Post-BK options for upside down mortgages

[seanm]

Our Ch. 7 was discharged a few months ago.
We owe 220k on our first and 60k on an equity LOC (well, it's not credit anymore).
Our home is worth somewhere around 200 to 210.
We have continued making payments on the 1st and second, but did not reaffirm.

From a purely financial perspective, I know it's probably best to walk away.
But we also have to consider what is best for our family and our kids. They have friends in the neighborhood and in the local schools and my wife and I have also made a lot of friends. So we are very happy and stable here and really don't want to move, especially if it's to rent somewhere. Even being upside down, we really like knowing that as long as we keep making the payments, this is our house.

So other than just walking away and renting for a couple years, is there anything I can do?

[HHM]

There is no guarantee and there is some risk....

But a common strategy for your scenario is to stop paying the 2nd mortgage, and after a few months, approach them with a settlement of 5-15% (about $6,000). Many people are successfully getting these sorts of settlements after chapter 7 discharge on 2nd mortgages when the house is totally under water. You will want to get a Market Analysis and really see what your home is worth.

[LSUTiger32]

As HHM saud you can try to do something with the second but look, the house is under water right now....that sucks I agree. However, if you can pay the payments and you want to stay, who cares? The house being under water is not affecting you on a daily basis. I have a soft spot for this because I am the way. I sacrified everything but I was not giving up my home. Keep making the payments, keep the house and in a few years the value is very likely to come back. Then if you want, by then your credit will have healed as well and then if you want you can re-fi it all back into a decent rate first.

Enjoy your life and don't sweat it!

[adams4girl]

Thanks for posting.

I'm in the exact same situation and researching my options. I'd be interested to hear what others have to say about your situation.

[laurannm]

We are in the same boat, and I have stopped making payments on our second with First Horizon. Our goal is to eventually work on settling with FH, that seems to be a very common strategy that many people are having success with.

I disagree slightly with LSUTiger32 though....I suppose it may depend on the area you live in, but I think it will be much longer than a few years (if they ever do) for the value to come back on housing

[locolady]

My number are almost the same as yours and I stop paying the second last year. My first is now current and we are saving the second payment for a second home. Why are you even paying the second it was discharged and they will not foreclose because there is no value. Three question I had to answer help us in making a business decision
1. When honestly do you think the home's value will reach or exceed 280k?
2 Your age and how long you plan on living in this house?
3 What are you earnings and expense and how secure is your employment going forward.

Our answer to these question
1 Maybe in 10+ years will our home be worth what we owe on the first (222k) including payments applied to principal. This is the only important issue because the second (60k) will not foreclose until they can be made whole. We owe 283k total, the home value maybe 185k today. At 2% appreciation a year in 2022 the house maybe worth 220k. The second still has no value for the lender to go after. All the lender has is a lien on the property which has no effect on you. There ability to collect any money was discharged in the BK7.
2 We are both early 50s and plan on staying here 12 years at most. I'd rather rent from the bank than some random landlord.
3 After BK7 money is no issue mortgage payment are 22% of income, and our jobs are very secure.

So we now take the money for the second and save it ($450) in a second home fund we started after filing chapter 7. We hope to after 4 years buy another home maybe in the same area and rent, walking away or short sell this home.

[NanaOf11]

Our Ch. 7 was discharged a few months ago.
We owe 220k on our first and 60k on an equity LOC (well, it's not credit anymore).
Our home is worth somewhere around 200 to 210.
We have continued making payments on the 1st and second, but did not reaffirm.

From a purely financial perspective, I know it's probably best to walk away.
But we also have to consider what is best for our family and our kids. They have friends in the neighborhood and in the local schools and my wife and I have also made a lot of friends. So we are very happy and stable here and really don't want to move, especially if it's to rent somewhere. Even being upside down, we really like knowing that as long as we keep making the payments, this is our house.

So other than just walking away and renting for a couple years, is there anything I can do?

SeanM....
here is something a bit different that is working for us...
Our home has a huge amount of sentimental value.
We are not moving period.... however we are under by about $50k (was $70) due to borrowing heavily for our now defunct biz.
Stopped paying that second...put every penny into improvements to add value. Following advice from an appraiser.
We added $20k in value by strategically making home improvements to the home & property costing us $3k.

just a thought....

[JKPDX]

I'm in the same boat, but B of A has my first and second... so I doubt stopping payment on the 2nd will do much. I'm thinking about waiting until the two years is up, then stop paying both payments, and after six months I'll have enough to put 3.5% down on a new FHA loan. (My current loan is conventional). Then I can buy a new house that is larger than our current house, for less than what I "owe" and at a better interest rate. However, I'm trying to figure out if I will need to show 12 months of current housing/rent payments being made before I can get a new FHA loan. So many choices!

[NanaOf11]

My understanding is that you will need to wait "3" years from the date the bank takes back the home. Not your BK discharge date or even the date of the foreclosure... but the actual date they take possession, in our state that is aprox 12-16 mo after the foreclosure is filed.

Many good threads on this.....

[locolady]

My understanding is that you will need to wait "3" years from the date the bank takes back the home. Not your BK discharge date or even the date of the foreclosure... but the actual date they take possession, in our state that is aprox 12-16 mo after the foreclosure is filed.

Many good threads on this.....

I ask a friend who did my first mortgage which was a FHA loan for advice on this subject. He work for the same company to day, he said that you must have three years after a foreclosure for FHA loan. Now what he told me we should do is stay in our home. That we wait for 3 years after bankruptcy closing date and he can get a loan funded. But we will need 660+ FICO score and at least 10% preferably 20% down and six month worth of payment in the bank for our current home. We will say we are renting our current home and the new property we will be a owner occupied. He said this worked for him before with another chapter 7 client. Of course once we get another home we will walk away from our current home.

[spidge]

Seanm, you are not that far upside down. A minor uptick and you'll likely be almost even. I would let the 2nd go and try to settle with them later, but be ready to make a fair sized cash transaction.
By the way I do believe that to an extent the emotional reasons are good reasons to fight to stay in your home, but its not always the best financial decision. Are you willing to continue that fight?
I made my decision by looking at rentals in my area and they came out fairly close to what my first mortgage is and it wont go up where the rentals will go up every year. So here I stay. Where the kids grew up and the wife has friends.

[NoMoreCards]

I ask a friend who did my first mortgage which was a FHA loan for advice on this subject. He work for the same company to day, he said that you must have three years after a foreclosure for FHA loan. Now what he told me we should do is stay in our home. That we wait for 3 years after bankruptcy closing date and he can get a loan funded. But we will need 660+ FICO score and at least 10% preferably 20% down and six month worth of payment in the bank for our current home. We will say we are renting our current home and the new property we will be a owner occupied. He said this worked for him before with another chapter 7 client. Of course once we get another home we will walk away from our current home.

Interesting....
This actually might work

[csonly]

I was wondering if there is any risk in not paying the second mortgage on a home that is under water in the hopes of trying to settle with the second? Could there be something written in the original contract that could force them to foreclose?

[locolady]

I was wondering if there is any risk in not paying the second mortgage on a home that is under water in the hopes of trying to settle with the second? Could there be something written in the original contract that could force them to foreclose?

Yes non payment of the loan to the terms you agree to and they can start foreclosure proceeding. But if you are underwater they will not foreclose, there is nothing to get. Don't be afraid no bank unless they hold both your 1st/2nd mortgages has a financial incentive to take your home. Why would the 2nd lender call your loan if it's underwater on the first mortgage it's pointless?

[gophertee]

We will say we are renting our current home.

But how can you say you are renting when you name is most likely on the title. I only ask because I am in the same boat. My home was IIB CH7 and never reaffiremed and I tried that approach. But was told that at closing, they will see my name on the title and question why I said I was renting? My question is, can you really say you are renting and still have your name on the title? I would think the title would show someone else's name which now makes me free-n-clear.
Thoughts?