Q. My daughter bought a house in 2003. Her first mortgage was $340,000. She got a home equity loan for $10,000 with which she and her husband bought five properties so they have five loans. Their own house has gone down in price. So far, they make the monthly fees. If one of them is laid off from work, they want to know if they are forced to foreclose or do a short sale, can the bank or first mortgage or HELOC come after them and take their rentals?
A. Because Because you are asking about the legal ramifications, you need to talk with an attorney. I will offer the following brief, generalized observation and refer you to two Web sites for more information.
In California, mortgages used to purchase a home are non-recourse, meaning the lender can’t come after you for a shortfall. Home Equity Loans, HELOCs, are different and, in general, they are recourse loans, meaning if they are not paid in full, the lender can come after the borrower to collect any deficiency.
If they should choose a short sale rather than a foreclosure, there is an opportunity to make any deal the HELOC lender would agree to, including an agreement that they would accept whatever they got as payment in full. Any agreement wouldn’t mean, however, that they wouldn’t report a deficiency to a credit bureau.
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Q. We have a first and second mortgage on our existing home.
First mortgage, 15-year fixed at5.625% with only eight years left on loan with $2298.46 payment balance of $176,606.75
Second mortgage, 30-year fixed at.5% with 27 years, 7 months left on loan with $1922.28 payment balance of $244,770.50
We were trying to refinance second loan, but Bank of America said they are not doing anything with seconds at this time. But we could redo first for 20-year. loan at 4.75% lowering our payment about $1,112 a month. The loan has a discount point of 0.750% or $1,376.25 plus title fees and $400 application fee. Our plan is to keep paying the $1,100 dollars but putting it towards the second to the principal of the second loan. I am a little hesitant on doing this because I feel like we are going backwards on the length of the loan on the first mortgage. Loan officer says look at it as we are using the banks’ money to pay off the higher interest loan. If we do go ahead with this refinance, in the future when banks are working with customers on their second mortgages we would like to change it to a 15-year loan to pay it off sooner. My husband is 50 at this time and I am 47. He is self-employed contractor and I stay at home with our daughter. I believe the loan is going to cost.
A. I do not know why your loan officer did not suggest combining both loans into one new loan. While the current loan balances slightly exceed the Fannie Mae Conforming limit of $417,000, you should round up a little cash to pay the difference. You could get a $425,000 to pay costs but there would be a severe 1 point, $4,250 cash-out penalty. Better to use the $4,250 to pay the loans down.
You should always adjust the payment so as to have the loan paid off at some specified future time that fits your other plans.