Second Mortgage w/ a loan modification

[youngnbroke]

In August 2009 we were denied a loan modification on our first mortgage but approved for our second mortgage. They modified our interest rate from 14.5% to 7%...dropped our payment $270 a month! But since then my husband has been laid off here and there, and even got a second job...but at this time the debt is way too high, we can't keep up. Does anyone know if the mortgage company will have an issue with us filing for chapter 13 when they already helped us??! I'm worried they will object!

P.S. we have not contacted an atty yet..I'm trying to get as much info as possible before taking the leap!

P.P.S. I'm also assuming that the 2nd mortgage WILL be included in the bankruptcy...(right?)

Thanks for any help!

[justbroke]

Does anyone know if the mortgage company will have an issue with us filing for chapter 13 when they already helped us??

No. They can't object. What can they object to... that you can't pay your bills? That is what the Chapter 13 is for, to reorganize your debt so that you can make a reasonable attempt to pay your creditors.

Fact is, that if the value of your home is less than the balance on your first mortgage, you can "strip" the 2nd mortgage, and not even pay it anymore!

Everything is "included" in a bankruptcy. People don't understand what that means, but you must include all debt that you have on the date you file your bankruptcy petition. Whether you strip the 2nd mortgage or not, they will still probably file something known as a claim so that they get paid as either a secured creditor or as an unsecured creditor.

The downside is that unsecured creditors may not get anything over the term of the Chapter 13. They know this, but there's not a lot they can do about it.

[youngnbroke]

Almost 3 years ago, we had our condo appraised at $165,000...we have no idea what it's worth at this point, but we owe $139,000...if the condo appraises for more than what we owe, would they "strip" MOST of the second mortgage?! We NEEEEED to get rid of that second mortgage...well and the credit card debt...but we won't be able to make it if we don't do away with both.

This forum is a great help, thank you!!

[justbroke]

The appraised value must be less than the balance on the first mortgage, by itself. You can't do a "cramdown" -- or reduction of principal balance -- on a mortgage secured by your primary residence. The second mortgage would need to by "wholly unsecured", in order to use the lien stripping power of the Chapter 13.

[spidge]

You mention "cram down"? Is this something that can be done in BK on all mortgages, firsts included?
I am way upside down on my first alone not to mention the second HELOC.

[shark66]

@spidge:

Search the forum for posts referring to stripping the second mortgage...AFAIK it can only be done in Ch. 13

No cramdowns/stripping on first, though.

Good luck.

[spidge]

@spidge:

Search the forum for posts referring to stripping the second mortgage...AFAIK it can only be done in Ch. 13

No cramdowns/stripping on first, though.

Good luck.

It seemed implied that one could cram down the ballance on the first based on the current market value in the BK7. I mean if EVERYTHING is included.

[shark66]

I very much doubt that, but I'll wait for the more experienced members to chime in...

[NoTomatoCan]

No. (At least for your primary residence). There is no cram down on first or second. You can only strip the 2nd if, as JB points out, it is wholly unsecured.

You owe 100k on first and 50k on the second... if house is valued at $101k, you can not lien strip (or cram down).

You owe 100k on first and 50k on the second... if house is valued at $99k you can strip the 2nd lien. It becomes an unsecured creditor. You still owe the $100k, even though house is only valued at $99k.

Also, just to be clear, there is NO lein strip available in a CH7. This is only available in a CH13.

[justbroke]

It seemed implied that one could cram down the ballance on the first based on the current market value in the BK7. I mean if EVERYTHING is included.

For Chapter 7, what you're really talking about is called a redemption. Redemption is not available in Chapter 13 and, unfortunately, redemption is not allowed for "real" property. As such, a Chapter 7 debtor cannot cram down a mortgage in a Chapter 7. (11 USC 722)

Also, in a Chapter 13, 11 USC 1322 prevents the modification in any way of any debt secured by your primary residence. This is known as the anti-modification provisions.