Successful 2nd Mortgage Settlements

[Phil]

Chad,
Thank you...One more question...if you subsequently foreclose on the home after discharge (no reaffirmation) then you basically can walk away and they cannot come after you, correct? Now if I wanted to negotiate a DIL of foreclosure, that second lien could remain on the house if it was not accounted for in the negotiation, correct? So, basically there would probably be no real reason to do a DIL. I did not reaffirm either mortgage but the primary mortgage is now astronomical and I do not want to remain in the house any longer. (no equity, huge payment) just need to cut my loss and move on, but want to do it the best way.

[pcn]

WOW, nice response to someone who's trying to help you out! If you actually used the search feature you'd see others and myself talking about this exact subject matter!!! From my first post I clearly stated I tried to work something out with my 2nd. I would have gotten further talking to the wall!

Sorry, not trying to be smart. My original question was "I am looking for those of you who have done a ch7 and then successfully negotiated a settlement with your 2nd mortgage company." I'm not clear from your response if you tried and weren't able to negotiate a settlement, or are still trying. I've read plenty on this site and others about the theories. What I haven't found is many people who have successfully used those strategies.

[chad9162]

Chad, Thank you...One more question...if you subsequently foreclose on the home after discharge (no reaffirmation) then you basically can walk away and they cannot come after you, correct?

Yes, correct. It was discharged in the BK and since you did not reaffirm you are not liable.

Now if I wanted to negotiate a DIL of foreclosure, that second lien could remain on the house if it was not accounted for in the negotiation, correct?

Yes, the 2nd stays. I doubt a 1st would even consider DIL (Deed in Lieu) because technically they'd be responsible for paying off the 2nd. That's why banks want to foreclose, because it clears ALL other lien holders, except property tax stuff.

So, basically there would probably be no real reason to do a DIL.

Well some may argue that a DIL is better than a foreclosure on your public record. Even though your house was included in BK, a foreclosure could prevent you from qualifying for government mortgage loans. BK is a 2 year wait and a foreclosure is a 3 year wait.

Although some have argued that since the house/foreclosure was included in BK it could be argued that you should qualify after 2 years. This would be a special circumstance and your mortgage broker or banker would have to do the leg work.

I did not reaffirm either mortgage but the primary mortgage is now astronomical and I do not want to remain in the house any longer. (no equity, huge payment) just need to cut my loss and move on, but want to do it the best way

.

I feel your pain. I'm 150K upside down! My Staff Sergeant in the Marine Corps once gave me some good female advice. He said, "Sometimes it's 4th and long. You need to realize its time to punt!" I think that applies here. People need to realize its just a house and not a home. Its a business decision. I have friends that will never retire because they keep paying their mortgage hoping things will workout.

Yet their neighbors are buying newer cheaper houses and walking away from their old house. Yes, in CA banks are giving people money to buy a 2nd house even though they are 100's of thousands of dollars upside down in their 1st house. I guess the 2nd Bank wants to make some money and since they have no interest in the 1st house why do they care if they walk away.

From this whole ordeal, I've learned one thing. Banks are ruthless with no morale compass. Profit drives everything. Everything is a business decision. So don't feel bad when you screw them back. Its a business decision!

Sorry for the rant.....

[chad9162]

Sorry, not trying to be smart. My original question was "I am looking for those of you who have done a ch7 and then successfully negotiated a settlement with your 2nd mortgage company." I'm not clear from your response if you tried and weren't able to negotiate a settlement, or are still trying. I've read plenty on this site and others about the theories. What I haven't found is many people who have successfully used those strategies.

No problem. The reason you haven't found many success stories is because this strategy is so new. A bunch of us started talking about this idea last summer but most of us were not discharged yet. Some tried to negotiate early, before discharge, but just got the run around.

In CA, a 2nd mortgage (non-purchase money) can sue you once the 1st forecloses. So really there's no incentive to negotiate. Once you discharge them in BK their is now incentive for them to negotiate. All they have is a lien and if the 1st ever forecloses they get nothing.

A lot of us discharged recently so not much time has gone by. A lot of people like me, looked at the real numbers and decided its just better to walk away.

Even if I negotiate my 2nd away, my house is still 100-120K upside down. My mortgage payment is $1600. If I bought at todays prices, I could get a better house and a cheaper mortgage. Makes more sense to walk away. Like I said in my previous post, a lot of people are just buying better and cheaper 2nd homes and walking away from their 1st homes. Banks are allowing this, crazy~!

Also, I don't know how Alabama Real Estate market is, but in CA we're so upside that it will be years before a 2nd has equity again. If your 2nd is close to getting equity this strategy will not work.


And from my first post....

Some banks are willing to negotiate some are not. My credit union told me, it (2nd mortgage) was charged off and they no longer cared. They even said, You filed BK so you don't have anything to worry about.

So yes I called them but I was talking to the wrong people. I should have been talking to the BK department. They're actually nice!!! They called me about my non-reaffirmed vehicle and asked what I wanted to do. I said I'd like to keep it can you lower my payments. They told me they'd look at FMV and get back to me. Well they called back, lowered my payments and even told me they can't repo my car if I'm current (Some have argued that point, maybe a CA rule). Anyways, the BK people have been nice and never once been judgmental. Maybe they just want my money

[CCsAreEvil]

Well some may argue that a DIL is better than a foreclosure on your public record. Even though your house was included in BK, a foreclosure could prevent you from qualifying for government mortgage loans. BK is a 2 year wait and a foreclosure is a 3 year wait.

Sorry for the rant.....

The rant is welcome! Listen to chad9162. He has made many excellent points. As stated, the reason OP hasn't had too many responses is because of the "perfect storm" we've run into the last year or so. One of the worst unemployment rates, huge nose dive in real estate, record BKs. Hence, so many are VERY upside down on their homes.

chad9162, so in the above quote, since I did a "ride-thru" on my home, are you saying that even though the mortgages were included in BK, that if I walk away, a foreclosure will also show up on my record on top of the BK? I thought once you included the mortgages in BK, a foreclosure record wouldn't be generated.

Lastly, I'm still very tempted to stop paying on my HELOC. My rough #s:

Owed on 1st: 260
Owed on HELOC: 115

Zillow est: 275

Now, I think even though zillow tries, I think it's overestimating the "current" market. I'm just scared of the 2nd forcing a foreclosure. It's hard to tell with my numbers so close. Any thought?

[chad9162]

I did a "ride-thru" on my home, are you saying that even though the mortgages were included in BK, that if I walk away, a foreclosure will also show up on my record on top of the BK? I thought once you included the mortgages in BK, a foreclosure record wouldn't be generated.

Well from what I've gathered on this forum and others, is it shouldn't show up on our credit report BUT its still a public record. So when you apply for a new mortgage it could come up.

Lastly, I'm still very tempted to stop paying on my HELOC. My rough #s:

Owed on 1st: 260
Owed on HELOC: 115

Zillow est: 275

Now, I think even though zillow tries, I think it's overestimating the "current" market.

Zillow is an overestimate! Its based on square footage and current sale price. Basically its simple division. They don't take anything else into consideration like location, condition of the house, etc. Also don't forget the 6% realtor fees you will pay as a seller!!

I'm just scared of the 2nd forcing a foreclosure. It's hard to tell with my numbers so close. Any thought?

Last summer when this topic was discussed we all agreed that we'd be willing to walk away. If you are SCARE or gonna lose sleep over this then keeping paying on the 2nd.

My opinion is that even though the 2nd will soon have equity its not enough for them to foreclose. If the 2nd forecloses, they have to payoff the 1st, in your case 260K. I've never seen or heard of a 2nd doing that in this market. Plus the 2nd would have to pay all the fees and expenses associated with foreclosure, including expenses in trying to sell the property. Of course if you stop paying the 2nd they will threaten foreclosure. I received a few letters and laughed!

It comes down to simple math. If your 2nd foreclosed they'd have to payout 260K plus fees and expenses. If they actually sold at the zillow estimate they'd still lose over a 100K. Not going to happen. Banks are smart as well as greedy. They're not going to lose money to lose more money.

What they'll do is charge off your 2nd mortgage. Charge off helps them because its no longer considered a liability on the books. Instead it becomes a lost and they can claim it against their taxes. They still have the lien so later on they'll try to make some money.

[chad9162]

Whatever people decided please don't spend any of your hard earned money for "Short Sale." Its a sham. Especially in CA. Banks want a short sale because in order to collect on mortgage insurance they have to show the house was on the market for a certain period of time. If the Bank can sucker you into spending your own money to prepare the house for sale then its less money they have to spend later.

Banks take advantage of you because you are desperate and don't want a foreclosure. Really, the Banks intention is to foreclose because its rids the property of all other liens. Again no morale compass. If you get an offer that covers the 1st entirely or close to, the problems is the other lien holders have to agree to get nothing. I have realtor friends in CA and they don't even bother with short sales.

[chad9162]

To OP, sorry for hijacking but at least your TTT each time

[CCsAreEvil]

Plus the 2nd would have to pay all the fees and expenses associated with foreclosure, including expenses in trying to sell the property. Of course if you stop paying the 2nd they will threaten foreclosure. I received a few letters and laughed!

Again, many thanks for your response. So, can you explain your case a little more before I take the huge leap of "stopping payments on the 2nd"? Based on what you've stated, you have stopped paying on your 2nd about 6 months ago? When did you start receiving letters after non-payment? I'm also assuming you are still paying on your 1st to stay in your home "until" you decide to just "let it go".

I guess I don't care that the 2nd is still a "lien" on my property. Like others have stated, you can't let your emotions overrun you. But for now and the near future, we do want to stay put. At some point, we'll just "walk away" (and stop paying the 1st obviously). I really do not see any reason to try to sell it in the next few years since there will most likely not be any equity since the 2nd is still on there.

I'm assuming I can just ignore "foreclosure threats" from the 2nd unless they actually go through the legal foreclosure process. I'm in AZ. I assume you must be notified at least a few months before you are forcibly vacated from the property? If so, 3 months would give plenty of time to find a new place (to rent).

What they'll do is charge off your 2nd mortgage. Charge off helps them because its no longer considered a liability on the books. Instead it becomes a lost and they can claim it against their taxes. They still have the lien so later on they'll try to make some money.

But since the debt was included in BK, the charge off should not show on my credit report, correct?

[liboton21]

Chad,

Will BofA foreclose my 2nd even the 1st is the same bank? I haven't paying since August reason to negotiate after discharge. I'm current on the 1st but with pending loan mod to lower my mortgage to include property tax and insurance through NACA. I in SoCal and my house was upside down big time. If I decided to walk away, how soon can I buy a property? Thanks Devil Dog...Appreciate also your tips regarding NFCU.

Former Devil Doc
BLT 3/5

[iv65536]

My case:
Value on petition: $106k
1st: $108k
2nd: $35k
Foreclosure sale of identical unit in same building with better view, Oct 2009: $106k

I think my estimate on the value of my unit is a tad high - foreclosed unit overlooks a golf course across the road, mine overlooks the parking lot. Current on the first, my plan for dealing with the 2nd is to threaten to stop paying the 1st. 2nd is unsecured within the meaning of 506(a).

[chad9162]

My case:
Value on petition: $106k
1st: $108k
2nd: $35k
Foreclosure sale of identical unit in same building with better view, Oct 2009: $106k

I think my estimate on the value of my unit is a tad high - foreclosed unit overlooks a golf course across the road, mine overlooks the parking lot. Current on the first, my plan for dealing with the 2nd is to threaten to stop paying the 1st. 2nd is unsecured within the meaning of 506(a).

I already commented on this strategy. Threatening an action that you will not follow thru on is not a strategy so I wouldn't even go there. Instead, once you are discharged, negotiate from there. Using empty threats will not get you very far. Just my opinion...

[chad9162]

Chad, Will BofA foreclose my 2nd even the 1st is the same bank?

I don't think it really matters if both loans are owned by the same bank. It doesn't change the math or the huge loss. Most banks treat these loans individually anyways, meaning the 2nd only cares about the 2nd and not the 1st.

If I decided to walk away, how soon can I buy a property? Thanks Devil Dog...Appreciate also your tips regarding NFCU.

GOV't Loans....
BK 2 years
Foreclosure 3 years

But you also have to reestablish credit. So these are minimum time frames.

[chad9162]

So, can you explain your case a little more before I take the huge leap of "stopping payments on the 2nd"?

Well in April 2009, I had my epiphany that BK was the answer, especially since I was losing my job. I read and researched and found that 2nd's have very little power in an upside down market. After speaking with my attorney and agreeing with me I stopped paying the 2nd! Kept current on the 1st because I thought I wanted to stay.

Started receiving the typical late letters threatening foreclosure but actually never got the "official" letter. At first a couple of letters were just regular mail. The next few letters were "certified mail" but it was the same letter. Retards! I guess the certified part was suppose to scare me.

Remember what I said before, if you are going to lose sleep over this then just keep paying. We made the decision that if the 2nd took action then we'd leave. The letters stopped because we went into BK. After discharge, I haven't heard from them. During BK I called them, which I mentioned in an earlier post. But after that I decided maybe it was better to just leave.

After figuring out tax breaks vs renting, renting was cheaper. So I stopped paying on the 1st. My 1st is with CALHFA, its a state bond program. They're lame!!!. No Loan Mod, even though its on there website, just repayment plan on top of your regular mortgage payment. Not much help when you can't afford the regular mortgage.

Anyways, screw'em. They're gonna eat at least 125K because they don't want to work it out. Anyways, haven't paid my 1st since JUN. Discharged in Sept. CALHFA told me I'd be going to "Foreclosure Review" end of December. Haven't heard from them or seen anything posted in my County Recorder's Office (gotta love the internet).

In CA, the Foreclosure Notice is 90 days, and then the Foreclosure Sale is scheduled, about 3 weeks later. Once sold I'd be given a 3-Day Notice. If I don't leave they'd have to evict me, which would be another two weeks. Most people advised not getting evicting! Some say wait for the 3-Day and then call them to work something out. Obviously voluntarily leaving is better than court eviction.

But since the debt was included in BK, the charge off should not show on my credit report, correct?

Correct, it will show as INCLUDED IN BK

[pcn]

Chad,

Will BofA foreclose my 2nd even the 1st is the same bank? I haven't paying since August reason to negotiate after discharge. I'm current on the 1st but with pending loan mod to lower my mortgage to include property tax and insurance through NACA. I in SoCal and my house was upside down big time. If I decided to walk away, how soon can I buy a property? Thanks Devil Dog...Appreciate also your tips regarding NFCU.

Former Devil Doc
BLT 3/5

I wouldn't bank on it not mattering. If they are losing the money from the 2nd in any case, why not foreclose. There's a case discussed over in the ch13 lien strip thread with an example of BOA owning both loans. One of the very knowledgeable posters hear had this to say about the possibilities;

(Case: http://www.nyeb.uscourts.gov/opinion...36_opinion.pdf)

Justbroke:
"Bank of America held both the first and the second mortgage. As stated in Lavelle, Bank of America was foreclosing on the second mortgage. So, they'd be literally, paying themselves off. This was really just a leverage play if you ask me, and I'm thinking the Judge secretly allowed the strip because of the position Bank of America was in, holding both mortgages.

If you do have a lender who holds your first and second mortgage, and you're current on your first but in arrears on the second... do not be surprised that they foreclose on the 2nd mortgage, even when you have negative equity below the first! I think of this as a leverage position and they would certainly have the upper hand!"