Dorn wrote to me through the GetOutOfDebt.org site and asked the following question. If you have a credit or debt question you’d like to ask just use the online form. I’m happy to help you totally for free.
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“Dear Steve,
We are filing for chapter 7 bankruptcy protection for our 50,000 in credit card debt. when we went to see a bankruptcy lawyer, he recommended that we also walk away from our home b/c we are upside down on the mortgage and heloc. At first it sounded great to do this and then I got nervous about my credit scores so, I have decided to try and do a home loan modification on the 1st loan and offer a lump sum payment to pay off the heloc loan. In the meantime I am also listing my home for a short sale at fair market value.
So as you can see I am trying to cover my bases. The reason we won’t do a chapter 13, is b/c the payment made up by the courts will be around 1600 dollars a month and will put us right back in the same financial harship we were in except that it would finally be over in five years. We really do want to save our home now and try to work it out with the lenders.
MY QUESTION IS HAVE YOU SEEN MANY COMPANIES TAKE SETTLEMENT OFFERS TO PAY OFF HELOC LOANS? I HAVE OFFERED 10% OF THE LOAN VALUE TO START AND AM ABLE TO GO A LITTLE HIGHER WITH THE HELP OF FAMILY. AFTER THE SHORT SALE (IF IT GOES THROUGH THE HELOC COMPANY WILL GET LESS THAN MY OFFER AFTER THEY PAY OFF REALTORS AND THE 1ST LENDER TAKES WHAT THEY NEED. AM I DREAMING OR ARE THESE LENDERS WILLING TO TAKE THESE SETTLEMENTS TO KEEP PEOPLE IN THEIR HOMES DURING THIS TERRIBLE ECONOMIC CLIMATE AND THE SKYROCKETING FORECLOSURES?
Dorn”
The Answer:
Dear Dorn,
I’m not sure how your second option helps your credit scores any better. Your credit report will still show a settled debt, a modified mortgages and maybe even some delinquent payments. It sounds to me like to are trying to bargain your way into what you think is a more responsible solution.
There are a number of reasons why a home equity line of credit lender might either not negotiate or take such a low settlement offer. None of those reasons have to do with logic from your point of view. They are all based on maximizing income for the HELOC loan servicer.
It is doubtful that the HELOC lender is holding the loan on your property. It was probably sold on the secondary market or sold as part of a bundle of notes. In that case the lender is just the servicer of the loan. Loan servicers make more money collecting your payments, charging you late fees, and chasing you.
I think the best way to plan your strategy is to first identify what the goal is you are trying to achieve. Is it to get a fresh start, labor as hard as you can to stay where you are, or what?
Once we know where you want to wind up we can plan the journey.
Just update me in the comments section on this question and I’ll answer.
Oh and by the way, lenders don’t give a damn about keeping you in your home. You are secondary to the ultimate goal, maximizing profits.
P.S. Be sure to read ‘The Secret of Surviving Through Difficult Economic Times. What I Learned On My Journey‘.