2nd mtg after chapter 7

[mserv1]

My wife and I filed chapter 7 in Sept 08. We received our discharge in Jan.09
We did not reaffirm the 1st or the 2nd mtg. Our home has a 1st mtg for
$257k, and a 2nd for 36k. We are current on both and have no late payments
on either one ever. The home was purchased for $239k in 2003, it went up to
$395k but is now appraised for only $235k. Our 1st is $1600.00 and the 2nd is
$415.00. Due to severe cutbacks at my work and aprox $1,000 less a month income we can 't afford the payment on the 2nd now.
On top of this we cashed in my wife's 401 before the BK in the effort to try and keep all the bills paid. (BIG MISTAKE!) We are going to owe the IRS $4000.00 in taxes! and we don't have the money for this either.
Would the 2nd mtg co. start foreclosure after 3 missed payments? From what I've read they wouldn't get anything and have to pay the 1st mtg holder the difference of the sale price and balance owed on 1st, which wouldn't make sense.Would the 2nd mtg holder just write it off as a bad loan?
Will the IRS place a lien on the house until the taxes were paid off or just come after us ?
We are at a loss on what to do, having never been in a situation like this before. We don't want to loose the house because we have nowhere to go! Our credit scores WERE in the high 700's before the BK which is how
we got too high in credit card debt($134,000.00), by borrowing our way out of problems.
We live in Las Vegas if that makes any difference.
Thanks for any help

[HHM]

It is highly unlikely the 2nd mortgage would foreclose (but they have the legal right too). Since you filed BK and discharged your personal liability, you probably don't have to worry about any collection effort. The main problem would be the lien. The lien would sit there until you decide to sell or, if things got worse, the 1st mortgage foreclosed. There would be no IRS consequences because of the BK.

[mserv1]

Thanks-
I just looked at our Credit Reports and Our 1st and 2nd both show up with the
current balance owed amount and don't have the "include in Bankruptcy"
comment. Should we do anything about this?

[UpsideDownMI]

The 2nd does not pay the 1st when the 2nd sells the house. The 2nd has to move to first position by paying off the 1st. In Michigan this is done at the sheriff sale. In your case the 2nd would have to pay your 1st 257k at the time of foreclosure (unless 1st settles for less). If your house were to be foreclosed upon and sold at 235K the second would end up losing an additional 22k plus costs to aquire and sell the house. Because of this, it is unlikely that they would actually foreclose. However, they still can do so if they choose. It should also be noted that if the property value increases to the point that it is worth their efforts, they can foreclose at that time.

[CCCrazy]

What happens with the scenario being discussed if one bank holds both the first and second mortgages? Would one be safe if they remained current on the first mortgage and only paid the second every other month or even every third month just to keep it out of foreclosure?

[HHM]

What happens with the scenario being discussed if one bank holds both the first and second mortgages? Would one be safe if they remained current on the first mortgage and only paid the second every other month or even every third month just to keep it out of foreclosure?

There would be no guarantee. Even though the 1st and the 2nd may be "serviced" by the same lender at this point, its unlikely the same investor holds both the mortgages. However, a default is a default...if the same investor holds both the first and the second, you have a substantially higher risk of the 2nd mortgage foreclosure.

[CCCrazy]

I apologize for my naivite with legal terms. When does a default occur? After you miss one mortgage payment? Or does a default only occur after you miss three payments in a row?

[HHM]

You miss one payment, you are in default.

[CCCrazy]

OK, here's the deal. Both my first and second mortgage are "serviced" by Wells Fargo. My first mortgage is and FHA loan so I assume that means it's backed by Fannie or Freddie. Wells Fargo somehow talked me into thinking I could pay off a 50K loan in ten years, so my second mortgage is $646 a month on top of my first. Something needs to be done!!! However it is my second mortgage which makes it possible for me to file Chpt 7.

After my bankruptcy is done, I was hoping that if worst comes to worst and Wells refuses to extend the loan terms to 20 or 30 years, I could pay the second mort every third month just to prevent it from going into foreclsure - is that doable?

[HHM]

OK, here's the deal. Both my first and second mortgage are "serviced" by Wells Fargo. My first mortgage is and FHA loan so I assume that means it's backed by Fannie or Freddie. Wells Fargo somehow talked me into thinking I could pay off a 50K loan in ten years, so my second mortgage is $646 a month on top of my first. Something needs to be done!!! However it is my second mortgage which makes it possible for me to file Chpt 7.

After my bankruptcy is done, I was hoping that if worst comes to worst and Wells refuses to extend the loan terms to 20 or 30 years, I could pay the second mort every third month just to prevent it from going into foreclsure - is that doable?

Is it possible, sure...in the practical sense, but not in the legal sense.

Basically, you would be playing chicken with Wells Fargo due to the depressed real estate market. You are betting that WF will not foreclosue because it is too costly and they won't get anything (and right now, that is probably a safe bet). However, you cannot legally prevent the foreclosure from taking place, a default is a default. Making a payment every thrid month is probably throwing money away because it won't "legally" prevent a foreclosure from starting if WF decides to foreclosue.

[CCCrazy]

HHM, thank you for your replies - you are helping me to get all of my ducks in a row in my head. One last question - since it is ONLY my second mortgage that is making it possible for me to file chpt 7, could the UST look at my mortgages and say I'm going to get that second mort. extended to 30 years and force you into chpt 13? Does the UST have that kind of power?

[HHM]

HHM, thank you for your replies - you are helping me to get all of my ducks in a row in my head. One last question - since it is ONLY my second mortgage that is making it possible for me to file chpt 7, could the UST look at my mortgages and say I'm going to get that second mort. extended to 30 years and force you into chpt 13? Does the UST have that kind of power?

No, the UST cannot do that.