Stripping 2nd Mortgage in Chapter 7?

[fltoo]

This is not a short sale. Yes, I have seen it done several time, but unless you are filing BK, you must pay taxes on the forgiven debt unless you can prove insovency.

You do not need a lawyer to do this as it is very easy to do yourself. Just don't pay the loan and start offering the second lien holder a settlement. You do need cash on hand to settle, it is almost impossible to do a payment program for less.

Lenders are most certainly taking 15-25% on the dollar whether cc company or second lien holder on a property, investment or owner occupied.

To answer the question, Why would a mortagage company take a settlement?
Because it is in their best interest to recoup any money instead of chancing the debtor to file BK or sell it to a junk collector.

To date, the cheapest I know of is GMAC, took 6000. on a 42,000 second loan. It is important if you do this to make sure the lender REMOVES the lien as part of the settlement, but you will receive a 1099 by law.

[jeb]

Jeb, that last sentence about not getting a 1099 is total BS. IRS regulations REQUIRE the issuance of a 1099, you cannot contract or otherwise agree to not issue one.

Sorry, H, but this is done day in and day out - it is all in HOW you do it.

IF you send the 2nd holder a CONTACT and in that contract - you know, buried down in all that very small print legal stuff - that states they will not issue a 1099 NOR hold the borrower responsibility for the difference - AND THEY SIGN IT, it is, indeed, a legal contract.

Almost never does the lender pick up on this and after they sign it they may, indeed, send a 1099. All that is needed is to highlight the "no 1099" clause in the contract.

It is amazing how much Attorneys that are being paid to catch things in contracts never do. - jb

[Tom_Mi]

Guys, I'd like to add to this.

I just called my bank about my 2nd. (39,000). Offered them 12% and a 1099.

They told me that since I'm not discharged, they CAN'T talk aobut this, and my atty would have to file a "motion to redeem"

Me: "Ok, if I do that, has your department seen these motions? Is there any chance of acceptance?".

Him: "That would be handled in the courts. I can't speak to how those motions turn out".


?????? ok guys, so, what might I do next? I'm having a bad day and have NO FEAR. I'll call anyone, based on your advice.

[jeb]

Jeb, what line of work are you in? More details please about what you did and how it worked.

Pcn, I have had a Real Estate lic in FL since 1985 - have not actively use it for some of those years, however.

For the last several years, I worked with investors doing short sales. Like anything else, there are tricks of the trade in doing so.

First, you need to know what it cost a bank to foreclose, why a bank would not want to foreclose, what they will accept and what they won't and ways of working all this together.

Also, you will be working with the loan mitigation department and not the people that try to collect or modify loans for the lender - this department has totally different rules they work with and you need to know the rules.


It is NOT a simple - nor quick - process. There are a lot of people on the lecture circuit charging a lot of money to, supposedly, teach you how to do it. From the info I have seen many put out few really know what they are doing.

For a down and dirty example, you are looking at a property that sold for $410,000.00, has a 1st of $230,000.00 and a 2nd of maybe $120,000.00.

In todays market in some areas, the house has been on the market for over a year with ever lower list prices and is all but unsellable for the borrowers - or the lender.

You are going to submit a totally ridicules offer to the lender - maybe something like $109,734.19. There is a reason why this offer is carried out to the cents.

You are going to put together a package to send to the lenders - both 1st and 2nd. In this package will be DETAILED problems with the house, pics of ever single nail hole, mark, etc in the house and written remarks by a lic. home inspector - maybe 50 pics and PAGES of remarks. (You want ugly pics.) In this package are estimates by KNOWN contractors - not yours - like Lowes or Home Depot to repair all the damage.

Usually the lender is going to counter with with a BPO - Brokers Price Opinion. This is usually done by a local RE agent and they usually never even leave the office - at best a "drive by" is done, never going inside the home.

You then ask the lender when and who did the BPO and how they got into the home since YOU have the key.

The lender will then have to do another BPO AND have to contact YOU to get inside.

You meet the agent, GIVING THEM THE COMPLETE PACKAGE you sent the lender AND COMPS on other LIKE properties sold in the area.

This is where knowledge comes in - A LIKE property to a mitigation officer is one that was under foreclosure AND the sale price is the price at which that property will sale for within 30 days. The BPO given does not take any of this into consideration.

So the lender now has a new BPO - usually MUCH less that the first one - and they counter with this figure.

You the go back to the lender asking if they have gone over the package you sent them - usually they have not even looked at it, just the contract - and with a SMALL increase in you offer price, maybe $121,417.63 - again, a reason why it is taken to the cents.

During all this process, you build a relationship with the person you are dealing with - asking about the weather, etc - just nice talk.

The next offer you get from the bank will usually be a very good offer - you then bring your offer up to what you originally wanted to pay for the property and usually have a deal.

If you get a hard nose to work with and they won't even entertain working with you and you live in a state that requires a seller to notify the buyer of ALL KNOWN DEFECTS, there is a way to virtually blackmail the lender into accepting your offer. We had to do this only once but within 24 hrs the lender accepted the offer. It is not something you want to do unless you have to and REALLY want that property because you have to work with these people in the future.

The figures shown are close to a deal we did - I believe the purchase price on the property was $132,900.00. $2,000.00 was given to the 2nd holder and no 1099's were issued. - jb

[jeb]

Let me be clear about the above post - this is NOT something someone going into foreclosure and trying to save their home can use.

These are cash deals and for someone BUYING a home and wanting a good deal on it. - jb

[relief13035]

I live in Ca in the city that has the highest foreclosure rate in the entire land.

Well we must live VERY CLOSE then. Foreclosure capital of America!! Woo Hoo

[HHM]

IF you send the 2nd holder a CONTACT and in that contract - you know, buried down in all that very small print legal stuff - that states they will not issue a 1099 NOR hold the borrower responsibility for the difference - AND THEY SIGN IT, it is, indeed, a legal contract.

Jeb, I know its done, but it is not binding. A lender cannot agree to violate the law, those provisions about not issuing 1099's are void as a matter of a law. You would actually have no recourse against the lender if, in fact, they issued a 1099. If you sued the lender for breach of contract, the judge would throw out the provision as void. And guess who is going to eventually get sued, the real estate agents that advised clients about the short sales. I know several attorney's gearing up for these types of law suits when the "sh-t hits the fan" with all these short sales.

The problem with short sales is all the realtors running around playing lawyer telling clients that the bank won't collect the debt and they won't issue a 1099...WRONG. This will eventually catch up with some realtors who advise people on short sales. I know several attorneys who are actively looking for plaintiffs to sue realtors in this regard.

[justbroke]

When you do something that is against -- or contratry to -- the law, in a contract it's called void ab initio. I know this, because this is how I objected to, and was sustained on, one of the claims a creditor submitted.

[OhioFiler]

Jeb, I know its done, but it is not binding. A lender cannot agree to violate the law, those provisions about not issuing 1099's are void as a matter of a law. You would actually have no recourse against the lender if, in fact, they issued a 1099. If you sued the lender for breach of contract, the judge would throw out the provision as void. And guess who is going to eventually get sued, the real estate agents that advised clients about the short sales. I know several attorney's gearing up for these types of law suits when the "sh-t hits the fan" with all these short sales.

The problem is the realtors playing lawyer. This will eventually catch up with some realtors who advise people on short sales. I know several attorneys who are actively looking for plaintiffs to sue realtors in this regard.

I agree. There is no way the lender can make such an agreement. The "contract" requiring issuance of the 1099 is actually between the lender and the IRS. It's called Tax laws.

[Overmylimit]

You are right in your situation the 2nd definately would not get a dime. Are you current with your second? From what I understand you have to be behind for them to negotiate. I would liken this to credit card companines offering settlements, where at first they want the entire balance, but with each month that you do not pay the continue to reduce their offer.

I don't blame you at all for not walking away, we are all emotionally tied to our homes. If I treated my home like a business I would walk away, just like the auto companies here close plants when the are no longer making money. However, my home is the only home my children have known. There are alot of memories here. Good luck to you.

Yes I am behind with them, I am current with my 1st. I am running 2 months behind with the 2nd, each time it hits 3 months I make a payment so its always at the pre forclosure state....to be honest I am keeping it that way since they won't negotiate at all...

[Overmylimit]

Well we must live VERY CLOSE then. Foreclosure capital of America!! Woo Hoo

I live in a rural area but its still considered Stockton, CA...........Otherwise know as Ground Zero...lol

[fltoo]

Jeb, I know its done, but it is not binding. A lender cannot agree to violate the law, those provisions about not issuing 1099's are void as a matter of a law. You would actually have no recourse against the lender if, in fact, they issued a 1099. If you sued the lender for breach of contract, the judge would throw out the provision as void. And guess who is going to eventually get sued, the real estate agents that advised clients about the short sales. I know several attorney's gearing up for these types of law suits when the "sh-t hits the fan" with all these short sales.

The problem with short sales is all the realtors running around playing lawyer telling clients that the bank won't collect the debt and they won't issue a 1099...WRONG. This will eventually catch up with some realtors who advise people on short sales. I know several attorneys who are actively looking for plaintiffs to sue realtors in this regard.

Exactly, it is the law.

And HHM, I wish you would stop saying all realtors run around playing lawyer telling clients that no 1099 will be issued. I don't know with whom you deal, but all I know are full time, educated professionals and btw, the ONLY realtors
that someone should ever hire. As in all professions, seek out the brightest.

I personally would not deal with a lawyer "actively seeking someone to sue."
They must need business badly.

[albacore44]

Yes I am behind with them, I am current with my 1st. I am running 2 months behind with the 2nd, each time it hits 3 months I make a payment so its always at the pre forclosure state....to be honest I am keeping it that way since they won't negotiate at all...

If you don't mind disclosing, who is your 2nd with ?? Mine is with HSBC, a whopping $242K and i have heard they are difficult to deal with

[HHM]

Exactly, it is the law.

And HHM, I wish you would stop saying all realtors run around playing lawyer telling clients that no 1099 will be issued. I don't know with whom you deal, but all I know are full time, educated professionals and btw, the ONLY realtors
that someone should ever hire. As in all professions, seek out the brightest.

I personally would not deal with a lawyer "actively seeking someone to sue."
They must need business badly.

I thought I was clear in that I am referring to the realtors running around pitching short sales and mis-representing the consequences. As for lawyers looking to sue...they are really looking to right a wrong; after all, these realtors mis-represented the benefits to the seller, how is that bad?

[Overmylimit]

If you don't mind disclosing, who is your 2nd with ?? Mine is with HSBC, a whopping $242K and i have heard they are difficult to deal with

Specialized Loan Servicing SLS but I'm not sure who the actual investor is. Mines 177k...you got me beat lol