Inherited home with defaulted mortgage that was never foreclosed

50 Replies

HELP - What should I expect when negotiating?

Background:

I inherited my childhood home only to find out that my mother refinanced it 15 yrs ago for $70K. She made payments (about $25k) up until about 7/8 years ago and stopped due to financial and medical issues. The loan went into default. She’d been banking with this credit union for over 40 years; so they were kind enough to not foreclose. I think they “wrote it off as a loss”. Whatever they did, the head of their debt collections told me they never planned to come after her for the money and instead would wait until she passed to collect.

Issue:

Since she stopped paying, the fees/interest have run up to more than the original loan - last I checked the total is about $85k. I am going to meet with the lender to negotiate terms and want to know what I can expect and what is appropriate/will reasonably be accepted.

I’d like for them to forgive all of the fees and let me pay off the balance that was owed at the time she defaulted.

Is this reasonable? What are my chances they’ll accept it? If not reasonable what would be?

Any help/insight is greatly appreciated.

The answer is always no if you dont ask.

As was already said, yours is a great starting place for a debt resolution discussion.

@Nicho Pruett   Definitely can't hurt to ask and certainly employ an attorney, as others have mentioned.  Do keep in mind your mother will face a sizable IRS hit, because forgiven debt becomes taxable income.  

Good luck!

Along the same line as @Chris Mason is proceeding, if there is equity there is no good business reason for a first lien holder to negotiate here. There is no law requiring them to foreclose other than the SOL on liens (12 years from maturity date in MD), and they can simply wait and watch the interest add up.

I am sorry for your loss.

What a weird situation, you are in.

I would be prepared to write a check then and there for the balance. It'll strengthen your position.

Make sure you get whatever agreement there is in writing.

No written agreement = no check.

@Nicho Pruett what’s it worth? I’m guessing there’s no real equity here and the bank will either take the home or you should sell and pay off the bank

@Tom Gimer thanks. That’s probably what’s happening. I just found out about the issue 2 years ago and my mother was terminally ill. Dealing with that was overwhelming. If I have to pay all of it I will. The quality time with her was worth so much more than any house could ever be.

Thanxxx for your insight. I am prepared to pay and hoping for the best.

Originally posted by @Nicho Pruett :

@Chris Mason not sure but definitely more than what’s owed.

Get an appraisal done so that you aren't unsure as to its value. That will make all the difference in your negotiations with the credit union.

I think the credit union would be willing to negotiate a settlement if they could be made reasonably whole on a long time delinquent loan. I'm guessing there is also deferred maintenance on the house so maybe get some estimates as to what it will cost to put the house in marketable condition. ie, you don't need to know the ARV as much as what the house is worth in its present condition.

Foreclosures cost banks money and time so if they could just get a wad of cash and be done with it, that should be appealing. Get all your ducks lined up, have answers to all the questions and when you talk to them, have your checkbook in hand and be clear you're willing to settle it up right now if an amiable agreement can be reached.

Unless you are attached to the home and want to live in it or something, your other option if they won't settle is to just let them have it and deal with it.

 

Originally posted by @Nicho Pruett :

HELP - What should I expect when negotiating?

Background:

I inherited my childhood home only to find out that my mother refinanced it 15 yrs ago for $70K. She made payments (about $25k) up until about 7/8 years ago and stopped due to financial and medical issues. The loan went into default. She’d been banking with this credit union for over 40 years; so they were kind enough to not foreclose. I think they “wrote it off as a loss”. Whatever they did, the head of their debt collections told me they never planned to come after her for the money and instead would wait until she passed to collect.

Issue:

Since she stopped paying, the fees/interest have run up to more than the original loan - last I checked the total is about $85k. I am going to meet with the lender to negotiate terms and want to know what I can expect and what is appropriate/will reasonably be accepted.

I’d like for them to forgive all of the fees and let me pay off the balance that was owed at the time she defaulted.

Is this reasonable? What are my chances they’ll accept it? If not reasonable what would be?

Any help/insight is greatly appreciated.

Nicho

Since you asked the question, "Is this reasonable" I will say absolutely not.  The credit union was good enough to not foreclose on your Mom for 7-8 years and you want to pay off the balance that was owed at the time of default and waive all their fees???  That's waiving at least 6 years of payments, 6 years of taxes and 6 years of insurance not to mention depreciation while your Mom lived there.  Like others have said, "Don't ask, don't get", but that's a pretty huge ask.

I would get an appraisal to find out what it's really worth and then work from there.  It really is going to depend on whether there's equity in the property; that will tell you which way to go.  My guess is there is pretty significant equity.

If there is significant equity and you want to pay the credit union off, renovate the property and rent it out, there are numerous loan products out there to get the property rent ready.  If you intend to live in it, it gets a little more dicey, but there are products out there for that too.  The credit union may even do the loan.

Best of luck

Stephanie

  

 

@Stephanie P. Thanxxx a lot for your honesty. I am new at this and don’t want to insult the bank because they were very understanding of my mothers situation. Had she allowed and we realized we would have intervened before it got out of hand. What we didn’t know was that she was in the beginning stages of Alzheimer’s. No excuse just an explanation.

In fact I am interested in renovating and renting it out. I will get an appraisal done as soon as possible. Can you tell me what type of loan product(s) I should be inquiring about to accomplish it. I’d like to shop around to see where I can get the best interest rate and have something to compare to the bank offer. When I originally spoke to the bank they were interested in continuing to work with me. I’m hoping they still are - although the person I was dealing with has since retired- my loss.

I just want to be as prepared as I can be before going in.

@Nicho Pruett . Don’t get ahead of yourself. You think there’s equity but what are you basing that on? It sounds like you’re just assuming there’s equity. Assuming it was some sort of conventional loan each missed month is likely 5 percent late fee which means you could have thousands and thousands of fees.

Are the taxes current? If not those have interest and penalties too.

@Nicho Pruett I am not sure about it but, I read somewhere once that a mortgage becomes void after 4 years of no collection/forclusore.

Give it a check.

@Mario Am Thanxxx I think it’s different for each state. But although they can’t collect on the mortgage they can collect from the lien placed on the property when the mortgage was originally executed.

I’m curious though what benefit if any the lender gets from The IRS debt charge- off. -

@Chris Mason do you know?

@Nicho Pruett I am very sorry for your loss.

As far as what is reasonable, they let your sick mother live in a home without making payments and chose not to foreclose on her. I have never heard of a bank doing anything this kind. In my opinion the estate should be responsible for all the back interest and late fees. Someone did something amazingly kind, so shorting them any money seems like the wrong choice.

I would hire an estate attorney and let them handle it. 

@Mario Am That’s just not generally true...you can read a lot of crap information on the internet.  I most cases, the lender so many years to foreclose “after they have accelerated the loan and called it due”....that never happened here.

@Nicho Pruett the bank gains nothing when they issue a 1099 for forgiven debt.....they are simply required to by the irs.