Loan Settlements for Credit Cards, Non-Purchase Money HELOCs and Vacant Lot Loans

Arizona real estate law protects most people from being sued on mortgages. However, certain loans carry personal liability and these borrowers are being threatened or sued on the loans. Of course, if the borrower has little or no money, bankruptcy is an obvious solution. But not all people are good candidates for bankruptcy. For people with substantial income or assets, reaching a settlement of the account is the best option available. This article is the first of three to address what type of settlement a borrower can expect to reach with their creditor.

Vacant lot loans are the most troubling for borrowers. Lenders have all but stopped making loans on vacant land causing the market to plummet. Furthermore, lenders have just 90 days to sue the borrower after a foreclosure. The result is numerous foreclosures and lawsuits being filed against people with lot loans.

The sheer volume of lawsuits may also provide the best motivation for lenders to settle. Surprisingly, lenders will typically accept a settlement between 15-35% of the debt owed depending on the income/assets of the borrower, e.g. Bill Gates versus homeless person; lender would obviously settle for different amounts. Furthermore, most lenders will accept this reduced amount over time with little or no interest. The end result is settlement payments less than the original loan payment. Best of all, the obligation is paid off in 5 years or less compared to a lifetime of payments.

Example, $150,000 lot loan at 6.0% interest-only payments of $750 per month. Lot is worth $40,000. If the borrower continues to make payments for 5 years, they will have made $45,000 in payments and still owe $150,000. If the borrower lets the lot foreclose and then settles for 35%, the settlement payments at 0.0% interest would be just $641.67 per month. After 5 years, the borrower would have paid $38,500 and owe nothing.


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