another one bites the dust - 80/20 Litton/Specialized

[Joel Fraser]

I’m in trouble. I purchased a home in Mesa, Arizona in April 2006. My mortgages are 80/20 $208k 1st with Litton Loan Servicing and $52k 2nd with Specialized Loan Servicing. The mortgage payments total $1778/month. The first mortgage has changed companies three times since I bought the house. I was doing great, until I lost most of my income in May 2008. Income went from $5000 per month to about $1200 per month. It’s been impossible to find any job in this economy. My Trans Union credit score is 715 right now. No late payments yet, but I’m out of money, and will not be able to pay mortgage by end of Sept 2008. I have about $6000 credit card debt, and a $522/mo car payment. My principle balances total $260k. I could maybe sell for about $210k based on what has been selling in the area. I’m so sad. This was supposed to be a new life for me, and now it’s a nightmare. I’m so mad because back in May I had less than $1000 on credit cards, and over $5000 cash in the bank. Now, I’ve used up all my cash, and have been living on the credit cards. So this week, I met with an attorney to get some advice. I was ASTOUNDED by what he told me. He told me that because I used both loans to buy the house, both my first and second mortgages are what they call ‘purchase money’. He said these are considered non-recourse loans, meaning, if I were to default, that the only thing the lenders can do is to foreclose. Because state of Arizona has antideficiency laws, they cannot hold me liable for anything when they try to sell it at foreclosure. They won’t be able to sell it anyway, given terrible market conditions. As far as income taxes, he said that because of the recent new laws, I will not have any income tax liability. I find that hard to believe. In a nutshell, he told me to walk. He recommended that because I can’t pay the mortgage payments, to just not pay them. He said trying to do a short sale is a waste of time, and a loan modification on home so far upside down (and falling) is pointless. He said try to pay off my credit cards, and live in the house until they foreclose. He said I will not have to declare bankruptcy, as long as I keep up my credit cards and car payments. Even so, I understand that my credit will be ruined by a foreclosure. He said, stay with relatives after they foreclose, or rent until this whole national housing nightmare is over. The thought of losing my home makes me cry. I spent thousands of dollars and hundreds of hours improving it, and it’s beautiful. I spent all last summer tiling the floor. I love the place. The neighborhood is great. But on the other hand, it’s a sinking ship of a liability. I’ve read that homes in Arizona could go down another 10-20% or more by end of 2009. It hate to admit it, but I think that I should just walk. I don’t seem to have anything to fight for. My Amercan Dream is over. I was initially hopeful when I read some of the loan mod stories here. Am I being too negative, or just realistic? I feel so hopeless. Sad in Arizona.