy to have mortgage (rent) paid to them so they would not have to foreclose. I contacted bank and asked about DIL or forecloser, thats when they made a settlement offer. I have two choices, let them foreclose,or get it back in my name to sell it. If I settle to avoid foreclosure, which may take years, wouldn”t the forgiven amount be taxable? And if I do foreclose, does my credit take another hit, I have built it back up, and the bank tells me it will drop 250 pts with a foreclosure. Thats more than thechap 7 did. I have to get rid of this place before it gets destroyed in area. Please Help, I don’t know what to do, and Thank You for getting back to me so fast. You are an angel.

    • http://GetOutOfDebt.org Steve Rhode

      So if I’ve got this straight. You have no first mortgage on the property, just the HELOC. Correct?

      The house is worth $25,000 but the HELOC is for $48,000, that’s what you said in your original question. Is that correct?

      Since the HELOC was included in and discharged in your bankruptcy you no longer owe it. Your responsibility for the HELOC ended with the bankruptcy discharge. But the lien still remains against the house. You would not be able to sell the property without generating enough in the sale to clear the lien.

      If you do want to sell the property, I would suggest you find a local real estate agent that is experienced in “short sales” and explain the entire situation to them. They would need to negotiate with the HELOC company to release the lien for less than the full value to make the sale go through.

      Alternatively, since you no longer owe the HELOC, since you stated it was discharged in your bankruptcy, and have no other mortgage against the property, technically you could let them foreclose. Until they do you will be responsible for property taxes and insurance on the property.

      • Lynn

        Steve, Thank You for all your help, and thank you for responing so quickly. I really mean it…you should have your own television show. People trust you. You forgot to answer about my credit taking a hit. Lets say I do let it foreclose. The bank tells me my score will drop 250pts and will look really bad. Like I told you I worked so hard (with your help) to start to raise it up after the bankruptcy, I would hate to have this happen. Is this their scare tactic to get me to settle? or is it true. It will make a difference in what I should do. This is the last of my questions (at least for now) you have helped me out on many issues. I wish there was a way to get a hold of you direct. I seriouly would pay for your consultations. Thanks Steve…BIG HUG !!!

      • http://GetOutOfDebt.org Steve Rhode

        Sorry for missing that. The short answer is, who cares?

        Will your credit take a hit from the foreclosure, could be, but the reality is that the option of avoiding it is hanging on to the house that is a noose around your neck.

        Just keep rebuilding your credit following my guide http://getoutofdebt.org/32410/how-to-easily-rebuild-your-credit-and-have-good-credit-again

        Right now you have a house you can’t sell without paying of the HELOC through the sale and a loan you don’t owe.

        Of the choices of endings here: abandonment then foreclosure, staying in the house, or a negotiated settlement or sale; the best possible outcome is a short sale or settlement regardless of the credit score impact.

        And whoever is telling you it’s 250 points doesn’t really know how it will impact your specific credit score. Maybe it will be 50, maybe it will be 300. There is not set impact for a foreclosure.

        Here are the average hit your credit will take:

        30 days late: 40 – 110 points
        90 days late: 70 – 135 points
        Foreclosure, short sale or deed-in-lieu: 85 – 160
        Bankruptcy: 130 – 240

        To come to these figures, Fair Isaac created two hypothetical consumers, one who starts out with a fair-to-middling score of 680 and the other with a very good one of 780. (FICO scores range from 300 to 850.) – http://money.cnn.com/2010/04/22/real_estate/foreclosure_credit_score/

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