Stop paying on 2nd mortgage (heloc)?

[dpr88]

Posted this in the wrong forum a short while ago... Ooops!

Had our chapter 7 dishcharged in 2010 in Arizona and had both the 1st and 2nd discharged...
1st (B of A) $264
2nd heloc (Compass Bank) $170
Zillow value $395

Everything is current and we would like to stay here but it is getting out of reach... Since the 2nd is in the money (loan of $170k and they would lose approx $44K and perhaps recoup $126K upon the sale of the home), should we stop paying on this 2nd to save money and would they try to foreclose?

[keepsmiling]

You might want to try some other sources besides Zillow, which is notoriously off base. In a case such as yours, it is probably worth it to get some kind of appraisal.

[Pandora]

Since the 2nd is in the money .....would they try to foreclose?

I'd say yes, more than likely. They'd be able to recoup nearly 75% of monies owed to them if that's the true value of your home.

[dpr88]

I have heard that banks will have fees of around $40,000 to go through the foreclosure process and often the foreclosed property will sell for 15-35% less than a regular sale... If this is true, then all those extras eat up a large portion of that money and they will only get about 25% of monies owed to them.. Would they take a chance like that to get that little amount?

[HHM]

If your in AZ, I highly doubt your house is worth that much. Zillow doesn't account for foreclosures, so the numbers are, generally, significantly inflated in AZ.

In any event, it is hard to say what a 2nd mortgage will do. But since the 2nd mortgage is in the money, you have a higher than normal risk of a 2nd mortgage foreclosure. But they probably wont.

You need to think of an end-game scenario. If you cannot afford both mortgages, then that means walking from the house (there is no scenario where you will keep this house short of an income increase). If that is the case, no point in paying either mortgage. Continuing to pay the first mortgage is wasteful. You should be thinking about getting into a more affordable, stable housing situation.

The decision is, to keep the house or not. Sounds like your circumstances have made the choice for you...i.e. you cannot afford both mortgages. So, stop paying both and put money in that bank account. When you have $20-$30K in the bank 12 months from now, you will feel a heck of a lot better

[dpr88]

HHM, thanks for taking the time to respond and help! I appreciate it.. I do have some more questions now.. We can afford the first mortgage and would like to stay here but that 2nd mortgage is a barrier and the payment is high. I think I was mistaken on the 2nd which is $170,000, it is not all the way in the money, it is underwater by about $30,000. Since it is not 100% in the money and slightly underwater, does this give us a better chance of settling the 2nd and not going to foreclosure?
Thank you so much!

[keepsmiling]

You really can't get an idea of what will happen until you get a true value for your house. Call a realtor, walk them thru pointing out anything in need of repair, and tell them you need it priced for a quick sale.

[HHM]

The thing is, there does not appear to be a viable option for you with regard the 2nd mortgage. That is why I say that unless you can afford both mortgages, you are not going to keep this house long term. As such, you need to start thinking long term and an exit strategy for the house. The 2nd mortgage doesn't need to be 100% in the money to foreclose. Even if the 2nd doesn't foreclose (and it probably wont), it is still 25% or 50% in the money, it makes a reasonable settlement very challenging. Could you even afford a 50% settlement ($85,000) or even a 25% settlement $42,500 with lump sum cash (WITHOUT liquidating a retirement account). If not, then this entire conversation is moot.

I just don't see anyway you will build/recover equity in this house, as such, spending any more money on either mortgage is financially pointless. Even if you could afford a 25 or 50% settlement, I don't think that is a wise use of those funds. Better to save them, default on both mortgage, accumulate as much cash during the foreclosure process, rent for 3 years, and buy at that point. Maximum flexibility and maximum cash, don't discount the value in those things.

Get some comparable sales from a realtor, you will need them anyway if you are going to attempt any settlement.

[dpr88]

Thanks again for more info! I have been reading, searching, etc. and have come across another website (should or could I mention it?) that was taking about or dealing with barely underwater 2nds and 2nds that were totally out of the water/in the money... It seems that there is a lot of confidence by some people that they will get their 2nd settled.... I have my realtor getting a more narrow range for a home value so I can have a better idea on what is what.

[Moneypenny]

Can you tell me that website?

I am desperate for info on 2nd mortgages after ch7 discharge. My 2nd is completely underwater and so is my first.