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  1. #1
    Join Date
    Jun 2012
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    2

    Default Second Mortgage Line of Credit After Foreclosure, Non-Purchase Money

    My question involves a mortgage in the state of: Arizona

    I was foreclosed on in January and have my 2nd mortgage line of credit calling me regarding collection. It's a little tricky, because it was not a purchase money 2nd, but it was never used for cash-out. I purchased originally with an 80% 1st mortgage and a 15% line of credit with 5% down (price was $225K, so the 1st mortgage was $180K and the 2nd LOC was for $45K, but only $33,750 was borrowed at purchase), but the ability to borrow it back. At one point under this loan, about $5000 was borrowed back to pay down some debt of my ex.

    Once the home appreciated, I refinanced to do a 1st mortgage of $210,400, and lower the line of credit to $13,150, thus increasing the amount that was in the fixed 1st mortgage, and greatly reducing the line of credit. I eventually paid the line down to around $11,000, but as the house went way under water, I eventually had to leave it behind. I did try to short sell it, and the 1st mortgage company was on board with a purchase price of $97K, but the 2nd wouldn't agree to their terms and hung it up at the last minute (it was already with a collection agent at that time).

    My question is this: Because the loan was refinanced, can they still come after this for collection? I made it a point to never actually borrow against the line of credit after it was refinanced, and the collective loan amounts were never taken above the original purchase price, so I'm hoping I've got a leg to stand on here. They are coming after around $13K or so now, which would be the amount of the debt plus unpaid interest I would guess at the time of the foreclosure.

  2. #2
    Join Date
    Sep 2010
    Posts
    19,851

    Default Re: Second Mortgage Line of Credit in Az After Foreclosure, Non-Purchase Money

    If you refinanced purely to cover the existing mortgage (no cash out) and the property is one covered by the statute (two and a half acres or less and certain single condo units) there is no recourse. The "purchase money" definition covers refinances used solely to cover existing purchase money loans. However since your amount wasn't purchase money (or the refi of purchase money), they can, if this is a judicial foreclosure, seek the deficiency. However, since most firsts are foreclosed via non-judicial foreclosures, you are probably safe.

  3. #3
    Join Date
    Jun 2012
    Posts
    2

    Default Re: Second Mortgage Line of Credit in Az After Foreclosure, Non-Purchase Money

    The collection agent said he can try to collect because this was a non-purchase money 2nd. I really did only use the funds of the refi to payoff the existing purchase loans (although I borrowed that initial $5K on my purchase money LOC)...but I never used the 2nd line of credit for cash purposes at all. That's why I'm a bit confused.

    On a side note, how do I know if it was judicial or not?

    **Thanks for the quick reply btw

  4. #4
    Join Date
    Sep 2010
    Posts
    19,851

    Default Re: Second Mortgage Line of Credit in Az After Foreclosure, Non-Purchase Money

    You said you took $5K out to pay off your ex. This means that the LOC was not exclusively a purchase money loan. Even if you paid down the loan $5K before you refi'd.

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