Second Mortgage Loan Modifications and Filing Chapter 7

[Ann]

All, today we had our very first consultation with the first lawyer. She was young but really seemed to know her stuff. She does not deal with chapter 13's only 7's! She did say we were real close (as far as being able to file for a chapter 7) what she did say in out meeting surprised me. Please if anyone out there knows the answer for sure with this one please reply. She stated that you cannot do a loan modification on a second mortgage if you file a chapter 7. The loan I'm in the processing of obtaining is through PNC Bank and although it is only temporary (just one year) it does cut my payment in half for the next year and will put all my past due amounts at the end (somewhat extending the terms) which will really help me out. Now, at this point I'm behind almost 3 months. She said I have to stop the modification process and become current or we cannot file come December. She did state that you can do a loan modification on your first mortgage but again before you file you have to have gone through the entire process and THEN wait 3 months before you can file. Please give me some input... Anything please!

[IBroke]

I don't see a reason why you have to wait for 3 months, because you can't discharge mortgages in a CH7 in the first place. I also don't understand why you shouldn't be able to modify your loan. In addition, once your modification goes into effect, you technically ARE current on your second mortgage.

Maybe she was talking about the fact that you can't strip-down a second mortgage under Chapter 7. "Loan Modifications" itself are NEVER a part of BK in the first place. At least not yet.

In a CH13, you can avoid foreclosure by paying your amount in default back over the length of your BK-plan, but I don't consider that to be a "modification" either..

It is corect, however, that it would be wise to have all new mortgage agreements actually IN EFFECT prior to filing.

Maybe others can help you more on that topic but that's how I see it.

[HHM]

Go see another lawyer, a lawyer that does not do 13's has very little experience and not very knowledgable. Look at it this way, would you go see a 20 year carpenter to do plumbing.

She is probably correct, filing of BK will probably void your modification agreement. You need to assess if that matters. Are you in a negative equity situation, if so, who cares about the 2nd mortgage, they are not going to foreclose.

[Ann]

Yes, most certainly in a negative equity situation. However, no I know they will not foreclose (or at least I hope not) BUT I am behind 3 months so I have to become current to file. That modification was going to help me to become current. Now what?

[eddiep]

I just filed and just completed a mod. I had to have it complete before I filed but no three month waiting period. You do have to be current in chapter 7. go see a couple more lawyers.

[Ann]

I just filed and just completed a mod. I had to have it complete before I filed but no three month waiting period. You do have to be current in chapter 7. go see a couple more lawyers.

eddiep: Was this on a second mortgage that you did modification with? The waiting 3 months she was referring to was for a first mortgage. She says no to a remodify on my second because it would be considered temporary.

[eddiep]

I actually have a first, second and third mortgage on my home. They were all modified none of these mods were temporary. They were modified for the life of the loan, my payments have been permanantly changed. Maybe she was referring to the fact that most loan mods require you to make three "trial" payments before the mod is granted, and under the Obama plan (mine were not) there is a step up in the interest rate.

[Ann]

I actually have a first, second and third mortgage on my home. They were all modified none of these mods were temporary. They were modified for the life of the loan, my payments have been permanantly changed. Maybe she was referring to the fact that most loan mods require you to make three "trial" payments before the mod is granted, and under the Obama plan (mine were not) there is a step up in the interest rate.

I really think it has something to do with the fact that the second modification was only going to be for a year. Does anyone have any thing to add to this?

[eddiep]

A one year modification? Is that what the bank was offering as a mod?

[HHM]

You don't need to be current on your mortgage to file. The attorney was probably telling you the most cautious approach to keeping your home is to be current when you file. But, strictly speaking, you can file and be behind on payments.

If you are negative on the 2nd mortgage, then you don't really need to be current on the mortgage to file. They are not going to do anything.

[Ann]

A one year modification? Is that what the bank was offering as a mod?

Yes, a one year mod that was their "help" to me... trying to do a mod on my first and boy is that ever a pain!!! Wondering if you can even really call this a modification or could it really be classified as a forbearance of some kind. What is your opinion? If it is forbearance is this legal???

[iv65536]

New here - thinking on the question as well, I will have to talk with the attorney (not yet chosen) about an idea I had: I'm upside down on my home loans, and am thinking about trying to get the 2nd mortgage to go along with a negotiated cramdown on a Chapter 7 by threatening a Chapter 13 that strips the lien. Pit credit-card issuers against a subprime mortgage lender - sharks eating sharks.

[HHM]

New here - thinking on the question as well, I will have to talk with the attorney (not yet chosen) about an idea I had: I'm upside down on my home loans, and am thinking about trying to get the 2nd mortgage to go along with a negotiated cramdown on a Chapter 7 by threatening a Chapter 13 that strips the lien. Pit credit-card issuers against a subprime mortgage lender - sharks eating sharks.

Let's just clarify how this works for the benefit of others. You cannot cram down a mortgage in a chapter 7. The lien survives. The "negotiated" aspect of this comes into play after the BK is discharged.

How this works is:
1. Stop making payments on the 2nd mortgage, but be current on the First.
2. File chapter 7 (assuming you qualify).
3. Get your chapter 7 discharge
4. Offer a lump sum settlement to the 2nd mortgage to remove the lien.

The major pitfall, do you/will you have the money to pay the 2nd.

Rest assured, what WONT happen is the 2nd mortgage agreeing to reducded principal and then allowing you to make payments.

[iv65536]

[HHM]

First, you cannot enter into a contract that waives your bankruptcy right, so its a non-starter from the beginning.

Keep in mind, when you file BK, you cannot pick and choose who goes in. If you file a chapter 7, your second mortgage is included. When you take out a secured debt like a mortgage, you create 2 types of liability.
1. The security interest: this gives the lender the right to foreclose/repo if you do not make your payments
2. Your personal responsibility for the debt. This gives the lender the right to pusue you for the balance of the loan if the collateral is not worth what is owed.

When you file chapter 7, you discharge your financial responsibility. The security interst remains intact. And, just for point of fact, if the property is worth more than the 1st mortgage, YOU CANNOT strip the second mortgage in a chapter 13. Based on yoru numbers, that seems to be the case.

In your situation, file chapter 7, stop paying the 2nd (the 2nd is not going to initiate foreclosure), and at some point in the future, when you have money, offer to settle with the second mortgage.