how far underwater

[sadbutinneed]

How far underwater does your home have to be for the 2nd to consider settling?

First is with Citimortgage at about 255k
Second is with BoA at about 40k

Zillow currently shows about 260k, but current listing in newspaper shows a similar house listed at 244k.

Thanks!

[Ann]

Excellent question... I too would love to know the answer. How much of a settlement will the second actually take these days?

[BCA2009]

We discussed this in several threads lately. There is no clear cut answer. All the banks are different and the same bank might handle the same situation in different ways depending on which way the wind is blowing.

After I'm discharged I'm going to get several months behind and try to settle. The bank has about 40K - 60K of equity in my second out of a 137K loan.

I going to try to settle for less than 30K and get out of the 80k that I'm upside down. I have no idea if they will play ball, but I'm going to try.

In your case where you are almost totally upside down on your second, you should have alot better chance of settling for a few thousand. But you have to be behind on the payments or they won't even talk to you about settling from what I understand.

[Ann]

Let's assume that after you have been granted a discharge and closed on filing for a chapter 7 wouldn't getting behind on payments be a bad idea??? I mean I'm all for wanting to settle on my second but I would think that getting behind on payments to get their attention would put us at a disadvantage. After being discharged of all of our debts we are just now trying to rebuild our credit. I won't give in to the almighty credit score threat again but I'm thinking it might not be the best approach. Please if I'm way off on this then by all means set me straight. I want nothing more than to rid myself of these clowns(second mortgage company) but I want to do it the right way. I'm interested in what others have to say on this. Thanks!

[pcn]

Once you are discharged, you have non personal liabilty for the 2nd, so it isnt reproted to the credit bureaus. Since you have no personal liability for the 2nd, they are more likely to settle for something rather than nothing.

[albacore44]

it recently occured to me that you could be a little but above what you owe on the 1st and work the 2nd to settle. if they refuse because they think their going to get something, threaten to stop paying the 1st. by the time either one forcloses, extra fees would be tacked on by the 1st, so the default all monies would go to the 1st and the 2nd would get nothing. the 2nd will turn your loan into their insurance company as a loss, and anything they collect from you is a bonus for them.

[Ann]

PCN, please explain in detail what is mean't by non personal liability.

[pcn]

PCN, please explain in detail what is mean't by non personal liability.

Sorry, typo. I meant to type "no personal liability", since after you are discharged you no longer have the personal liability of the loan, but the bank still has the lien on the property. So after a ch7 you still need to remove the lien if you want to sell the property.

[Ann]

confused as ever here... Yes,I want to keep my home. Have been told that if I want to keep my home in a chapter 7 I must be on time and paid up on both mortgages if I want to keep my house. I'm assuming from what you are telling me this does not hold true in my case?

[pcn]

yes, we were told the same thing. If you aren't current when you file there is the possibility one of them could ask for the stay to be removed and start the foreclosure process. But, once you are discharged, and if your second has no real value to attach (house value is equal or less than 1st mortgage) there is little possibility that they would start to foreclose because in order to foreclose, the 2nd would first have to buy out the 1st mortgage. Once they bought out the 1st, there would be no value left over for them to gain from the 2nd and they would lose money. If they now have no "power" over you, there is no reason to continue to pay the 2nd. So rather than have nothing the 2nd might be willing to settle for a small percentage of the balance owed. As part of the settlement they would agree to remove the lien on the home. The downside is that the 2nd may decide not to negotiate in the hope that property values will increase over the value of the 1st, you would then have more equity, and then that would put them in a better position to foreclose and make money. I hope this long-winded explanation makes sense.

[BCA2009]

confused as ever here... Yes,I want to keep my home. Have been told that if I want to keep my home in a chapter 7 I must be on time and paid up on both mortgages if I want to keep my house. I'm assuming from what you are telling me this does not hold true in my case?

What PCN said is correct. If there is no money for the second to get by foreclosing, it would actually cost them money by foreclosing. That is why alot of people totally quit paying the second. The only downside is if the market turns around and the property is no longer upsidedown on the second. At anytime in the future, the second could foreclose. So if you plan on keeping the property forever, you either have to keep paying the second or settle for some amount and get the lien released.

They will not settle if you are current on your payments, even if the loan is 100% underwater. Why would they? they are getting the payments they want.

In my case I am only willing to skip about 6 months worth of payments, because I want to stay in my house for a good while. I don't expect the second to no longer be underwater, but even paying the first and second, it would be cheaper than renting in my area.

I am going to put the missed payments in savings and get caught back up if the bank won't settle. It all boils down to how much risk you are willing to take that the bank might foreclose at somepoint down the road.

And as far as your credit rating goes, you don't get any ratings at all for paying off discharged debt. If you pull your credit report, it's only going to show discharged in BK, whether you keep paying or not.

[CCsAreEvil]

I am going to put the missed payments in savings and get caught back up if the bank won't settle. It all boils down to how much risk you are willing to take that the bank might foreclose at some point down the road.

As stated here, it basically is the "risk" we are all willing to take. We have mixed feelings about our home, too. We really like our home. But from a financial standpoint, it doesn't make sense to pay into the 2nd when our home value (according to today's zillow estimate) is over $100k upside down. Now, our 2nd is $115... so there is supposedly $15k value above what's owed on the 1st. So, my wife and I are taking that "risk" by stopping payments to the 2nd.

Now, we stopped paying on the 2nd in Jan 2010 and just recently received a Notice of Default type letter (I don't think it's the official foreclosure notice). They are just stating we are in default and the amount we owe over the last 3 months (about $1k total). It says we need to pay that to bring it up to date (current). But, we are still not paying. They claim they will accelerate if they need to. The last paragraph in the letter does the disclaimer that if the loan was discharged via BK, they are not seeking payment but have the right to pursue the property since they have a "lien" still. So, for now, I'm just ignoring them.

We are still current on the 1st. "If" and when we receive the official NOD and that we must vacate in 90 days or whatever, we will definitely stop paying the 1st and look at renting elsewhere. However, I'm hoping that they are "bluffing" and in a few months, we can start some form of settlement negotiations.

Last thing: it's hard to tell how much it costs a lender to proceed with a foreclosure. I've read some places it's from as little as $2k to an average of $30k (sounds high to me though), to a top cost of around $50k for a bank to foreclose on a home.

[albacore44]

What PCN said is correct. If there is no money for the second to get by foreclosing, it would actually cost them money by foreclosing. That is why alot of people totally quit paying the second. The only downside is if the market turns around and the property is no longer upsidedown on the second. At anytime in the future, the second could foreclose. So if you plan on keeping the property forever, you either have to keep paying the second or settle for some amount and get the lien released.

They will not settle if you are current on your payments, even if the loan is 100% underwater. Why would they? they are getting the payments they want.

In my case I am only willing to skip about 6 months worth of payments, because I want to stay in my house for a good while. I don't expect the second to no longer be underwater, but even paying the first and second, it would be cheaper than renting in my area.

I am going to put the missed payments in savings and get caught back up if the bank won't settle. It all boils down to how much risk you are willing to take that the bank might foreclose at somepoint down the road.

And as far as your credit rating goes, you don't get any ratings at all for paying off discharged debt. If you pull your credit report, it's only going to show discharged in BK, whether you keep paying or not.

My plan exactly

[iv65536]

I bought my home in 2006 - just before everything started to unravel.

I would factor in sheriff's sale commission, realtor commission, property taxes, HOA dues, and their other expenses in pursuing the foreclosure. The HOA dues and taxes themselves account for about 8% of the principal of the 2nd.

What's more, they are behind an interest-only 1st, which I am using for leverage by continuing to pay it.

I anticipate that I will be able to settle and get the 2nd's lien removed for less than 2 cents on the dollar using these tactics.

[albacore44]

I bought my home in 2006 - just before everything started to unravel.

I would factor in sheriff's sale commission, realtor commission, property taxes, HOA dues, and their other expenses in pursuing the foreclosure. The HOA dues and taxes themselves account for about 8% of the principal of the 2nd.

What's more, they are behind an interest-only 1st, which I am using for leverage by continuing to pay it.

I anticipate that I will be able to settle and get the 2nd's lien removed for less than 2 cents on the dollar using these tactics.

Please keep us updated on your progress