2nd Lien Strip or Negotiation

[BKINAZ]

Yes, I know you can't lien strip in Chapter 7...but hang with me a minute.

I am in the process of trying to do a mortgage (1st) mod. JUST started...so still a couple months of getting any results. So I am not filing for BK anytime soon. (if at all...but probably will)

Am I able to call my second and tell them ...

"look I owe $66k more than the house appraised at. You are sitting on the outside looking in (I owe you $88k...can we settle with you? (go through my list of debts) I have $10k in the bank (per another person on this site's rec.) and I am going to ask each creditor if they want to settle for that amount. I am asking you first. Do you want it?"

QUESTION: Can I negotiate with my second to try and get them to settle with the threat of implosion on my part and them being left out? And if they do settle...or even don't...can that hurt me in the future if I go BK?

Why would I do it? Because it is secured debt and if I am "lucky" enought to get 7...I still owe them...I assume 100%. If I get 13...yeah it cost me probably 5 times would it would have...is it a risk worth taking if I think I can get 7?

[albacore44]

Try it then forge new ground for others to follow. I'm thinking something similar. My 2nd is $240k and i'm guessing here, but i think I'm under water by $150K. so i might try a ride through, then when my rate starts to rise, threaten to walk or settle for less. who knows......might work. HSBC may not even forclose with the costs involved, they would get next to nothing. I'm open to try anything.

[HHM]

You can "try", but it won't work.

A lot of people think like you do, but the BANKS don't think like us. Your "threat" is simply not strong enough to motivate action on behalf of the second mortgage. Here is what we are seeing with 2nds.

You default, home is negative equity. Lender sells the note to a Junk Debt Buyer, takes a tax deductible loss, and has cleared a bad loan from their portfolio. That scenario is FAR more valuable to them then renegotiating your loan.

Let me flip the tables a little, if you are in financial trouble, why should the bank make a deal that you probably can't live up to anyway.

[albacore44]

You can "try", but it won't work.

A lot of people think like you do, but the BANKS don't think like us. Your "threat" is simply not strong enough to motivate action on behalf of the second mortgage. Here is what we are seeing with 2nds.

You default, home is negative equity. Lender sell the note to a Junk Debt Buyer, takes a tax deductible loss, and has cleared a bad loan from their portfolio. That scenario is FAR more valuable to them then renegotiating your loan.

Let me flip the tables a little, if you are in financial trouble, why should the bank make a deal that you probably can't live up to anyway.

great answer.......you find out so much here. so that be said, if you did a ride through, i assume the debt would be discharged, and should you default at a later date and the debt is sold to a JDB would the only recourse for the JDB be to excercise forclosure, sit on the lien untill the property is some day sold, or settle for less than the original debt ?? and what would the JDB most likely do ??

[justbroke]

great answer.......you find out so much here. so that be said, if you did a ride through, i assume the debt would be discharged, and should you default at a later date and the debt is sold to a JDB would the only recourse for the JDB be to excercise forclosure, sit on the lien untill the property is some day sold, or settle for less than the original debt ?? and what would the JDB most likely do ??

It depends. If the value goes up, the JDB, in a second position, could foreclose and at least get some value.

However, they will more than likely just sit on it, the debt will change JDB hands a few more times, and wait for, hopefully, a sale!

[HHM]

Keep in mind, there are only 2 ways to remove the lien of the second.

1. Pay it (or some portion of it if the holder of the lien agrees)
2. The 1st mortgage forecloses.

[BKINAZ]

Keep in mind, there are only 2 ways to remove the lien of the second.

1. Pay it (or some portion of it if the holder of the lien agrees)
2. The 1st mortgage forecloses.

When you say some portion of it...are you saying through settlement of 13 or negotiation or both?

[HHM]

When you say some portion of it...are you saying through settlement of 13 or negotiation or both?

Well, right now you can't "Settle" it in a 13, all you can do is strip it if the there is ZERO equity that attaches to the lien.

As for negotiation, yes (sort of), i.e. in the short sale context. I have yet to hear of any successful negotiations of a second mortgage that were not part of the "sale" of the house.

[BKINAZ]

That makes a little more sense. BTW, "Settlement" from me being the 13 as a whole, not settling the 2nd alone. I think that is still unclear...so when you say "pay it or some portion"...at what point in the process is "pay it" and what point is "some portion"?

Again..my question (try to make it clear enough for me to understand)...I think confused myself. lol

1. Months prior to filing...maybe while there still might be a question as to if you will file...does it may ANY sense to negotiate with the 2nd if you anticipate ending up in 7? Seems to me if you pay $10k (whatever number) on a $90k secured debt...that would make more sense than paying the $90k debt in Chapter 7? Not having filed BK...if I understand it...we are responsible 100% for that $90k in chapter 7, correct?

Why would they do it?

For them to get $10,000 vs say $1,500 that chapter 13 (which is the implied threat) would bring them.

[albacore44]

It depends. If the value goes up, the JDB, in a second position, could foreclose and at least get some value.

However, they will more than likely just sit on it, the debt will change JDB hands a few more times, and wait for, hopefully, a sale!

Have you heard of any instances where a JDB would get a judgement to garnish wages, in liu of waiting for sale. Oh, wait that would not work, as the debt was discharged in the BK......or would it ??

[justbroke]

Have you heard of any instances where a JDB would get a judgement to garnish wages, in liu of waiting for sale. Oh, wait that would not work, as the debt was discharged in the BK......or would it ??

The debt is discharged in the Bankruptcy. They can't actively attempt to collect, but they may send notices that there is a balance on the account.

The only thing the JDB can do is send the "balance"notices and hope and pray for a sale. Again, they could wait it out for the market to turn around, equity to return, and then foreclose.

Think about their position. Say you owed Citi $100K on a HELOC. Your home at the time was worth $600K but now worth $450K. You owe a first mortgage of $500K. Citi writes it off and sells to JDB for $0.10 on the dollar or $10K. You file Bankruptcy and the debt is discharged. However, the lien is still there. JDB waits 5 years and the market improves. You sell your house for $600K in 2014. JDB gets $100K making $90K for a 800% profit. (Or the value is $600K and JDB forecloses. Even if the house sells for $550K, the JDB makes money.)

Now you see why they like this!!! Even if the home sells for $520K, the JDB gets $10K or 100% in profit.

Always remember, liens survive Bankruptcy (unless avoided).

[mgdebt]

So a lien will still be attached to the property AFTER a successful lien strip?

Also - another thing to think about would be all of the fees the JDB would rack up on the original balance....

But I was assuming that the lien would also disappear with the lien strip in a 13...Is this not true?

[justbroke]

So a lien will still be attached to the property AFTER a successful lien strip?

Okay, we're getting things confused now. A lien strip voids the lien, so it's not there.

I believe we were talking about a Chapter 7 in which the debt is discharged, but the lien is still there. (Since this is the Chapter 7 forum...)

In a Chapter 13, however, a successful discharge and close will permanently void the lien, and the debt is discharged, leaving a clean title. Although you may have to go record a lien satisfaction with the recorder of deeds.

[dealdas]

...now worth $450K. You owe a first mortgage of $500K. Citi writes it off and sells to JDB for $0.10 on the dollar or $10K. You file Bankruptcy and the debt is discharged. ...

Or - you stop paying your mortgage (your 1st mtg is already under-water), let it foreclose, and then leave. Looking at the way things are - that might take 8-10 months, if not more. So, JDB gets nothing and you live for free for almost a year.

Will that work ?

[albacore44]

However, they will more than likely just sit on it, the debt will change JDB hands a few more times, and wait for, hopefully, a sale!

it would sure be great if there were some examples out there where someone had this same situation and successfully negotiated with a JDB on a lesser sum than the original balance. mabee this is breaking new ground. this housing crisis is different than anything than has happened in modern times.