2nd Mortgage

[dego2274]

Can someone please verify this for me. I want to file a Chapter 7 due to a severe loss in income. I do however want to keep my house and car. My first Mortgage is 102000 and my second is only 13000. There is no equity in the house, upside down about 15000. Can I re affirm the house debt with this second mortgage or is this a problem in a chapter 7 case.

[justbroke]

If the home is worth $87,000 and you owe $115,000 there is no reason to reaffirm both mortgages. As a matter of fact, you should probably just do a "ride through" and not reaffirm the second. The problem is, that you would need to be current on the first and continue to be current. You would stop paying the second. However, the second could foreclose, but it's unlikely in this climate, especially if the 2nd is a HELOC.

Having wrote all that, the real issue for me is one of equity. I would normally say that if you're more than 10% underwater... walk. Since you're $15K or about 25% underwater, I would say walk. However, something could be said for how much your payments are now and what type of accommodations you can find in the future. Remember, in order to ever sell that place, you'll need to come up with $132K or more to satisfy the liens... even after bankruptcy. That means your home would need to appreciate 30%, and that's highly unlikely to occur in the next 10 years, in this climate.

Even given that, "retaining and paying" (ride-through) may be good if rents in your area are higher but you have to keep realizing the overall cost of home ownership. You would technically be a "renter" anyhow but I wouldn't want to throw money into a sinking ship.

Something you'll need to look at from a business perspective and make an un-emotional decision.

[dego2274]

I have the luxury of living in a decent neighborhood with what can be considered cheap house debt. Plus my payments are in range for me to afford. I really want to keep the house if possible. I just wasn't sure if the 2nd mortgage causes a problem in a Chapter 7 case. Thankyou for your info, I appreciate any help I can get.

[justbroke]

The only way the 2nd could get problematic is if they decide to foreclose (unlikely), or if the 2nd lender is the same as the 1st lender.

[iv65536]

Even given that, "retaining and paying" (ride-through) may be good if rents in your area are higher but you have to keep realizing the overall cost of home ownership. You would technically be a "renter" anyhow but I wouldn't want to throw money into a sinking ship.

Albeit a renter who can deduct most of the "rent".

My case has the first and second originated by the same bank. Second has been resold a couple times, first was retained by the bank (which has become an FDIC case since).

[justbroke]

Albeit a renter who can deduct most of the "rent".

Yes, but it's still a mathematical exercise to determine if that is an effective savings method. You could be paying more, overall, by "renting" your own home. For example, my annual property taxes are $12K and I spend about $36K in interest per year. That's $48K in deductible "rent". That saves me $14K a year in taxes at an effective tax rate of 30%.

A similar home in this neighborhood would cost me $2.5K/month to actually rent, or $30K a year.

So, not including appreciation, I am paying $4K a year more over renting ($48K - $30K - $14K)! However, my home is and I expect it to continue appreciating but at a slow pace (2%). While $4K isn't a lot, it is $333 a month I pay more over renting, not including any home repairs.

This is specifically why I ask people to simply, do the math. Unless you're in a high effective tax rate (bracket), the savings from the mortgage interest deduction (and property taxes), may not be worth as much as you think. If I were at a 10% effective tax rate, we'd be talking about me paying $13K more a year over renting. Now that gets into what I like to call "real money" at $1,100 a month. Yes, that's $65K over 5 years. Something to think about.

[liboton21]

The only way the 2nd could get problematic is if they decide to foreclose (unlikely), or if the 2nd lender is the same as the 1st lender.

My second lender is the the same as the 1st (BofA) current on first but five mos behind on 2nd, will BofA foreclose?

[justbroke]

My second lender is the the same as the 1st (BofA) current on first but five mos behind on 2nd, will BofA foreclose?

This is a bad place to be, because Bank of America now has leverage. They stand to lose no more than if the first lender (if it was not them) were to foreclose. This puts them in the driver's seat.

Will they foreclose? I can't tell you that, but being in this type of situation where the same lender holds both loans, puts you in a precarious situation.

[BCA2009]

[QUOTE=justbroke;373467]Yes, but it's still a mathematical exercise to determine if that is an effective savings method. You could be paying more, overall, by "renting" your own home. For example, my annual property taxes are $12K and I spend about $36K in interest per year. That's $48K in deductible "rent". That saves me $14K a year in taxes at an effective tax rate of 30%. QUOTE]

Also don't forget that the standard deduction is about 11K. So if you have 48K of deductions, you are only getting an additional benefit of 37K.

[dego2274]

I believe they are both with the same lender but I could be wrong. American Home Mortgage services both and sends me the statements.

[logansdad]

What if the bank is the same but the 2nd is a HELOC. In my case house appraised for 172k in July 09. After 3 more foreclosures in sub its probably 150-155k area. I owe 137k on the 1st and 39k on the HELOC (176k). The bank agreed to drop the HELOC principal to line up with the appraised value (4K) but then added 5 months to my primary so now their just playing games and I am pissed. So i think I will wait until May and stop paying the HELOC but it it the same lender so I don't know????

[justbroke]

So i think I will wait until May and stop paying the HELOC but it it the same lender so I don't know????

I thin they already showed their hand. Especially since your 2nd is not "wholly" unsecured and there is money there to be had. It's just common sense. In your specific scenario, the bank has the upper hand.

As a matter of fact, it probably gives the bank more incentive to foreclose so that they don't lose more due to further depreciation and not covering the first mortgage.

Tough place to be.

[logansdad]

We are in Michigan. I just left an hour meeting with my lawyer, the banks lawyer. We are current and they sent us to foreclosure this week sign or foreclose stating BK is a violation of their mortgage note, your option, No settlements, no mod, no nothing sign or we foreclose. They are a smaller bank and don't have a ton of proprieties right now. I was also told the people that are doing pay and stay that their day will come once things return to normal they too will be given the same choice. There are two many properties to push the hand right now, but don't think you can pay and stay for ever either.

[justbroke]

logansdad, some fo this is State specific. In order to foreclose in my State, the breech can't merely be for insolvency. The lender can't file a lis pendens (foreclosure lawsuit) unless you have actually failed to pay.

I think that you could defeat that "little" bank because the Bankruptcy Code states that bankruptcy is not a material default in any contract, and that supremacy supersedes the contract language. That's if it is real property. If ti's personal property (like a car), the BK Code does in fact say that you must reaffirm, redeem or surrender. No pay and stay on those.

[logansdad]

when you say defeat what do you mean? also how are they going to get a judge to relive the stay when I am current? This just isn't sitting well with me