Post Short Sale Negotiations

Hi Paul,

Shortly after building a house with a $489,000 loan (1st/2nd-HELOC), I lost my job.  My husband was not on the loan, only on the deed because my credit rating was great and his was bad enough to keep the loan from going through.  We depleted our entire savings to remain in good standing with the lenders, but unfortunately it went into foreclosure.  We were able to sell the house via short-sale.  The 1st lender agreed to pay the 2nd HELOC lender $3000 to release the lien.  Now the 2nd lender wants to hold me responsible for the deficiency of $74,000.  I have since obtained another job paying less annually than what I made at the time of getting the loans.

- My husband and I are now divorced (2 children/no child support) and since he was not on the loan he has no financial responsibility with the lender; however, according to our divorce decree he is legally responsible for 1/2 of any deficiency.  What recourse do I have to ensure he pays his 1/2 of the deficiency?  Garnishing wages??

- There’s no way I can afford to pay $100 let alone $74,000.  How likely is it that the lender would fully release me from any deficiency??

- I am currently in negotiations with the 2nd lender and am in the process of constructing a hardship letter & financial expenses summary per the lender’s request.  I am $900 in the hole per month before paying the HELOC lender anything.

- I have 2 credit cards that are now maxed out and my credit score is down the drain.

What suggestions do you have to help me negotiate with the 2nd HELOC lender? 

Thanks,
Jennie

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Hi Jennie,

Sorry to hear about the divorce.  These foreclosures are taking a toll on everybody.

Regarding the deficiency balance, my initial thought is that if you can show that you are insolvent and a candidate for a chapter 7 bankruptcy, then the HELOC lender would still be left with little incentive to offer you a full release post short sale. 

Perhaps a deal can be made with the HELOC lender to prepare a $10,000 signature note for the ex to sign and then to consider your account settled.  Ten thousand is a lot less than $37,000, which is where his share of the deficiency stands now.  On the surface that sounds like a deal for all parties.  That’s assuming a chapter 7 bankruptcy is the alternative.

Thanks for the questions and you’ll need to talk to a bankruptcy attorney.

Paul

This author is not an attorney and this information should not be considered legal advice.  Please consult an attorney for legal advice.