2nd Mortgage 4 years after discharge. Home value rising.

[tcg550]

Hi,

This forum was a great help during our bankruptcy. I asked this question a while ago but I think things have changed enough to ask again.

This is in Michigan.

Both 1st and 2nd were discharged on 2/1/2010. We did not reaffirm. The first is current and has never been late or missed payments. We paid on the second for 1 year. It was an interest only loan originally for 5 years. One year after bk they wanted to rewrite the loan or they wanted the balance due, $25,000

Two attorneys and some answers in this forum suggested I would be silly to sign another note on the second so we stopped paying in December of 2010 because they wanted a new loan or payment in full.

Here's what's changed and worries me. Homes have sold recently in my neighborhood and the value seems to be going up. Just recently a home smaller than mine but on a double lot sold for $139. My latest tax assessment puts mine at $105. I do not know what it is worth on the market.

I owe $112,000 on the first and $25.000 on the second. I just got a statement from the 2nd mortgage, first time since early 2011, stating the balance of $28,500. The original amount was $25,000 so it appears as though they are charging interest.

Lets say my house was worth $140,000. Is it possible the 2nd would foreclose and go for anything over the $112,000 I owe on the first or will they only foreclose if they can get their $25,000? The mortgages are held by two different banks. The second mortgage was originally written by a bank that the governmnet took over and sold to the current bank in 2010 after our bk. That bank sold the first mortgage and kept the second. I suspect they didn't pay much for it. I have no idea how deals like that go down.

The last time I tried negotiating in December of 2011 I offered 15% cash to settle the 2nd and they wouldn't even talk.

I plan on talking with an attorney but I have no idea what I should do.

Any thoughts?

If there is another appropriate forum to ask this in please let me know or move this post to that forum.

Thanks

[keepmine]

None of us can tell you what a lender may [or may not} do.
Whatever they decide to do, they must follow all applicable foreclosure laws in your state and that means legal fees and other expenses. Common sense would dicdate that they'd need to recover far more than the $25K to make it worth while.

[LadyInTheRed]

I think you are at risk of the bank foreclosing, if not now, when the combination of you paying down the principal on your first and further increase in value creates enough equity to make it worthwhile to foreclose. I don't think the fact that they won't recover the entire balance due will necessarily keep them from foreclosing. Lenders take losses all the time. You also never know when the bank will sell the 2nd to somebody at a discounted price making foreclosure profitable for the new owner.

If you don't want to risk losing the home, you should try to negotiate with the 2nd, whether it be a settlement or a modification that would allow you to bring the loan out of default and continue making payments.

Two attorneys and some answers in this forum suggested I would be silly to sign another note on the second

Some say if you are a certain amount underwater you should just let a home go. I think there other factors to consider. Do you like the home and the area? Do you plan to stay put for a while? Can you rent less than the cost of both mortgages? You made a decision a few years ago that you are rethinking because the value of your home has increased. I wondered whether trying to hold on to my far underwater home was a good idea, but decided that if I strip the 2nd, the cost of ownership was about equivalent to renting an equivalent home. I'm glad I made that decision. By the time I finish my Chap 13 plan in a year from now, it looks like I will have some equity.

[tcg550]

I think you are at risk of the bank foreclosing, if not now, when the combination of you paying down the principal on your first and further increase in value creates enough equity to make it worthwhile to foreclose. I don't think the fact that they won't recover the entire balance due will necessarily keep them from foreclosing. Lenders take losses all the time. You also never know when the bank will sell the 2nd to somebody at a discounted price making foreclosure profitable for the new owner.

If you don't want to risk losing the home, you should try to negotiate with the 2nd, whether it be a settlement or a modification that would allow you to bring the loan out of default and continue making payments.



Some say if you are a certain amount underwater you should just let a home go. I think there other factors to consider. Do you like the home and the area? Do you plan to stay put for a while? Can you rent less than the cost of both mortgages? You made a decision a few years ago that you are rethinking because the value of your home has increased. I wondered whether trying to hold on to my far underwater home was a good idea, but decided that if I strip the 2nd, the cost of ownership was about equivalent to renting an equivalent home. I'm glad I made that decision. By the time I finish my Chap 13 plan in a year from now, it looks like I will have some equity.

We do love the home and renting would probablly be about the same although not as nice of a neighborhood. The property and home (we rebuilt the home about 20 years ago) has been in the family since 1936.

I was hoping the bank would have opened negotiations by now. I am concerned because the 2nd mortgage has changed hands twice and I have no idea what it's worth to the bank that has it now.

I am going to contact an attorney and ask some questions and find out the best way to open a dialog with the bank. I really don't want to sign another note but will if I have to. Hopefully I can get some decent advice from an attorney and maybe/hopefully just settle.

[tcg550]

We talked with an attorney today. She told us banks are not settling 2nd mortgages like they used to. She said it's getting increasingly difficult to settle for anything less than the full amount.

I'm going to attempt it in a few months when I have more cash available and see how it goes. It may come down to signing a new note or walking away.

Thanks for your replies.

[brokehmowner]

I would suggest going to loansafe.org and search for "strategy for settling second". They are very good with that. I completely ignored my 2nd. They eventually offered an extinguishment. When I looked it up in HAMP I saw that they were getting $3,000 for extinguishing, which was, I guess more than they figured they would ever get from me.