Successful 2nd Mortgage Settlements

[SleepWellNow]

I settled on my second after a Chapter 7 bankruptcy. My offer was approved, I wired the money, verified they received it, and now am waiting for my "settled in full" letter and release of lien. Here are the details:

First loan of $544,000 with GMAC. Signed a loan mod while in active BK but the loan did not get reaffirmed (whole 'nother story). We were 7 months behind and owned 2 years property taxes. Went from an Option Arm to a fixed at 6%, captialized the taxes and was forgiven approx. $13,000.

Second loan of $62,782 with Green Tree. Stopped paying when we filed BK in July. Green Tree sent a reaffirmation agreement while in active BK but we didn't sign it. After BK discharge, Green Tree called to see what we were going to do with the property. I told them it was a rental and we were 7 months behind on the first loan. We would like to save it and move into it but if we couldn't get a mod on the first and settle the second, we would let it foreclose. She told me to send in a settlement proposal with a hardship letter, 2 years taxes, expense sheet, P&Ls, etc.

I prepared a hardship letter and made them an offer. We had just received an unexpected check from an old class action suit for $3,376. I offered that amount to settle the debt if they would release the lien. I told them I was not sending in any financial information because we were discharged of the debt and didn't owe them anything. My financial situation should have no bearing on the settlement. I told them, upon settlement approval, I would send them the money within 10 days. Then I waited.

I got a phone call that my offer was refused. They wouldn't settle for any less than 50%. I decided to kick it up a knoch. I found some email addresses for the higher ups on the Loansafe.org forum. I sent my letter out to all of them and requested they reconsider. I received a call from the a head honcho of Loss Mitigation. He said "I understand you refuse to send in your financial information. I told him that was correct and gave him the same explanation as I did the other person. He agreed with me that I didn't have to send them. He went on the tell me there was no way they would consider settling for $3,376 on a $62,000 debt. I asked him if they would rather get nothing than settle for less than 50%. He said "Pretty much". So, I thanked him for the call and waited...

About 2 weeks later, I get a call from the first person that had called me. She asked if I was still interested in settling. I told her I was but they better get me an answer quick. I just received a letter from the IRS of an intent to levy. If Green Tree didn't take the money quickly, it was going the IRS (By the way, I worked out a resonable payment plan with the IRS). Within 2 days, I got a call from Green Tree that they approved my offer. Yiipee!!!!

So, I settled $62,872 for $3,376. That's about 5.37%.

[pcn]

Thank you very much for the follow up! I had just reread your post earlier today and thought to myself "I really hope they will follow up with details after things work out"'.

There is hope.

[chad9162]

I wouldn't bank on it not mattering. If they are losing the money from the 2nd in any case, why not foreclose.

Well I see no difference from a Bank owning both mortgages or two different banks owning 1st and 2nd mortgages separately because in the end they still lose money! If Bank A owns both loans 1 and 2 and receiving payment on loan 1 but not 2 they're still making money. If they foreclose on loan 2, which has not equity, they lose ALL of loan 2 plus fees and sales cost.

You only quoted me partially which changed the context of my statement. I said it doesn't matter because "It doesn't change the math or the huge loss."

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

The case you site is not really relevant. The courts allowed a lien stripped in a Chapter 7, but ONLY after BofA 2nd Lien holder initiated a relief of stay motion in order to foreclose. By filing that relief of stay they put themselves on the line because technically they were an unsecured creditor (506 (a)) and their lien was eventually voided (506 (d)).

I still can't figure out why BofA 2nd lien holder would seek such an action when they could have just waited and foreclosed later. Filing a relief of stay cost money. Based on that ruling I bet they won't make that mistake twice.

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!"

I think you maybe taking Justbroke's words out of context a bit. I don't see how foreclosing and losing money gives bank leverage! In the end they still lose money. The case says the house was valued at $400K. The 1st Mortgage $411,183 and the 2nd Mortgage was $10,127. Not much of a lost for BofA. So maybe BofA was trying to strong arm these people into paying both loans. Maybe foreclosing was the "leverage" Justbroke was talking about (not putting words in his mouth)

Edit to add:

In my post I have said several times that if you are FEARFUL or GOING TO LOSE SLEEP then pay your 2nd, 3rd, or whatever. This is a strategy based on what Banks would do if they had common sense, but they don't always have common sense. I am not telling you they won't foreclose because they might. In CA, Banks aren't going to lose $30K but more like $130K.

[SleepWellNow]

You're welcome. I know every lender is different so outcomes are unpredictable. Here are some reasons why I think mine was successful...

1. I proved to them their lein was not secured by equity. A friendly real estate agent should be able to help you out with this. Also, check Zillow.com. Send these comps with your settlement proposal.

2. Convince them that is all the money you have available to offer them. They asked me if I could get a loan from friends or relatives and I said "no". I think it made sense to them where I got the money and they were getting all I had (thus the odd amount of my offer).

3. There was an urgency in them accepting my offer as the IRS was on my tail and was threatening to attach my assets.

4. I remained calm, pleasant, and made it clear it was OK with me to foreclose. I had other options if I loss the house to foreclosure but they would still end up with nothing.

Good luck to you. It is possible.

[CCsAreEvil]

Discussed with DW. We will stop payments on the 2nd. If at some point, 2nd starts "official" foreclosure, we'd then stop paying on the 1st because at that point, it would just be throwing money away. During this time, probably just stay in the home and keep the funds that would otherwise be going to the 1st into savings. I assume, once we get an official notice, we'd have at least 90 days. At this point, start looking for a new place to live (probably house rental). In this economy, would probably find a better home/location to rent for even some cheaper.

So, for the rest of you who have done this, do you pretty much stay as long as possible (while stopping payments) or do you just "ditch" the existing place right away? Is there anything wrong about staying until you actually must vacate?

[iv65536]

Discussed with DW. We will stop payments on the 2nd. If at some point, 2nd starts "official" foreclosure, we'd then stop paying on the 1st because at that point, it would just be throwing money away. During this time, probably just stay in the home and keep the funds that would otherwise be going to the 1st into savings. I assume, once we get an official notice, we'd have at least 90 days. At this point, start looking for a new place to live (probably house rental). In this economy, would probably find a better home/location to rent for even some cheaper.

So, for the rest of you who have done this, do you pretty much stay as long as possible (while stopping payments) or do you just "ditch" the existing place right away? Is there anything wrong about staying until you actually must vacate?

This is largely the same threat that will be put to the 2nd under which they will have to decide whether or not to simply sell me the secured claim for what I am planning to offer.

What's more, if they try to avoid the 1st, I may simply use their arguments to avoid the 2nd. Kind of analogous to the Pee Wee Herman line: "I know you are, but what am I?"

[chad9162]

This is largely the same threat that will be put to the 2nd under which they will have to decide whether or not to simply sell me the secured claim for what I am planning to offer.

Don't be surprised if they just give you the run round. You're not really forcing their hand, they can always sit on their lien.

What's more, if they try to avoid the 1st, I may simply use their arguments to avoid the 2nd. Kind of analogous to the Pee Wee Herman line: "I know you are, but what am I?"

What do you mean "avoid" and "using their arguments" against them?

[chad9162]

Discussed with DW. We will stop payments on the 2nd. If at some point, 2nd starts "official" foreclosure, we'd then stop paying on the 1st because at that point, it would just be throwing money away.

You seem to get the idea!!

In this economy, would probably find a better home/location to rent for even some cheaper.

This is very true. You just have to look around. There are some landlords who think you'll pay their mortgage but if you look around you can find reasonable deals.

So, for the rest of you who have done this, do you pretty much stay as long as possible (while stopping payments) or do you just "ditch" the existing place right away? Is there anything wrong about staying until you actually must vacate?

I don't see anything wrong with staying until you have to leave. The point of Foreclosure is to give you notice and a right to cure. If you leave right away, you'll miss out on all that RENT FREE LIVING. This has nothing to do with morals or what's right and wrong. The Banks set up this system and NOW you are just following their rules.

Think about it like this....Who spends millions of dollars telling us that paying our debts is "being responsible" and how BK is going to be embarrassing and will ruin your life forever. They call us "deadbeats" for not paying our debts and for filing BK, yet they file for BK protection all the time. Double standard? I think its Hipocracy at its finest!! They guilt us but do you think they feel guilt! I might be a squatter but I'm saving $1650 a month and feel no shame what so ever. Just like AIG spending $500,000 (taxpayer $$) at Half Moon Bay, CA! Although what's half a million when you got almost $150 BILLION in bailout money!

[iv65536]

Don't be surprised if they just give you the run round. You're not really forcing their hand, they can always sit on their lien.

The idea is to show them they have zero control of the matter and they would be best served by taking my offer releasing the lien.

What do you mean "avoid" and "using their arguments" against them?

If the holder of the 2nd files an AP seeking to avoid the 1st's lien and succeeds, then I would likely use the 2nd's own arguments against the 1st to try to avoid the 2nd's lien. Both loans were originally made by the same bank. Basically, they can easily fall into a trap. The 1st is going to be used as a wedge against the 2nd.

Let's face it: bankruptcy law is sometimes akin to a high-stakes amalgam of chess and poker.

[chad9162]

The idea is to show them they have zero control of the matter and they would be best served by taking my offer releasing the lien.

Well if your strategy is to threaten to stop paying on your 1st, which you'r still current on I don't think you'll gain much control. And technically lien+control to some degree..

If the holder of the 2nd files an AP seeking to avoid the 1st's lien and succeeds, then I would likely use the 2nd's own arguments against the 1st to try to avoid the 2nd's lien. Both loans were originally made by the same bank. Basically, they can easily fall into a trap. The 1st is going to be used as a wedge against the 2nd.

HUH???? I have never heard of what your talking about! If you are talking about invalidating a lien, Good Luck with that!

Let's face it: bankruptcy law is sometimes akin to a high-stakes amalgam of chess and poker.

HUH? BK was a fresh start not a gamble of any kind....

[DecentHuman]

Should I Mention BK to 2nd yet?

I'm behind 6-7 months on my 1st with BoA and my 2nd with Wells Fargo on home that used to be my primary residence and is now rented.

Wells Fargo lady explained process and settlement caught my attention because if I could settle the 2nd, it'd make sense to reinstate the 1st and keep the rental. (My ch 7 bk attorney hopes to save a few rentals by having the trustee abandon interest since there's no equity.)

However, in order to qualify for settlement, I have to apply for and get turned down for loan mod. I finally said, "I will do as you say and go through the motions, but I know I'll get turned down for the loan mod, you know why? I lost $80k on my '08 taxes, and lost 6k on my '09 P&L." The Wells Fargo lady, who's so nice she's practically like a mother, literally suggested I speak with an attorney - I could tell she wanted to suggest bk.

At this point Wells was under the impression I was only 2 pmts behind w/BoA, but this week I and Wells were served foreclosure summons by BoA (yet BoA is still more than willing to work it out with me!)

So from what I've read here, I'm in the ideal position, right? I tell Wells I'm going to let the place foreclose unless I can work out a settlement with them, and quickly - I've only got 14 days left to respond to the foreclosure. Of course due to my financial situation and the demands of getting out of foreclosure, I'll be lucky if I can come up with $2k max to settle. Does this sound like the right idea?

Question: Should I mention I'm planning to file bk in the next few months?

Thanks, this thread has been great.

[dpr88]

Quick question... My brother in law did a chapter 7 a while back and lost his home (had a first and second mortgage) A company has been contacting him regarding the second mortgage and say they are willing to settle the debt for $2,000 whereas the loan was for 20,000. Since he lost the home and no longer lives there, is there any basis to their claim? I mean, what can happen at this point?

[car67]

If your brother in law went chapt 7 got a discharge and did not reaffirm loan
with mortgage company then he is not liable at all!

[chad9162]

I'm behind 6-7 months on my 1st with BoA and my 2nd with Wells Fargo on home that used to be my primary residence and is now rented.

Wells Fargo lady explained process and settlement caught my attention because if I could settle the 2nd, it'd make sense to reinstate the 1st and keep the rental. (My ch 7 bk attorney hopes to save a few rentals by having the trustee abandon interest since there's no equity.)

So this is a rental? If so some district go after rental property, regardless of equity. They also limit your ability to reaffirm if you are late on the 1st, but in this market, especially on rental property, I wouldn't reaffirm anything. Also why do you want to keep rentals if your losing money? Obviously, if your making money on the rentals, the trustee could come after you. Only your attorney would know what's best based on common practices in your district.

So from what I've read here, I'm in the ideal position, right? I tell Wells I'm going to let the place foreclose unless I can work out a settlement with them, and quickly - I've only got 14 days left to respond to the foreclosure. Of course due to my financial situation and the demands of getting out of foreclosure, I'll be lucky if I can come up with $2k max to settle. Does this sound like the right idea?

I wouldn't call your position ideal. In fact your still liable so nothing ideal about that. Once your discharged then you're in a better position but not necessarily ideal. BofA foreclosure really doesn't matter! In fact I would pay anything to "stop" the foreclosure. If you are granted a loan mod then it should stop the foreclosure and reset the clock (sort of).

Remember as a 1st, BofA really won't lose much since they'll collect on the mortgage insurance. Anyways, this is really a moot point if your district doesn't allow rentals. From the numbers you posted you've taken a lost, so why would you want to keep them?

Question: Should I mention I'm planning to file bk in the next few months?

If you mention BK prior to get your loan mod chances are they won't do anything. In fact, it is usually recommended that you get your loan mod prior to BK. Its odd, but with 1st mortgages, since you are still liable they are more willing to work with you. When your not liable or discharged through BK, they are less likely to help you because really that can't hold you to the terms. By doing it prior they think you will be liable so there's more motivation for them.

Again we are talking about a rental. Usually banks do more when its your primary residence since most people don't want to give that up.

[DecentHuman]

So this is a rental? If so some district go after rental property, regardless of equity. They also limit your ability to reaffirm if you are late on the 1st, but in this market, especially on rental property, I wouldn't reaffirm anything. Also why do you want to keep rentals if your losing money? Obviously, if your making money on the rentals, the trustee could come after you. Only your attorney would know what's best based on common practices in your district.

In fact I would pay anything to "stop" the foreclosure. If you are granted a loan mod then it should stop the foreclosure and reset the clock (sort of).

My attorney believes the trustee won't be interested if there's no equity to sell for the creditors. Why would the trustee be interested if there's monthly cash flow though? I mean, the trustee doesn't want to manage the house and slowly pay back my creditors. And which of my creditors would want a house, even if it cash flows?

I'm not sure but I think there may be an argument that these homes are the tools of my trade and without them I won't have the means to make a living.

The idea is after settling on the second, to reinstate the first so I'm up to date on it. The home loses money with both mortgages on it, but would do ok with just the first. And someday I'd like to be able to move back in, since I'm losing my current home.

I'm not going for a loan mod; I'd get turned down in a heartbeat, I'm just going for the settlement. You're saying you'd pay anything to stop the foreclosure because it's getting close and I need to do something if I want to save the house, right?