2nd mortgage? Does it still exist?

[jtindisguise]

[justbroke]

The 2nd mortgage does still exist. Most people don't understand the difference between a "mortgage" and the "promissory note". The "promissory note", also known as the note or mortgage note, is the actual loan. The Bankruptcy discharged you personally owing that debt.

However, the "mortgage" (or deed of trust depending on where you live), is the actual "security instrument". In other words, the "mortgage" is what secured the note (the loan). You promised your home/property in exchange for the loan (note). The mortgage was not extinguished by the bankruptcy.

So, while the second mortgage will probably not be collected -- unless your home appreciates in value -- they still have a security interest or "lien" on the property until that mortgage is satisfied.

Hope that helps.

[jtindisguise]

Good info. Thanks. BofA has made no attempt at collecting and it will be a long time before my home is worth anything.

[jmanford]

The mortgage was not extinguished by the bankruptcy.



Hope that helps.

Dude, the mortgage (loan) is most definitely extinguished by the chapter 7. That's the whole purpose of a chapter 7. What are you talking about?

[HHM]

Dude, the mortgage (loan) is most definitely extinguished by the chapter 7. That's the whole purpose of a chapter 7. What are you talking about?

What are you talking about...You are missing the distinction between a security interest and personal guarantee (or as JB put it, the Mortgage and the Promissory note).

The BK does NOT remove or extinguish the "security interest", however, it does discharge the personal guarantee.

Let's take a more straight forward example, a car loan.
Scenario 1.
Debtor stops making payment and defaults. What happens? The car is repossessed. Once the lender sells the car at auction, they can now come back to the debtor and collect the deficiency.

Scenario 2.
Debtor stops making payments, defaults, BUT files chapter 7 BK. What happens? The lender can STILL exercise its security interest and repossess the car (once the automatic stay lifts or terminates). However, because of the BK, the lender CANNOT go back after the debtor for the difference between what is owed and what vehicles is worth.

The same thing is at play with mortgages. The lenders right to exercise its security interest and foreclose/repossess is NOT extinguished in BK. However, the lenders ability to enforce the promissory note against the debtor for any deficiency IS extinguished in BK 7.

[jmanford]

I understand. I guess I just misinterpreted what he was saying.

[StartingOver08]

OP, are you planning to keep the house?

If so, you might want to see if you can eliminate the aforementioned 2nd lien by paying X% of the lien amount in exchange for a release of lien. I have seen others on this forum successfully get rid of the 2nd AFTER a ch 7 discharge for 10 to 12% of the second mtg amount.

[xena]

HMM: Great explanation. Now I understand.

Question 1: Can you still sell your house yourself after the BK later on even if you didn't reaffirm both mortgages?

Question 2: If you settle the 2nd Mortgage, do you pay taxes on it later?

[HHM]

Question 1: yes, but you will have to pay, or negotiate a short sale with the second. They still hold the cards as far as transferring title to the home, they must agree to release the security interest

Question 2: No. The BK has discharged your underlying responsibility for the debt, so no tax consequence.

[StartingOver08]

No, your personal liability for the second was discharged in BK. There is a form for that when you file your tax return. http://www.irs.gov/pub/irs-pdf/f982.pdf

HHM is right about the 2nd. UNLESS you specifically negotiated a release of the lien (2nd mtg) as I suggested earlier. It is better to do it now - then when it comes time to sell the property the second is no way involved as the lien has been released.

[justbroke]

Dude, the mortgage (loan) is most definitely extinguished by the chapter 7. That's the whole purpose of a chapter 7. What are you talking about?

I see that HHM has explained it to you in layman's terms. Sometimes even my simplification is still confusing. Examples always help!

[midnight]

Can you get get rid of the lien/mortgage with second mortgag only if you are totally upside down? My first mortgage is 221, and second is 27 (interest only), house is prob worth 250-255. I've been so worried about modifying the first, I haven't even considered doing anything with the 2nd, which is with National City. Finally, if they agree to settle, do you have to pay the 10-15 percent up front???

[HHM]

Can you get get rid of the lien/mortgage with second mortgag only if you are totally upside down? My first mortgage is 221, and second is 27 (interest only), house is prob worth 250-255. I've been so worried about modifying the first, I haven't even considered doing anything with the 2nd, which is with National City. Finally, if they agree to settle, do you have to pay the 10-15 percent up front???

See this blog post that explains the strategy for dealing with 2nd mortgages AFTER chapter 7 BK

http://askmethner.com/high-risk-strategy-emerging-for-dealing-with-2nd-mortgages/

[jtindisguise]

OP, are you planning to keep the house?

If so, you might want to see if you can eliminate the aforementioned 2nd lien by paying X% of the lien amount in exchange for a release of lien. I have seen others on this forum successfully get rid of the 2nd AFTER a ch 7 discharge for 10 to 12% of the second mtg amount.

Yes, I plan on keeping the home. With my new mod, my 1st mortgage payment is about the same as rent for a 2-bed 2-bath apartment.

I have just been waiting for the completion of my mod, which I now have, to begin negotiations on the settlement of the second mortgage.

Can anyone point me to a good thread to research how to do this? Or, better yet, post an example letter that I could use to initiate the process?

[StartingOver08]

Here is one recent example of a lender releasing the lien, you can search for others on this board http://www.bkforum.com/showthread.ph...rtgage+release