Underwater Mortgage Question

[azballer]

Scenario:

1st mortgage (GMAC): $470,000 - last payment on May 1st
2nd mortgage (CitiMortgage): $150,000 - last payment on May 1st
Value of home: $475,000

Question: My attorney advised me to keep my first current (after a modification) and stop paying on my second. We will not reaffirm either loan in our Ch 7. She said that the lender on the second will end up putting a lien on the house and should not foreclose because they would have to pay off the 1st mortgage, which will still be current. The only issue with the lien would be when I go to sell the house and that will not be an issue for us - long term home.

Is this good advice? I know that our obligation to both would be eliminated through the BK, but has anyone seen what a worthless second mortgage lien holder will do?

Thanks!

[keptdigging]

Actually the 2nd mortgage holder already has a lien of your house. They don't have to do anything. And obviously they're not going to foreclose under such a scenario.

But they can someday in the future if values go (way) up.

What most people try to do after their bk is amass a bit of cash and negotiate a payoff of the second at a steep discount. They'll be happy to get something and you'll get rid of that lien.

[azballer]

LOL...of course they have a lien on the house. I swear I knew that!

It is amazing how much I have stressed out about all aspects of my Ch 7, but everything is falling into place.

Thanks for the quick response!

[biotechsolution]

Just remember if you do stop paying on the 2nd, the late fees and interest will keep accuring. If your home value does go up and you don't settle with your 2nd before then that 150K could become 200+K.

[azballer]

Just so I understand it...the 2nd mortgage lien holder would most likely not foreclose until the home value reaches the point where it is at least equal to the 1st + the 2nd (plus a little extra for fees)? They would still have to pay off the 1st, but they should be able to sell it for what they have in it (in a perfect economy).

Thanks for the help guys!

[biotechsolution]

In reality they will just wait until the value goes to the the 1st mortgage plus say 40K or so. That way when the 1st is paid off they will get 20-30K.

They won't wait until it gets to the value of both, they don't need to recoup the whole loan, just a portion.

[Pandora]

In reality they will just wait until the value goes to the the 1st mortgage plus say 40K or so. That way when the 1st is paid off they will get 20-30K.

They won't wait until it gets to the value of both, they don't need to recoup the whole loan, just a portion.

Or they will foreclose once the value of the 1st becomes less than the value of the 2nd. The 2nd can keep their lien rights forever - statue of limitations doesnt apply, so if they dont want to sell the rights and/or settle to release, they will just wait it out to foreclose later down the line.

Thats exactly what our credit union does - and is exactly why we filed 13 - to strip it off.