Green Tree ignored me for months after the short sale, then started collection calls. Rather than pay an attorney to send a Cease and Desist letter, I sent Green Tree a letter myself, simply telling them that they are mistaken, and that according to two qualified Real Estate Finance Attorneys I consulted before making the decision to pursue a short sale, I do not, under California law, owe them $58,636 because the HELOC was purchase money debt. (see California Code of Civil Procedure 580b, 580d, and 726 for starters). After a series of FAX hurdles, I started calling them every day until I finally was able to get confirmation my letter “uploaded to their system.” The team at Green Tree reviewed my information and I was told today, that as of tomorrow morning, they will send a letter granting me a full release. Now my credit will start to repair and also…. I will owe no taxes on this mess! This was not certain until April 12, 2010 when Gov. Arnold Schwarzenegger signed SB 401 by Senator Lois Wolk (D-Davis).
Gov. Arnold Schwarzenegger Monday signed legislation that cancels the tax obligation for home sellers who dispose of their properties via short sales.
The term “short sale” means the home is sold for less than the amount of the mortgage. In allowing such sales, the lender agrees to forgive part of the debt. But until the passage of the law, home sellers in California were threatened with a huge tax bill because the state considers that forgiven debt as taxable income.
Incredible. My house finally sold, yesterday, with escrow on the short sale closing a few days before my foreclosure sale date.
From 5/5/2005 to 10/15/2009, the value fell from $300,000 to $162,500. On my first home purchase, I lost $137,500 in the housing crash.
I’m completely moved out now, sold so much stuff, did my final cleaning, dropped off the key. Goodbye money pit.
I should teach “how I walked away” seminars with all I’ve learned. I did not want to walk. I tried three different loan negotiations to get into a fixed rate instead of the Pay Option ARM I was originally sold, but it came down to this: I bit off too much loan and had to face that fact.
Now I sit back and see if the CPAs and lawyers I paid are correct that there will be no further damages such as Green Tree, the 2nd lien holder coming after me for the $60,000 HELOC they bought from Bank of America, which bought my loans from Countrywide.
The final fight will come down to the HELOC being “purchase money” or not. My lawyers say it is, that California law states that because the HELOC was signed on the same day as the 1st mortgage (not a refinance), and because I used it to purchase my primary residence, and because I took nothing out of it, they can only go after the house. Green Tree released their hold on the deed for $3,000 but said this was in consideration of being able to go after me for the remainder. My attorney advised that I tell them that I am not agreeing to change my original obligation. Green Tree claimed that there must be a check box on my original loan documents stating that it is a purchase money loan. My lawyer says this is not correct. Green tree wants proof of that or they will try to collect from me. Time will tell.
So far the only definite damage has been a loss of about 150 points from my FICO (credit) score and the drop of my $8,400 Discover Card credit limit down to $1,200… plus one ER visit due to stress related chest pains… probably just stomach acid… but they kept me overnight because they were concerned about my EKG readings.
Feel great now!
Update: I want to make clear that I do not recommend walking away from obligations. For my entire life, keeping my word and my contractual obligations has been a high priority. This is why I went into this with a 767 FICO score. I paid off all my credit cards. I paid back my student loans. I paid off my car loans.
Sometimes, unfortunately, I learned that we have to make tough business decisions. In my case, I accepted a $300,000 adjustable rate loan based on a lie from a Countrywide loan expert. I was told that even if my home’s value fell, I could refinance, that they “had many different instruments”.
When I was underwater and saw the adjustment looming, I did everything I could to keep my home. I negotiated refinancing four times, I contacted HUD, talked to everyone I could, but in the end, I was never offered a loan modification with monthly payments I could afford. If you can’t afford it, don’t buy it.