dreaded 2nd mortgage question

[onacliff]

I have read thread after thread about this but can not seem to find what I am looking for.

We have filed Chapter 7- been audited and issued the statement of no abuse by the US Trustee..waiting until May 11th for Discharge...
My question is about our 2nd mortgage.

Our first and 2nd is with the SAME BANK- Chase.
First mortg. $376K 2nd $97k= $473
Home is worth about $370...
Of course- YES we are considering Walking...
But my question for you guys is does anybody know if we stopped paying the 2nd..and kept paying the first-- since it is with the same bank-- would they ever begin to foreclose- b/c they would get nothing and get less than us paying on our first....
To me it seems like stopping to pay my 2nd would make sense and then after a while give them pennies on the dollar for the loan and be in the house at the real value????
It seems b/c it is the same bank the rules would be a little different-- any insight??? or experience????

[StartingOver08]

Although the loan is with the same bank - they are treated as totally separate types of loans. Even when you go to negotiate with each of the loans, as in a short sale, they will tell you that the loans are separate, the depts are separate - and usually the actual note holder (which is different from the servicer) is two separate entities.

So the likelyhood of the 2nd buying out your first is slim to none.
There are several people on this board doing as you suggest - keep paying on the first and stop paying on the second.

What is most likely to happen is the second gets charged off - the lien remains on your house. You then have to negotiate a payoff for the second (Relief is working on a 10% payoff with her 2nd - look for her posts). AND, you must then negotiate the release of lien. Obviously you would not pay anything toward the 2nd without the release of lien - or that becomes $$ thrown away.

It is well worth it in this market to try it. After all, you didn't reaffirm, right?

[HHM]

I don't think anyone has any experience with that situation yet, so all we can do is speculate. No one will really know what will happen to unpaid second mortgages that linger, until a few years from now when people start considering refi, or the real estate market appreciates and the seconds are in a position to foreclose.

You just need to understand that you are taking a risk.

In your case, you might have been better off in a low or no payment chapter 13 to simply strip off the mortgage and bring certainty to the situation.

[chad9162]

I don't think anyone has any experience with that situation yet, so all we can do is speculate. No one will really know what will happen to unpaid second mortgages that linger, until a few years from now when people start considering refi, or the real estate market appreciates and the seconds are in a position to foreclose.

If my house recovered 150K in a "few years" I'd be glad to start paying back on my 2nd. But I think it's going to take more than a few years.

You just need to understand that you are taking a risk.

IMO its less risky NOT to pay the 2nd. In 10 years if my house appreciated by 5% each year, I still wouldn't have equity! On the other hand by not paying my 2nd, I'm guaranteed to have $50K.

My area sold for $180-200K before the housing boom and that's where prices are now so in the past 5 years my area hasn't really appreciated. Also the median salary in my area is around $66K. So income isn't going to support large mortgages.

Personally, if you're willing to walkaway then stop paying on the 2nd! You could always hang out for two to three years. If the 2nd won't negotiate then walkaway and buy something else. If the market stays the same the 2nd would get nothing. This is all based on the fact you didn't reaffirm!

In your case, you might have been better off in a low or no payment chapter 13 to simply strip off the mortgage and bring certainty to the situation.

I thought about this but 5 years is an eternity!

[Vanda]

I was wondering about this same issue. I have not been paying my 2nd. Both mortgages are now owned by the same company. They told me I have to get current with the first right away or they will foreclose and I am not ready for that. Can I take a loan from my 401K to cover what I owe them? Then I would be current and I would be able to see how things in my neighborhood play out, if things stablilize. Am I even allowed to take a 401K loan while I am under Chapt. 7? Can't think where else I would get the money.

[chad9162]

I pretty sure if you took money out of 401K it'd be considered income for means test. If you have an attorney ask him/her for advice. I was a bit confused. So are you behind on both the 1st and 2nd? You said you haven't been paying 2nd but then mentioned the 1st, did you mean the 2nd?

Also if you are about to file Chap 7 you could wait after you file to withdraw from 401k to get mortgage caught up. After you file the withdraw shouldn't be counted against income. If your lender hasn't started foreclosure process you have several months.

[Vanda]

paying mortgage w/ 401K

I will ask my attorney but I have no real faith in him because things have not gone the way he predicted and now he is charging me by the hour so yes, I will ask him but need advice here too. I filed Chapter 7 in January. Isn't the means test, which I passed, based on the 6 months previous to that? I am way behind on my 2nd mortgage - attorney advised me not to pay it anymore - and 3 months behind on 1st mortgage. The company that bought my mortgages says they will begin foreclosure on May 14 if I don't get current by then. No other "deals" available. I won't go into the family complications that have caused me to be in this situation, but I do not have the cash. So if I borrow from my 401K to get current, why would that cause me to fail the means test? The means test is based on the last 6 months of 2008. Now that the TT extended my case to 7/31, I can't have them begin foreclose on me during this time. I need to at least hold on to the house for a while and figure out which way things are going, hope I am not going to be included in next wave of layoffs, etc.