Question: Hi Keith, I live in Illinois with a current first mortgage balance of $139,800.00 ($1,500 per month) and a second with a current HELOC (recourse) balance of $99,000.00($212.00 per month at 6.73 percent). My home is worth approximately $256,000.
One professional suggested adding the HELOC loan to my first mortgage balance and told me I had no equity in my home. Another said not to add HELOC amount to mortgage and said I had a ton of equity.
Which is correct?
I took out the HELOC in 2006, paying monthly interest payments. I’ve been through a ton of struggles since then and now I’m able to address this problem. I became a permanently disabled senior and know I will never be able to pay this loan off in 2016.
Is there any way possible to still keep my home if I default on the HELOC by legally "stripping" that mortgage from main mortgage? Especially if I have no equity and since my home is in ill-repair and needs approximately $30,000.00 plus.
Or, is the bank just going to foreclose on my home?
Should I go to them now and show them how my life fell apart and why I can't pay them back? Not sure what to do. Thank you kindly for your input. I truly appreciate it.
Answer: First thing: Home equity is defined as the value of the home (usually appraised value) minus any debt owed against it. This includes both your first AND second mortgages.
In your case, and if your estimate of $256,000 is correct, you do have a little equity, since your mortgages total $238,800--that leaves you with $17,200 in equity (a little less than 7 percent).
Foreclosure may be unlikely
If you default on your HELOC but remain current on your first mortgage, it is unlikely that you will lose your home to foreclosure.
The action to foreclose would be initiated by the second lien lender, but the first mortgage holder would have to agree to it. If they are the same lender then this is certainly possible, but foreclosure is considerably more difficult if they are two separate entities.
Financial relief should be available
If you are experiencing hardship (your disability, reduction in income, etc.) you should be able to find relief.
There are a number of programs actively available, including:
- The Home Affordable Modification Plan (HAMP), where terms of your first mortgage can be adjusted to make a more affordable payment (there is also one for second mortgages in place as well)
- The Home Affordable Refinance Program (HARP), which may allow you to refinance your first mortgage (no change to the second) for a better outcome (or even combinations of both).
Of course there are terms and restrictions, most notably that your first mortgage needs to be held or backed by Fannie Mae or Freddie Mac. You can find this out at www.makinghomeaffordable.gov, and may be able to enlist some additional help from a housing counselor there, too.
Be prepared to document your hardships fully--amass dates and income statements and other documentation. You'll need it.
Contact your servicer immediately
If you are eligible—or, even if you are not--the next step is to get in touch with the servicer of your mortgage (usually a phone number on your bills or statements, but there may be a contact point on their website, too).
You'll want to let them know of your situation, and they will likely provide you with a hardship package to complete. Although there will be a time gap between now and any offer which comes your way, it is crucial once you start this process that you meet all deadlines and follow their instructions as closely to the letter as possible.
Have you consulted a lawyer or friend?
You might want to get the help of a lawyer or even just a trusted friend who can help you through the paperwork and such. Take notes of conversations, contact names and dates.
A positive outcome is possible
Getting payment relief can be done, but will require both diligence and patience. Keep in mind that the lender does not want to own your home any more than you want him to have it, so both parties are motivated to try to achieve a satisfactory outcome