2nd Mortgage becomes unsecured because home value only equal to 1st Mortgage?

[SetMeFree]

I am preparing to file a Chapter 7. Would I be able to keep the house if ONLY the 2nd Mortgage was discharged and the 1st was reaffirmed? The total owed 245k on the home. Current value is 145k and 145k is owed on the 1st mortgage. The second mortgage is 100k.

[enginegirl]

i do believe that a 2nd mortgage can only be discharged under chapter 13 and not 7... there is plenty written on the board about this under stripping 2nd mortgage sticky in Chap 13

Good luck to you.

[scorpion35]

i do believe that a 2nd mortgage can only be discharged under chapter 13 and not 7... there is plenty written on the board about this under stripping 2nd mortgage sticky in Chap 13

Good luck to you.

you are right

[tcreegan]

Hi SetMeFree,

In a Ch 7, you are no longer liable for the debt, but the lien survives the BK. So in your case, you wouldn't have to pay the 2nd anymore, but the 2nd lender still has a 100K interest in the house. If the house gets sold or transferred they step in and want their 100K If you build enough equity, they could come in and foreclose.

BUT....the 1st gets paid 1st and the 2nd gets the leftovers.

House is worth 145K and the 1st is 145K = zero for the 2nd So the 2nd is essentially worthless.

But w/ the 2nd around, you aren't going to build any equity. So the task is to get rid of the 2nd.

Unless you decide to file Ch 13, the best way to get rid of the 2nd is to bribe them a little. They know they aren't going to see a dime for years, and a distinct possibilty they wont get anything at all. So you approach them with an offer to settle, people have been reporting settlements of 4% to 10%

Dang...long answer to a short question...sorry to ramble on

Tom in Colo

[Mensa1]

Others have correctly stated that the 2nd can only be discharged (or released) in a Ch 13; not possible in a Ch 7.

What you could do is to keep the 1st current, file the Ch 7 and continue to pay the 1st, leaving the 2nd in default.
The Trustee will want nothing to do with the property since it has NO equity, and they will abandon the house as an asset.
It will then be up to your 2nd mtg holder if they choose to take legal action to foreclose. Of course you will be listing the mtg
in the Ch 7 so you will have no personal liability for the mtg; (also suggest you do the same with the 1st mtg too, do not reaffirm either one).
Very unlikely that the 2nd will take any action at all. Once you are discharged from Bk and in a better place financially, then make a settlement
offer to the 2nd mtg holder, like 3 to 5K for a release. These are pretty common today, and that 3 to 5K is like a gift to the 2nd mtg holder
cause they sure aren't going to get that anywhere else.

[SetMeFree]

Thanks for the insights. Problem is the primary mortgage holder has already started the foreclosure process. I was served the papers a few weeks ago. I still do not have a sheriffs sale date and understand I still have a few months...correct? Was thinking I should try to negotiate with BoA now for a HAMP Mod during the automatic stay. Do you think this is possible? If the mortgage is not reaffirmed, but you continued to pay wouldn't the mortgage company foreclose?

[jenjen69]

i have a question in regards to this...my 2nd mortgage was included in my chapt 7 last year and i thought that was the end of it.. my lawyer never told me that i should do a 13 to get rid of the second.. so now bank of america is putting a lien against my house for the balance. if i let my house go into forclosure ( my condo will never be worth what i owe on it),, my questions are
1. the lien is against my house,, not me personally.... right????
2.can the bank come and get me later for the 2nd mortgage..
i live in arizona if that makes a difference.... thx..

[Mensa1]

Problem is the primary mortgage holder has already started the foreclosure process.

******

If the mortgage is not reaffirmed, but you continued to pay wouldn't the mortgage company foreclose?

One key element is, if you are going to keep the property the 1st mtg must be current or else they have lots of incentive to foreclose. They will obtain a relief from the Bk stay and finish the business at hand. I guess I assumed since you were talking about wanting to keep the home that you were current on the 1st.

HAMP.... and mod, once the 1st has started foreclosure is likely a long shot. Not in theory but the reality seems to indicate so.

*******

If mtg is not reaffirmed and you continue to pay, as long as you are current and stay current, life will go on. Do some reading here on many other threads; you will see lots on the concept. Some Attys will attempt to lead you in a direction of reaffirming mtgs and loans in order to keep the property but it is BAD advice in most cases.

[debee]

1. the lien is against my house,, not me personally.... right???? 2.can the bank come and get me later for the 2nd mortgage.. i live in arizona if that makes a difference.... thx..

1. The lien attaches to the property. You are not personally liable for the debts discharged in your bankruptcy. The only exception would be if you signed (& timely filed) a reaffirmation agreement. Reaffirmation agreement is not the same as just indicating "reaffirm" on the Statement of Intentions.
2. The lien-holder cannot pursue you personally for debts that were discharged in bankruptcy. They can only get in line for the proceeds from the foreclosure sale.

[SetMeFree]

OK so I should just check reaffirm on the Statement of Intentions even though I do not intend to actually reaffirm? How soon after filing do I typically have to actually reaffirm if I decided to?

[SetMeFree]

HAMP...The new borrower protections during eligibility take effect June 1.

Borrowers cannot be referred to foreclosure until either an evaluation for mortgage help has been completed and the borrower deemed ineligible, or “reasonable solicitation efforts” have failed. And borrowers in bankruptcy must be considered for the program if a request is received by the borrower, borrower’s counsel or bankruptcy trustee.

[debee]

OK so I should just check reaffirm on the Statement of Intentions even though I do not intend to actually reaffirm? How soon after filing do I typically have to actually reaffirm if I decided to?

Yes, it's generally best to indicate that you will "reaffirm" and then not sign the reaffirmation (if one is even sent). A reaffirmation has to be filed prior to discharge (but again, it may not be in your best interest to sign one).

How did you arrive at the value of 145K? Are you able to stop paying other bills right now in order to get caught up on your 1st mortgage prior to filing?

Do you have two different lenders? Or are the 1st and 2nd the same one?

ps. If you don't want to indicate "reaffirm" you can indicate "surrender" on the SOI.

[tcreegan]

Hi all,

jenjen69, you are correct, the lien is against the house, not you; no they can't come after you later; state won't make a difference, cancel the plans to escape to Minnesota

SetMeFree, if you want to stay in the house, you need to negotiate w/ your 1st lender and they have restrictions on contacting you during the BK so you need to contact them. BoA stands to lose money on the foreclosure, a steady stream of payments might be something they are interested in...ultimately it is going to come down to whatever BoA is willing to do. The good news is that I have seen several posts that BoA was reasonable willing to work with people.

I gave the PA foreclosure laws a glance, looks like it will take 3-6 months for the foreclosure, add in a couple months for the BK.

Hope this works out for you!

Tom in Colo

[jenjen69]

thx for the info.. but im sooo confused.. one lawyer tells me all they can do is put a lien on the house and if i decided to walk away, it would all be done with.. but i have another lawyer tellimg me the bank has 6 years to come after me for the amount of the 2nd mortgage......who do i beleive??????????????? how do i figureout who is right??????????????

[debee]

thx for the info.. but im sooo confused.. one lawyer tells me all they can do is put a lien on the house and if i decided to walk away, it would all be done with.. but i have another lawyer tellimg me the bank has 6 years to come after me for the amount of the 2nd mortgage......who do i beleive??????????????? how do i figureout who is right??????????????

Was the second lawyer wearing big floppy shoes and a polka-dot suit?

Generally speaking, mortgage debt can be discharged. If you obtained the mortgage by fraud and the creditor can prove that, then it's possible that discharge could be denied. But presuming everything was on the up-and-up and your case overall is not dismissed, as long as you don't sign a reaffirmation agreement, your personal liability for the debt will vanish.

This link (http://www.uscourts.gov/FederalCourt...ankruptcy.aspx )will take you to the uscourts website where you can read that:

"A bankruptcy discharge releases the debtor from personal liability for certain specified types of debts. In other words, the debtor is no longer legally required to pay any debts that are discharged. The discharge is a permanent order prohibiting the creditors of the debtor from taking any form of collection action on discharged debts, including legal action and communications with the debtor, such as telephone calls, letters, and personal contacts.

Although a debtor is not personally liable for discharged debts, a valid lien (i.e., a charge upon specific property to secure payment of a debt) that has not been avoided (i.e., made unenforceable) in the bankruptcy case will remain after the bankruptcy case. Therefore, a secured creditor may enforce the lien to recover the property secured by the lien."


Best of luck to you in this process!