Confronting the HELOC Monster!

[Joel Fraser]

*I apologize to anyone who sees this twice... I am trying the figure out the best place on this webpage to post this inquiry. * I have some questions at bottom of this message. Any advice is appreciated! I am confounded by the scarey prospect of dealing with the HELOC monster as I sadly choose to walk away from my beautiful antique and historic California home that I lovingly restored and fixed up to great shape. I have undertaken a lot of research -- including substantial Internet and other reearch, speaking with a knowledgeable attorney, my CPA, and real estate people, and reading many of the posts here. I have to say I am STILL quite apprehensive about what I am about to face. Here is my very sad story -- I will try to be brief: I have two loans on my home: 1) a primary purchase money mortgage; and 2) a HELOC. The current value of the home is probably just over 2/3 of what I paid for the place in late 2003, and about 50% of what I owe on it for both loans. Property values have substantially shot down in my community. The current value of the home is probably less than 2/3 of what I paid for the place in late 2003, and about only 40% (!!!!) of what I NOW owe on it for both loans. I took out the HELOC in 2005. I borrowed from it during that year and then again in 2007, after I lost successive jobs and then remained unemployed for many months each of those years. I used the money to pay for basic expenses, as well as some home improvements. I have finally found a job in an expensive city hundreds of miles away. So, now I am paying rent on top of expensive mortgages, taxes and insurance. I cannot realistically rent out my house, as rental rates would cover only 1/3 of what I have to pay out minimum interest-only on both loans. My total debts easily exceed my assets, including a next-to-nothing IRA and a small investment property in which there is little equity left. My job is okay but of course I have learned there is no certainty any more in jobs! I have so far been keeping all payments current and even paid a $2K County property tax bill last month, just to buy myself some more decision time. The short of it is that I have been unemployed for two out of the past three years and I cannot handle these obligations and have to walk to get my financial house in order. I am not concerned about the primary mortgage. However, I am very concerned about my HELOC, the current balance of which is $50K. I know I can try to short-sale the property, but even if that did work, there would be nothing left for the HELOC lender to satisfy. I want to note one more thing before asking my questions. After some legal research and talking with an attorney, I have learend that it is NOT THE CASE that ALL HELOCs are automatically a personal obligation. I really do wish some so-called experts would stop claiming that. You see, it depends entirely on the terms of the note!!!! If you do your research, you will find that some HELOC loans actually expressly state that they are NON-recourse. Mine does not say that -- however, the note and deed of trust do specify ONLY that the lender's remedy if borrower defaults is to proceed against the security, and say nothing about other things they might try to do (such as convert it to an unsecured debt which they will try to satisfy by going after me personally). Here are my questions: 1) I am planning on writing both of my lenders to let them know I am stopping payments and that they should initiate the foreclosure process. I promise to act in good faith to perform basic maintenance on the property until then, but I am advising them now. Is this a good or bad idea? 2) When should I contact my HELOC lender? Before or after I stop making payments? And if after, how long after I stop?3) Are HELOC lenders willing to negotiate? Which ones are more reasonable or unreasonable to deal with? What have HELOC lenders done recently? Can anyone share any tips to approach them? :eek:4) Has anyone here gone through BK to try to discharge all or some of a HELOC?? I feel ashamed and I am truly sorry but my situation is not ALL or even MOSTLY my fault. My credit is excellent now and will be shot for years and will not help my employment situation if and when I have to go looking again for work. Thoughts are appreciated!Distressed in California