going Ch7. ques about 80/20 home loan.

[jinx]

Finally talked to a lawyer and looks like ch7 is the way we are going. i forgot to ask my lawyer about this and while filling out the paper work this came up again.

I bought my house 3 years ago with an 80/20 loan. Both loans are through the same mortgage company. I currently have $13,000 equity in the home.

1. could I discharge the second loan? its balance is about twice the equity in the home.

2. if both loans reaffirmed is there a chance to use the making home affordable program to combine the loans into a smaller payment?

I'm in texas btw.

Thanks

[HHM]

You cannot discharge a security interest in a chapter 7.

With secured debt, there are two liabilities, (1) the security interest, the right of the lender to retake the collateral for non payment, and (2) your personal liability on the debt, this is your promise to repay the debt.
A chapter 7 NEVER discharges aspect #1, but will discharge your personal responsibility (aspect 2). If you file chapter 7 and intend on keeping the house, you must be current and continue to pay BOTH mortgages.

The only way, right now under current BK law, to remove a second mortgage is though a chapter 13 and the home must be worth less than what is owed on the first mortgage.

[Stilltheone]

We were told by our attorney that both mortgages, both NOT reaffirmed, are discharged. BUT, the lien holder has the right to obtain their collateral back, even though the debt was technically discharged.

So, let's say 5 years from now, we can't afford our house anymore. We can legally walk away from it, without owing anything...because the debt was discharged. But, if you want to keep living in your home, you still need to pay.

If it were that easy to discharge your mortgage, keep living in the house without paying for it, EVERYONE would be filing bankruptcy! Heck, I'd go out and buy a huge, honking house, then file! LOL

[jinx]

thanks for the info. I'm just starting to learn what i'm in for...

I tried to refi the house back in Dec but the bank took 5 months then told me my credit report expired and that the criteria changed... now I do not qualify since my income dropped yadda yadda. would have saved me $300 a month

[spidge]

If your loans were never touched then this is purchase money and if you walk away they get the home but cannot persue you. The ch 7 will protect you but the 13 can strip the 2nd if the home is worth less than the ballance on the 1st. You may be better off filing the 7 and attempting one of the government modifications. You most likely will qualify as you said your income has been reduced and thats considered a hardship.

[justbroke]

If your loans were never touched then this is purchase money and if you walk away they get the home but cannot persue you.

That's for California and maybe a handful of other States (that don't allow deficiency claims on purchase-money loans on primary residences). I didn't catch that the jinx was in California... as I believe they posted Texas.

I'm unsure if Texas State non-bankruptcy law provides the same protections as California with respect to deficiency claims. However, in a Chapter 7, the point it moot.

(Edited to add: I was bored and looked up Texas, and Deficiency Claims are allowed on public sales.)