Should I Default on my Mortgage?
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Editors Note: I would like to add one more point to this great advise. I should note that I am not a lawyer and I'm not giving legal advice here. Just telling you what I did.
In my case, after my original lender went bankrupt, IndyMac Bank, a new bank took over, OneWest Bank, claiming they had purchased my loan. According the UCC (Universal Commercial Code) 3-501 on "Presentment," when you are presented with a bill, a demand for payment, you have the right to demand that the party claiming you owe them money prove it, to validate the debt. If they refuse, you have the right to withhold payment "without dishonoring the instrument" until they do comply.
I did this before I stopped making payments. It is important to make such a request in writing, certified mail, return receipt to prove you have done this. If they fail to comply with real hard proof, then you can withhold payment without being in default. A judge will try to get you to admit you are in arrears on the note or some such thing but do not admit you're in default, ever. If you get tricked into saying you're in arrears, make sure you blurt in that this does not necessarily constitute a default according to UCC 3-501. Look up the version of it in your state when you quote it because that is the version actuallyy codified in your state. In Colorado it's UCC statute 4-3-501.
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By Mark Stopa Esq.
livinglies.wordpress.com
January 28, 2012
I get all sorts of comments on this blog, not to mention inquiries from prospective clients via email. This one, which I’ll paraphrase, really caught my attention, as it presents a situation I suspect a lot of Florida homeowners are facing. Here’s the question, and my response:
Question: My wife and I have always paid our mortgage, but with the economy as it is we’ve struggled to do so recently. Our house is about $150,000 underwater, and for the past year or so, we’ve borrowed money from my parents to make the mortgage payments. Unfortunately, my parents can no longer afford to lend us any more money, so we’re trying to decide what to do.
I’ve been asking the bank for a loan modification for many months. They keep telling me “we’ll get back to you,” but then I never hear anything. Most recently, the bank began insisting that my wife disclose her financial information as well. I argued with them about this, since my wife wasn’t a borrower and did not sign the Note, but they insisted that the only way I would be considered for a loan modification was if my wife submitted her financial information as well.
What should I do? My wife doesn’t want to disclose anything, but if she doesn’t, and we don’t get a modification, then we can’t continue to keep making our mortgage payments for much longer.
Answer: First off, this might sound backwards to you, but I’m glad your parents are no longer giving/lending you money for your monthly mortgage payments. I can understand the logic behind their doing so, don’t get me wrong, and I’m certainly not trying to criticize you or them. However, as I’ve explained on many occasions, including here and here, depleting a 401(k), IRA, or savings account to make monthly mortgage payments on a house you just can’t afford is almost never a good idea.
Please read this post, which I wrote in July, 2010. As I explained there in detail, it’s almost never a good idea to deplete your savings to make monthly mortgage payments, as all that will happen is you’ll run out of savings and then still be facing foreclosure anyway. If you realize you can’t afford to continue making monthly mortgage payments indefinitely into the future, isn’t it better to stop making those payments now, keep whatever money you have in your own pocket, and brace yourself for the impending foreclosure lawsuit, rather than spend all of your savings, then face foreclosure with no money left in your pocket?
The fact that your parents were lending to you, as opposed to you depleting your own savings, doesn’t change my view. In fact, it might make it worse. Your parents are obviously older than you, so they’ll have fewer years in the work force (if any) to recover, and I suspect from your email that you’ve depleted your own savings, too. Nonetheless, you’re still in the same situation you would have been in had you and your parents kept those monies in your own pockets – facing foreclosure.
It’s critical for you, your parents, and all homeowners to realize that any money in your 401(k) or IRA can never be taken by the bank (i.e. to collect on a deficiency judgment) – the only way you’ll ever lose that money is if you take it out voluntarily. Even if you get foreclosed, you’ll still get to keep your 401(k) and IRA monies. Even if you have to file bankruptcy, you’ll still get to keep your 401(k) and IRA monies. Hence, I can hardly imagine a circumstance where it makes sense to dip into these accounts to make mortgage payments. I suppose a temporary reduction in income could justify doing so for a short period of time, but that’s the catch – lots of people think/hope their reduction in income is temporary, but before they know it, they’ve made a year of mortgage payments from their IRA or 401(k) with no end in sight.
More at http://www.stayinmyhome.com/blog/2012/01/should-i-default-on-my-mortgage/
Mark Stopa Esq.
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