Mortgage/Second Mortgage question...for a friend

[pepperoncini]

My friends have a mortgage and a second mortgage. The second cannot be stripped. They filed BK7 last month and their 341 is tomorrow.

They are not planning to reaffirm on either mortgage - but they are planning to continue payments on the first mortgage and stay in the house. Thye have long term plans to settle on the second too get them to release the lien in the future when their finances are in a calmer and more stable place.

Payment on 1st mortgage is $737 and payment on the 2nd mortgage is $600.

The bank for the second mortgage is asking them to set up payment arrangements since on the BK papers, "reaffirm" was checked, but no papers were signed to that effect.

Now, they don't have to sign, correct? But the BK schedules only allow your to "reaffirm" or "surrender".

I'm nervous about this, but I think they're ok?

[pepperoncini]

Dang - I posted in the wrong forum...this is a BK7 question.

[lrprn]

Dang - I posted in the wrong forum...this is a BK7 question.

No worries - I moved it for you

[maa775]

My friends have a mortgage and a second mortgage. The second cannot be stripped. They filed BK7 last month and their 341 is tomorrow.

They are not planning to reaffirm on either mortgage - but they are planning to continue payments on the first mortgage and stay in the house. Thye have long term plans to settle on the second too get them to release the lien in the future when their finances are in a calmer and more stable place.

Payment on 1st mortgage is $737 and payment on the 2nd mortgage is $600.

The bank for the second mortgage is asking them to set up payment arrangements since on the BK papers, "reaffirm" was checked, but no papers were signed to that effect.

Now, they don't have to sign, correct? But the BK schedules only allow your to "reaffirm" or "surrender".

I'm nervous about this, but I think they're ok?

Hi: please excuse me, this is my first time posting here, so I am not yet familiar with protocols, formatting, etc. However, with regard to your friends' mortgages, you didn't mention if they are represented by counsel. If they are, their counsel is their best adviser and your friends should seek his or her advice first.

With that said, if they are pro per, I would advise that they not sign any reaffirmation agreements in connection with their mortgages. At our firm, we advise clients to merely "retain and pay pursuant to contract" rather than reaffirm (therefore, on the Statement of Intention, the "other" box is checked and we type in "retain and pay ..." next to it). Of course, there are other things that your friends need to consider to determine their best position in connection with their mortgages, most important of which is whether there is equity on the house or if they're upside down and if they are, are they upside down on the first only? Or are they upside down on their second? I think you can see that by figuring this out, your friends can determine what their bargaining power is relative to their second mortgage and go from there.

Of course, this reply should not be in any construed as legal advice. The information contained herein is merely of a general nature.

Good luck!

[pepperoncini]

Hi: please excuse me, this is my first time posting here, so I am not yet familiar with protocols, formatting, etc. However, with regard to your friends' mortgages, you didn't mention if they are represented by counsel. If they are, their counsel is their best adviser and your friends should seek his or her advice first.

With that said, if they are pro per, I would advise that they not sign any reaffirmation agreements in connection with their mortgages. At our firm, we advise clients to merely "retain and pay pursuant to contract" rather than reaffirm (therefore, on the Statement of Intention, the "other" box is checked and we type in "retain and pay ..." next to it). Of course, there are other things that your friends need to consider to determine their best position in connection with their mortgages, most important of which is whether there is equity on the house or if they're upside down and if they are, are they upside down on the first only? Or are they upside down on their second? I think you can see that by figuring this out, your friends can determine what their bargaining power is relative to their second mortgage and go from there.

Of course, this reply should not be in any construed as legal advice. The information contained herein is merely of a general nature.

Good luck!

They have retained an atty. He said to check the "reaffirm" box and not sign any reaffirmation paperwork. It's a loophole and they'll be fine.

They are not upside-down on the 1st mortgage. They estimate that the house would appraise for $100K and they owe $72K. The 2nd mortgage is approx. $52K and it could not be stripped.

The 2nd cannot foreclose until the 1st is PIF or they try to sell, right? They plan to settle before it comes to that.

Plans are to not sign reaffirm papers on either mortgage but continue to pay on the first and let the 2nd lie for now until their financial situation calms down a bit.

[iv65536]

Part of the problem is that there is equity above the 1st in this case, but I am using a similar strategy to what the OP's friend is planning. I'll venture that the OP's friend's 2nd will foreclose before mine.

That being said, one tactic I'm using is to tell the 2nd that if they push too hard, I'll stop paying the 1st. I have several advantages:

- The 1st is still in its interest-only period;
- The 1st is for about the value, if not slightly more, of my home; and
- The 1st is involved in the lender's FDIC receivership.

YMMV.

[momofthree]

The 2nd cannot foreclose until the 1st is PIF or they try to sell, right? They plan to settle before it comes to that.

wrong. The 2nd can foreclose if the payments are not made. However, they may decide not to given that they could only hope to get $28k - foreclosure fees - selling fees, which may not make it worth their while. BUT, they do still have the right to foreclose and that is a risk your friends will be taking.

[pepperoncini]

So could they try to settle or at the very least get a lower payment after the BK is discharged? Or would this never work?

[btbeme]

So could they try to settle or at the very least get a lower payment after the BK is discharged? Or would this never work?

Playing "chicken" with the bank is a dicey game in this scenario, at best. The bank could foreclose the day after discharge to protect what (little) equity they may have in their 2nd mortgage.

Then again, the bank could forego that option and negotiate...but I cannot see why they would, if they felt that they would be settling for less than they would get via foreclosure. Banks have rules, and shareholders, and...no emotions.

You never know. If their past payment history is solid, that may help - but not signing a reaffirmation in a positive equity situation is generally viewed as greasing the slide for the bank. Not always, but usually.

[Brazzy]

Banks have rules, and shareholders, and...no emotions.

O come on why you gotta be like that? LOL

Yes the 2nd can foreclose. However you need a rock solid evaluation of the home. They have to make the determination as to whether or not its in their best interest to foreclose. Given most lending institutions VERY simple formula the 2nd lien holder would typically not foreclose in this situation. However there are a number of variables to take into account. First off their numbers are going to be different from yours. The 1st may not provide an accurate payoff to the 2nd and they may have to guestimate. On top of that their evaluation of the value of the home may also be different from yours. You plug different numbers into that formula and you get different results. The one thing they do have working for them is that they debtor is making their payments on the first. The Jr lien holder has no urgency to make something happen here as their lien is safe since the first will not be foreclosing. Just something else to take into account. As the 2nd goes 90 days delinquent or so they need a rep from the bank to give them a no BS assessment as to what they will be looking to do.

[pepperoncini]

So you guys think they'll be foreclosed?

A "drive-by" appraisal was done in 2006 and that placed the value at 101K. However, I don't think anyone would actually buy that house at $101K. Maybe $80-85K in my best estimation. It's pretty rural, not far off the flooded areas from the big midwest flood in 2008 and a log cabin (speciality house). And it's a little log cabin. Cute, but small.

Wouldn't the second mortgae have to pay off the first in order to take claim of the house?

What is the probability of a foreclosure in the next few years?

I would guess low, there really is no equity to speak of, but there is some. I think if the bank seized the house, they would have a hard time selling it.

SO a settlement wouldn't be a good option?