Stalled Remodel: GMAC 1st & HELOC

[Joel Fraser]

My tale of woe is somewhat more complicated than average. I did a refi at an independent bank, that inturn sold both loans to GMAC. At the time (two plus years ago), my commision earnings were steady with an upward trajectory. Based on my confidence in this income stream, I elected to go for a 15 years mortgage instead of the more traditional 30 year note, with the hope of possibly paying it off in 10 years time. My plans also included some remodeling to update and improve the 9 year old property, so I decided to add a line of credit at the same, but did not take any draw at close.Based on my high FICO scores and low LTV (35% on the 1st only / 65% with the HELOC 2nd -- based on a $475k appraisal) I qualified for GMAC's "Go Fast" minimal documentation program. This was a stated income / stated asset documentation, with no rate concessions associated. I could have gone full doc and easily qualified, but the convienence of not having to turn up documents was appealing, especially since it didn't increase my interest rate. The 1st was fixed at 5.5% and the HELOC terms were Prime minus one percent.I didn't get started on the remodel idea until much later in the year. As it happens, I bumped in to a high school friend I hadn't seen in years, who, conviently enough, was a general contractor. Long story, less boring: my "friend" somehow morphed my modest remodel plans in to a whole-house remodel. With the house still torn up (all flooring removed, bathrooms guted, all lighting fixtures and interior doors removed, etc.), I had gone through my entire line of available credit on the HELOC and quickly realized I still needed more money to put the house back together. I contacted GMAC about increasing my line and they offered to add $50K to my line via modification. Meanwhile my old high school chum ends up in the middle of a nasty divorce; with him falling in to the bottle, which had him drinking in the morning and showing up to work under the influence. This was followed by a mental break down, which I unfortunately was witness to. The result was he quit, took his tools and refused to work on my house, or to finish the work he had agreed to. He turned to drugs after quiting and given his unstable personality and pension for violence, I'm happy to have severed our ties and am trying to put this behind me now. Out some serious money now and living in a gutted home (everything was donated to Habitat for Humanity), I'm left on the horns of a dilemma: Do I throw good money after bad trying to finish the remodel -- possibly leaving myself with nothing to live on and no reserves in the end, or do I just cut my losses and give the house back to the bank? I could ask for the Deed in Lieu of Foreclosure or consider a Short Sale, but I'm not sure how this would work out, considering the "As Is" condition and the difficulties of getting the house appraised, such that anyone could get a loan on it, excepting possibly some sort of rehab loan. Because my income decreased from the when I first took out these loans, and because the income projections I used to restate my income during the increased line modification may not have come to pass (I'm not sure what figure they were given) I'm leary about mistepping by providing such information (the proverbial rope to hang you with). Everything I have read here suggests that income and expense information are a requirements of the modification process, but a friend suggested that they might be willing to change the 15 years ammortization to 30 years with no documentation. Getting them to give me more money to finish the remodel might be a stretch, though it seems to me that the investor might have an interest if the funds were paid directly to a contractor, as this would leave them with a more marketable home, should foreclosure follow the modification. If the house was put back together, it would still be down 200k+ in value. The economy continues to impact my earnings, so I'm considering things I never thought I would, The 2nd lien has a larger principal balance ($175k) than does the 1st lien ($150k), which could allow me to pay on the 2nd for now, and allow GMAC to forclose on the 1st, in order to shield myself from recourse on the 2nd (opinions seem to vary on that stategy). Last month, I missed my first payments on both the 1st and 2nd liens. If you have read this far, thank you for taking the time to do so. Any opinions, guidance or advice here would be very much appreciated.