I would like to share our situation with you folks and see if anyone has some ideas.

We sold our old house in 2007, bought a new one, and moved. Then our old house got "unsold" when the buyer could not perform (bank pulled out), and we got stuck with the house as the timing was horrible (summer 07). We tried selling all through 2007, paying for the two homes, but no luck.

In 2008 we rented the house hoping to ride things out. Values kept dropping, and then in September the city itself filed for bankruptcy and got it granted. As our renters left in Dec 08, we discovered that rentals had also been depressed significantly. Furthermore, our income had in the meantime dropped 60%. In other words, we could no longer keep both properties or even one of them.

We called our lenders. For our current home, we went through a loan mod process and got it approved for a reduction from 7.25% to 4.1%, saving us well over $1000 a month. That helped tons. With the old home, we spoke to both the primary and 2nd lien holders and explained the situation, telling them we are stopping payments and listing the house in order to attempt a short sale instead of letting it foreclose. One of the lenders even gave us a couple months of deferred payments to help this process.

First lender is Wells, and loan amount is about $253K. It's the original loan. 2nd lender is USAA, on a refinanced HELOC, for about $235K. We are in CA, so I believe the 1st is non-recourse, while the 2nd is recourse.

After 2 months on the market, we finally got an offer for $280K. This is for a house that appraised at $625K when we took our HELOC (so yes, we had 80% LTV at the time, we thought we were conservative and safe). We started the process with the lenders. Wells of course is happy.

But USAA is not.

They called me today. I explained the situation (again), but they are insisting that they will not, under any circumstances, forgive any portion of the outstanding debt. I offered to assume part of it as an unsecured loan for 10 years, but they are not willing to negotiate at all, threatening they will sue. I keep explaining I have nothing to give them if they sue - they will get about $10K which I'm happy to give without a lawsuit if that will make them settle - and that all it will do is drive me to bankruptcy. Note that between my wife and I we also owe them $50K in CC debt, so if we file for BK they lose that as well. But they won't budge an inch or even show willingness to negotiate.

Of course, this will mess up the short sale and will end up driving the whole thing into foreclosure, which will mean they will get nothing from that either.

I am not sure how to proceed. I want to do the right thing. I've called and discussed this with them very honestly and openly for months, in advance and through the process, and am trying to make the best of a really bad situation. But they seem determined to ruin us entirely, almost it feels out of spite.

Are they simply playing hardball? are they serious? any ideas? anyone has experience with USAA on this kind of stuff? how does it make sense to forgo $20K right now and another $40K in the next 10 years (which is what I offered) in order to get $10K in cash and lose $50K in outstanding debt while driving us into BK? am I missing something? should I stop trying?

The holder of the 2nd being USAA does NOT have to "work with you".

You might want to consider BK as it appears that USAA may very well pursue a deficiency judgment lawsuit against you assuming that the house goes to foreclosure.

USAA has a reputation among some of playing "hardball". Look for additional responses but I suspect USAA is NOT bluffing and if that is the case then I would be looking at delaying the foreclosure as long as possible by filing BK near the sale date and start saving money for a new place to live.

+1

They can become impossible to deal with when they are faced with taking a loss.

I would be planning on filing BK probably a couple of weeks before the sale date which will get you some time. If you owe USAA $50K on credit cards along with a heloc then likely the only viable option is to do a Chap 7 BK and start all over. USAA's standard modus operandi tends to be "We have a LONG memory" and after you file the BK won't be doing business again with USAA. Nor expect USAA to simply walk away after a foreclosure sale as they really are likely to file a lawsuit.

Update: the house got appraised by USAA at $234K, and Wells at something close to that. Now as a result of understanding that we got them a great deal, both banks are dealing with each other, and Wells will apparently give USAA about $25K (10%) so that USAA will release the lien and allow the short-sale to go through. Since my Wells loan is purchase money that clears me with them.

However, that still leaves me with a $200K (or so) deficiency on that HELOC.

USAA says (this is from a discussion with the negotiator they put on the short-sale) that they "will turn this to their collections, who will chase me for 6-7 months before selling this to a collections agency". I keep saying "why? instead of doing that let's come to an agreement of some sort". I am able to raise about $25K through a personal loan (from family), which I am prepared to offer them. I am also prepared to offer to assume another $300 a month for 5 years (which is another $18K). I ran all our numbers and we can just manage payments for both of these.

Am I making sense at all? why would they want to do the collections thing, which will end up netting them 10c on the dollar on a good day and most likely quite a bit less, instead of taking more than that upfront and a similar amount from me in the form of a loan, in return for cleaning this up? I'm not complaining, I'm just looking for someone to explain the logic to me.

*sigh* as much as I hate to say it, because of their hard-nosed attitude, Ch7 or Ch13 is starting to look awfully tempting right now. I have nothing to lose, really, except my dignity, but I do value that.

Talk to a BK attorney to either do a Chap 13 BK and "cram down" the USAA loan or do a Chap 7 BK which will give you an extra couple of months. Otherwise, USAA is going to take the $25K and likely pursue the deficiency in a lawsuit.

I have a similar situation with USAA. They have my second (73K) and don't seem to negotiate a short sale. All in all I owe about 270K but the best offer I could get for the house was about 100K. My first is ok with getting 90K. We offered 7500 (10%) to USAA but they're saying they'll still need a note to cover the rest. To make it more frustrating they're telling me that USAA is only relaying the negotiations between my realtor and a mortgage insurance company. Apparently they felt that my loan was a big enough risk that they purchased this insurance. Wish they could have informed me on this high risk. Being a first time home buyer I really trusted USAA. Being a military vet I expected them to "know what it means to serve" and at least work with me face to face.

Now I'm looking at foreclosure or BK. USAA....We Know What It Means To Serve......Thanks For Your Business!