Second Mortgage Loan Modifications and Filing Chapter 7

[Ann]

Very very confused here... I'm 3 months behind on second... current on first... planning to file 7 in December-January... Stop paying on my second??? I thought you had to be current on both to file??? Will someone PLEASE tell me why I cannot do a loan mod on second mortgage if I file???????????????????

[Ann]

Very confused here.... I thought you had to be current on your second mortgage when you file for a chapter7...If I'm 3 months behind now and I do not file until December or January than how can I file??? You say a second mortgage goes into the 7 but not the first... Please please explain this to me. Also, can you really "threaten" your lender who you have the second mortgage with that you will file a 13 to try to negotiate a better interest rate with them??? Would that in itself be considered a "modification"?

[IBroke]

Very confused here.... I thought you had to be current on your second mortgage when you file for a chapter7...If I'm 3 months behind now and I do not file until December or January than how can I file??? You say a second mortgage goes into the 7 but not the first... Please please explain this to me. Also, can you really "threaten" your lender who you have the second mortgage with that you will file a 13 to try to negotiate a better interest rate with them??? Would that in itself be considered a "modification"?

No, you don't have to be current to file - no matter if it's the first or second mortgage. Simply keep on paying the first and as long as you are upside down on your home, you can forget about the second. They WON'T foreclose.

BOTH mortgages go into CH7 but they won't be modified.
You can certainly try to negotiate a better interest-rate with the second if you are giving them a hint that you might file CH13 - IF you owe more on the first than your house is worth. Based on my own experience, however, if they weren't willing to negotiate before, it is possible and likely they won't be willing to negotiate now - unless you didn't talk to them for quite some time. the more you wait, the easier it is to negotiate. 3 months might not be enough. We haven't made a single payment on the second for 2 years now and they are still not willing to negotiate. Bad for them..

Well, the definition of "modification" is a change of your mortgage-terms. Nothing more, nothing less....

[Ann]

No, you don't have to be current to file - no matter if it's the first or second mortgage. Simply keep on paying the first and as long as you are upside down on your home, you can forget about the second. They WON'T foreclose.

BOTH mortgages go into CH7 but they won't be modified.
You can certainly try to negotiate a better interest-rate with the second if you are giving them a hint that you might file CH13 - IF you owe more on the first than your house is worth. Based on my own experience, however, if they weren't willing to negotiate before, it is possible and likely they won't be willing to negotiate now - unless you didn't talk to them for quite some time. the more you wait, the easier it is to negotiate. 3 months might not be enough. We haven't made a single payment on the second for 2 years now and they are still not willing to negotiate. Bad for them..

Well, the definition of "modification" is a change of your mortgage-terms. Nothing more, nothing less....

What you have just told me is the exact OPPOSITE of what the lawyer I talked with the other day said. If you file for a 7 you MUST be current on your first and second mortgages. She also stated you can modify the first but not the second if you want to file 7. Please someone give some input here.

[HHM]

Chapter 7 Bankruptcy CANNOT modify mortgages. What your lawyer is probably saying is that you will want to do a mortgage modification on the first mortgage (the worthless Obama plans).

As for being current on mortgages. There IS NO requirement to "file" a chapter 7 that you be current on your mortgages. The real question is, what are the consequences of not being current WHEN YOU FILE? The reason being, a chapter 7 has no legal mechanism to force the lender to bring your current (like a chapter 13).
Thus.
1. If you are behind on the 1st, the first will initiate foreclosure, and 9 times out of 10, you will lose your house. The bank will simply not work with you at this point.
2. If you are behind on the 2nd; what happens depends on the value of the home. But in this real estate climate, 2nd's are not foreclosing. So, nothing really happens when you file chap 7 and are behind on the 2nd. But, the 2nd mortgage will maintain its foreclosure right.
3. Some districts will not allow you to claim the expense on a mortgage that is not current.

Any talk of the so-called chapter 7 modification is a negotiation that takes place OUTSIDE of BK.
This post might explain the strategy a little better.

http://askmethner.com/?p=450

[Ann]

Chapter 7 Bankruptcy CANNOT modify mortgages. What your lawyer is probably saying is that you will want to do a mortgage modification on the first mortgage (the worthless Obama plans).

As for being current on mortgages. There IS NO requirement to "file" a chapter 7 that you be current on your mortgages. The real question is, what are the consequences of not being current WHEN YOU FILE? The reason being, a chapter 7 has no legal mechanism to force the lender to bring your current (like a chapter 13).
Thus.
1. If you are behind on the 1st, the first will initiate foreclosure, and 9 times out of 10, you will lose your house. The bank will simply not work with you at this point.
2. If you are behind on the 2nd; what happend depends on the value of the home. But in this real estate climate, 2nd's are not foreclosing. So, nothing really happens when you file chap 7 and are behind on the 2nd.
3. Some districts will not allow you to claim the expense on a mortgage that is not current.

Any talk of the so-called chapter 7 modification is a negotiation that takes place OUTSIDE of BK.
This post might explain the strategy a little better.
http://askmethner.com/?p=450

I so much appreciate your input and certainly not trying to argue here but her EXACT words were... you must STOP the modification process of your second mortgage because you CANNOT modify a second mortgage PRIOR to filing for chapter 7 and you HAVE to be current on that second mortgage as well as the first! Those were her exact words... I said I was approved for a temporary modification on my second and she said to call and put a STOP because they will not allow it!!! Anyone here ever heard of this???

[HHM]

The bank will probably cancel the modification once you file BK. So, from a purely practical standpoint, there is no reason to continue, but from a legal standpoint, there is no reason you cannot continue with the modification.

Go see a different attorney. However, I am guessing that something is being lost in the communication filter between your attorney, you and this forum.

Let's assume what you are communicating is 100% accurate and there was no other aspect of your conversation with the attorney that would clarify the situation, your attorney is being overly cautious (or knows something we don't about the real estate market in your area). You do not have to be current on your 2nd mortgage to file a BK. The risk, however is, that if the 2nd mortgage were in a position to foreclose, they would/could.

Ultimately, you must rely on your attorney. But if your attorney is "really" telling you that you MUST be current on your second mortgage to file chapter 7 BK, go get a 2nd opinion.

[OhioFiler]

I so much appreciate your input and certainly not trying to argue here but her EXACT words were... you must STOP the modification process of your second mortgage because you CANNOT modify a second mortgage PRIOR to filing for chapter 7 and you HAVE to be current on that second mortgage as well as the first! Those were her exact words... I said I was approved for a temporary modification on my second and she said to call and put a STOP because they will not allow it!!! Anyone here ever heard of this???

Perhaps your attorney is telling you this because she does not want you to affect your DMI by lowering your 2nd mortgage payment or having it excluded entirely since you are not paying it. I'd get clarification from the attorney.

HHM is absolutely correct, there is no legal basis for what you allege your attorney told you.

[Ann]

Chapter 7 Bankruptcy CANNOT modify mortgages. What your lawyer is probably saying is that you will want to do a mortgage modification on the first mortgage (the worthless Obama plans).

As for being current on mortgages. There IS NO requirement to "file" a chapter 7 that you be current on your mortgages. The real question is, what are the consequences of not being current WHEN YOU FILE? The reason being, a chapter 7 has no legal mechanism to force the lender to bring your current (like a chapter 13).
Thus.
1. If you are behind on the 1st, the first will initiate foreclosure, and 9 times out of 10, you will lose your house. The bank will simply not work with you at this point.
2. If you are behind on the 2nd; what happens depends on the value of the home. But in this real estate climate, 2nd's are not foreclosing. So, nothing really happens when you file chap 7 and are behind on the 2nd. But, the 2nd mortgage will maintain its foreclosure right.
3. Some districts will not allow you to claim the expense on a mortgage that is not current.

Any talk of the so-called chapter 7 modification is a negotiation that takes place OUTSIDE of BK.
This post might explain the strategy a little better.
http://askmethner.com/?p=450

HHM: I have read and reread your answers here and you give me a lot to think about... Help me out here if you will please... Here is my current situation and please give me some advice (please anyone chime in if you will) 1. Filing in December for bankruptcy... on the edge of a 7... one attorney says a 7 for sure... another says a 7 is probable but a 13 is in my best interest to strip my second mortgage. Lots of unsecured debt here approx.$198,000!!!! (yes, I'm ashamed but that's a different story)... 2. First mortgage owing $197,000... second mortgage owing $69,000... homes in my area go for around $190,000-maybe $195,000... so I'm real close here with this one. 3. PNC Bank just called yesterday saying the modification is in the mail for me to look over, make my decision and send in first check (payments were $709.00 for a 15 year second mortgage with me being 90 days past due and at least a full year of late fees attached each equaling $50.00 that I never included when I could pay. Their mod is for payments of $354.00 for the next 12 months with all late fees removed and the last 90 day late payments added at the end. First lawyer says no way... you cannot have a temporary mod on a second when you file... all the mean time I'm trying desperately to modify my first with Citi Mortgage and that is going nowhere fast! 3. Husband wants to dig into his IRA and offer the second mortgage company a settlement but you good people have advised us against it saying it will blow our chances of filing a 7 right out of the water for a lot of reasons. 4. After reading your advice HHM you suggest we forget the payments on the second for now, file the 7 and when we are discharged offer a settlement THEN, right? How will filing for 7 and saying you are making payments that you don't intend on making on this mortgage work? 5. Sounds good BUT what if my home appraises for a higher amount when I want to make that offer... I am real close with owing about what I might get out of it. 6. Should I just say forget the mod on the second, pay my regular payment, take my chances or take the mod and hope I can do a settlement after discharge? I know this is long and confusing but you guys here are the only people I actually trust to give it to me straight. Thank you so much! A

[IBroke]

Ann, I would obtain a professional appraisal on your home prior to making a decision (CH7 or 13).

If your income is on the edge and you decide to go with CH13 and strip the second and for whatever reason you should be unable to do so (second mortgage company disputes appraisal which is unlikely but possible if it's close), your case might be converted to a CH7 because you can argue you're not capable of paying both mortgages (since you are already close to the low income-requirements for a CH7).

I'm not an expert on chapter-conversions - maybe HHM can chime in on that.

If I were you, however, I would give my best to get rid of the second mortgage through your BK. You could certainly offer them a settlement after a CH7 but who can tell for sure they will accept it? And if you are planning on keeping the house for the next years (or even longer than that) and the prices go up again, the second mortgage company might look into foreclosure again. If you would owe $100K more on your first than what your house is worth, I wouldn't be concerned at all - but since the value is close to "even" to your mortgage balance on your first, there is some potential danger in the (although far) future...

[albacore44]

Here is where I see the problem. If you stop paying the 2nd prior to filing Ch-7you run the risk of the UST reworking your disposable income and disallowing that 2nd mortgage payment as part of your allowable expenses. I would wait untill after your 341 and the 10 day UST objection period expires then stop paying and never look back, and that is exactly my plan.