“Dear Jared,
I had to short sale one of my investment condos in 2010. We thought the 2nd lien was settling at closing and then they pursued me for the full amount owed and have now place a judgement against me. They refused to settle for less than 75% of what was owed. I also have a promissory to Wells for 8K that is now with a debt company
I had to short sell my condo in 2010 due to large shortcomings in rent. I missed my window to flip it and then tried to hang on, costing me over 500$ per month for 2.5 years. I finally decided to short sell. Wells was the 1st and a local lender First Citizens was the second. The first agreed to the sale quickly and asked for a 8K promissory. The second agreed to the 3K at closing which is what we thought would settle the debt. They pursued me for the remaining 41K for 2 years. I retained an attorney who was supposed to be helping me settle the debt or get it wiped out.
They refused to negotiate on the debt for less than 75% of what was owed, which I did not have. So it just went to a judgment for 46K, which included lawyer fees etc. I also have the unsecured debt of 8K to Wells that I was not able to pay, now being collected by DTA solutions. Which in fact should be 5700$ because they got a payment at closing for 2300, that I have record of, and nothing was ever cr edited. I just need to know if trying to settle any of these is even worth the time. The attorney in all likelihood has done nothing and probably hurt me more than he helped. I kind of want to know what the 2nd lien is going to do with the 46K and whether trying to settle the 8K or both is even worth it. Thanks!
Din”
Hi Din,
You must be very aggravated. What happened with the $3,000 settlement at closing? Did you not receive a letter? Did you seek the aid of the title company that was used? Perhaps they have documentation pertaining to the $3,000 settlement that would assist you.
My best advice is to figure out a solution for the judgment before you do anything else. There are three reasons why I recommend this…
- If you settle the Well Fargo first it will really make resolving First Citizens all that much more difficult. As you have learned through your experience, debt collectors are trained to collect as much as they possibly can from you. If you settle the Wells Fargo first, First Citizens will see this and they’ll know that you’re really interested in paying them. Thus, they’ll be more likely to maintain their position or even demand more.
- The next reason has to do with wasting your money. If you settle the Wells Fargo first and end up never receiving cooperation from First Citizens, you’ll probably end up filing bankruptcy to resolve your problem. If you do, the money that was spent settling with Wells Fargo will be figuratively thrown out the window.
- The third reason has to do with your future credit. The way credit rehabilitation works when you’re recovering from charge-offs, collections and judgments, has much to do with obtaining new credit and maintaining and growing that credit over a long period of time. However, the caveat to obtaining new unsecured credit, especially desirable credit like conventional mortgages and prime rate auto loans and leases, is the typical requirement of resolving all of your delinquencies. You would fail to meet that requirement if you only settle Wells Fargo.
So now this information leads us to your financial ability to settle. Do you have funds available to settle right away? If not, do you have a way to borrow the funds to settle right away? If you do, what is the resource?
I personally don’t recommend debt settlement if you can’t settle your debts within 12 – 24 months, the reason for the range has much to do with your collectability.
Meaning that if you have a W2 job or own a home, or even worse, a second home, you really don’t want to take longer than 12 months.
If you’re self-employed and rent, 24 months may be okay, depending on the creditors that are owed.
The idea behind this logic is if you’re more collectable, you’re more attractive for suit. Hence the need to get it done before those lawsuits typically start happening after 12 – 18 months of delinquency. And if you aren’t attachable (self employed and rent), then you’re not as attractive for suit, so you can take a little more time. But please be aware, the dangers that are associated with settling over a long period of time still exist, they’re just less likely to be employed.
I also make the 12 – 24 month recommendation based on rehabilitation. Which is more relevant to you, considering you already have a judgment and have gone through the stress, anxiety, and suffered the additional financial costs.
People that file chapter 7 bankruptcy generally acquire new credit within 2 years of discharge. Discharge generally occurs around 90 days after you file.
The same is true if you were to settle these debts. You will generally acquire new unsecured credit within 24 months of settling your last account. So in your situation, if it takes you more than 90 days to settle. Your recovery will take longer than a chapter 7 would.
So, to answer your question… if you desire to avoid bankruptcy and can settle the accounts quickly for an amount that is affordable, then go for it. But remember, First Citizens has to be your focus. Without their cooperation, assuming that you can file for chapter 7, bankruptcy becomes a no brainer.
The steps you should take…
- Find out specifically why the settlement with First Citizens wasn’t honored.
- Call the title company to find out if they have any documentation that will support your position.
- Call the attorney you originally hired and ask him for all of the notes in your file. Just so you can become familiar with everything.
- Meet with a different attorney for a second opinion and bring those notes.
- If you end up unsuccessful with proving that you already settled the account, call a bankruptcy attorney to become aware of how bankruptcy will work for you.
Once you have taken some time to digest your bankruptcy option, and if you’re still leaning towards avoiding bankruptcy, call an accountant to become aware of your tax exposure. You may have to pay taxes on the amount that you save. It is critical that you become aware of your tax exposure before you decide to settle your debts.
If settling still remains desirable after meeting with an accountant, you will want to obtain a letter from the bankruptcy attorney on his or her letterhead pertaining to your meeting with them, your financial condition, your ability to file bankruptcy, and if you fall into a chapter 13 – what your projected repayment amount would be.
You’ll probably have to pay for this, but it should be tremendously helpful to you when negotiating.
If the letter will end up stating that you’ll have to do a chapter 13 and pay the majority of the money back, don’t waste your money.
Now, take some time and sit down at the kitchen table and scratch out reasons why you would settle with yourself. The more reasons you can come up with, the more reasons First Citizens will find it logical to work with you.
Remember, collectors are trained to collect as much as they can from you, but at the end of the day, they generally want to settle as bad as you do. This may not be the case with First Citizens however. As you appear to already realize, 75% on a second mortgage, when you don’t own any remaining property, is a pretty staunch stance. However, the letter from the bankruptcy attorney, along with the reasons on why they should settle with you, may change that.
If you do decide to settle, hopefully you can find a way to do it quickly. If not, filing bankruptcy will probably start to make more sense to you if the lack of cooperation continues to exist. Everyday that goes by is a day that you could be recovering. So to prolong this too much longer is just going to make your recovery take that much longer. No matter which direction you go.
Focus on these items for now. If you decide to settle, just initially open up negotiations on the First Citizens. There is no reason to draw attention to yourself on the Wells Fargo account until you become aware of First Citizens level of cooperation.
Please feel free to reply with any questions and definitely follow up on this post with each step. This is going to be a very fluid situation and you’ll probably have many questions along the way. Good luck and I look forward to hearing about your progress.
Best wishes,
Jared Strauss
Please post your responses and follow-up messages to me on this in the comments section below.
I was formerly one of the best debt collectors in the country and since 2002 I’ve been helping people settle their delinquent debts right away. – About Jared Strauss
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