Going from a 13 to a 7 and 2nd mort.

[edwinhil]

We are presently in a chap 13, about 14 months and now out of work. We knew this time was coming so our attorney planned for it, since my job was going overseas. I am retirement age and have applied and been approved for social security but the first payment won't be till April 2010. Now, after reading alot of these posts, I am a little confused. We have been paying our 1st and 2nd mort outside of the 13 plan, but our attorney advised us that we need to get rid of the 2nd by not reafirming when we convert to the 7 and negotiating a settlement for less than full value on the 2nd. We hopefully will have enough to pay this off from a retirement fund we have, but that will be almost totally exhausted. He also advised us to stop making payments on the second about 6 months ago, which we have done. Income has been steadily decreasing each month from our original filing. The numbers on the house.

1st mort 176,000
2nd mort 105,000
total 281,000
estimated selling price of home from realtor 177,000

This leaves us with about 104,000 deficit, not including selling expenses, etc.

Our plan was to negotiate with the second, but from what I am reading here,
this may not be an option. The other course of action would have been to get the second stripped, not exactly sure why our attorney didn't mention that when we filed the 13. We live in Illinois, maybe laws are different here.
Does anyone out there have advise on if we are heading down the right path or being lead to a slaughter? Help and advice would be greatly appreciated.

[LimpDisc]

Have you received any settlement offers on your 2nd mortgage?

[justbroke]

The other course of action would have been to get the second stripped, not exactly sure why our attorney didn't mention that when we filed the 13. We live in Illinois, maybe laws are different here.

The problem is that your second mortgage is not "wholly" unsecured. It could not even be secured by $1 (one dollar) in order to have it lien stripped. Also, this valuation is based on the day your filed, and I'm pretty certain that when you filed 14 months ago, your home was worth more than you project now. This is why a lien-strip wasn't (and isn't) an option in this case.

Does anyone out there have advise on if we are heading down the right path or being lead to a slaughter? Help and advice would be greatly appreciated.

I think your attorney is giving you good guidance. Allowing your 2nd to be surrendered in the impending Chapter 7 will be good. However, you are right on the line of having a 2nd mortgage that has "some" value (albeit extremely small). This could put you in a position where the 2nd calls your bluff and tries to foreclose. However, if you are discharging your liability in a Chapter 7, the 2nd may decide to negotiate with you for 10-15% rather than walking away with "nothing" (especially in a foreclosure since that would certainly exhaust any "profit" from the sale).

Stick with your attorney's advice. I don't see anything wrong.

[edwinhil]

To Limpdisc's question, no we haven't received anything at all. You know the saying, "the silence is deafening". This is what is really strange about this whole problem. We have tried contacting Chase, they refuse any knowledge. When we went into the 13 they stopped sending any type of contact whatsoever. Even our monthly billing was stopped. After making payments from our online banking account for about six months and not even receiving a bill, our attorney advised us to stop making the payments and see if we can get there attention. So, bottom line is, we haven't received a bill or anything else for over 14 months. Actually stopped making a blind payment about 7 months ago. We have a plan but not a clue on what is going on. I'm sure that something will break when we convert to a 7 though, right??

[CCsAreEvil]

However, you are right on the line of having a 2nd mortgage that has "some" value (albeit extremely small). This could put you in a position where the 2nd calls your bluff and tries to foreclose. However, if you are discharging your liability in a Chapter 7, the 2nd may decide to negotiate with you for 10-15% rather than walking away with "nothing" (especially in a foreclosure since that would certainly exhaust any "profit" from the sale).

Yeah, I'm in a similar situation. Home value is barely over what's owed on the 1st. I'm also afraid of the 2nd possibly trying to negotiate with the 1st in convincing the 1st to allow the 2nd to get a small percentage (proceeding with foreclosure). Question is: Would the 1st be actually willing to do this even though the 1st is receiving "on time" and current payments? Tough call. But then again, 1st has no clue if/when the resident will stop paying.

The fact that you have not heard anything from the 2nd is possibly a good sign (assuming you want to stay in the home for a bit). From other posts here, it seems some 2nds try to threaten foreclosure but don't follow through.

But have there been "actual" cases in which 2nds have forced a foreclosure when there's little or no money to be made? I don't think I've read of a case yet on this forum.

[justbroke]

But have there been "actual" cases in which 2nds have forced a foreclosure when there's little or no money to be made? I don't think I've read of a case yet on this forum.

Yes, when the 2nd lienholder is the same creditor as the 1st lienholder. There was also one here a few months ago, where the 2nd lienholder was a hard-money lender/investor. They wanted the property and were willing to "hold" and wait on appreciation and by renting it out!

[kudumaned]

After commissions-expenses there is nothing there for the 2nd lien holder. Looks like they are playing a waiting game to see if market value goes up. I would look to discharge both 1st and 2nd and be willing to walk away since its so far underwater, hoping to get the 2nd discharged or settled for 5-15K and then reaffirm the 1st if you want to stay. Good luck