2nd Mortgage Negotiation

[Griffy]

I can't find the Sticky that Tom wrote 2+ years ago on best practices to negotiate payoff on 2nd mortgages. Maybe it's outdated now?

Here's my particulars:

BK discharged in 2013, but 2nd wasn't included. Texas is a seller's market now, with my neighborhood houses selling in 30 days. I have no plans to sell any time soon. I didn't reaffirm.

1st mortgage balance: $167K
Property Tax Valuation: $194K
2nd mortgage balance: $75K ($58K principle + $17K - 9.875% int & fees)

As I recall Tom's sticky said to expect to pay about 5%. Is that still true? (I understand that the more patient I am, the better rate I will get.) Also is the negotiated pennys on the dollar for just the principle or principle + int/fees?

Thanks

[LadyInTheRed]

What do you mean that the 2nd wasn't included in your BK? All of your debts were included. If you didn't reaffirm the 2nd, then it was discharged. I think you understand that last part. When trying to negotiate with a lender, don't say the debt wasn't included in your BK. You want to make it clear that the debt was discharged.

Are you still paying on your 2nd? If not, your first step is to stop paying. If you have already stopped paying, call the mortgage company and tell them that you would like to discuss settling the debt in exchange for a release of the lien. Some have reported settling for as little as 5%, but I wouldn't count on it. If that is your goal, maybe try offering 2-3%.

If your home is really worth $194K, there is some equity in the second, so they may not be willing to settle. If they have 36% equity, why would they settle for 5%? They have more to gain by foreclosing, even after reduction for expenses. Also, if it is a seller's market, they may be content to wait to see if values rise to create more equity.

[Griffy]

Thanks LadyInTheRed,

I may have my terminology mixed up. The 2nd was included in the BK, but since there was about $6K equity in the 2nd at the time, it didn't get fully written off and there's still a lien on it. I haven't paid on the 2nd in years.

How did you get 36% equity? I get 14% (194-167=27 ... 27/194=.14)

Do you know the sticky link I referred to by Tom? I can't seem to find it or has the market changed so much, it is no longer relevant?

Thanks again!

[LadyInTheRed]

There is $27K in equity available to the 2nd. That is 36% of the balance of the second (27/75). If they foreclose, without reduction for the costs of foreclosure, they recover 36% of the balance due after paying off the 1st. So, there is no incentive to settle for 5%.

I don't remember the sticky, but looked for it and didn't find it. Have you tried doing a forum search for posts by Tom?

[Drazil65]

It was discharged and the lien will stay until they foreclose (but being a 2nd not likely in a position to foreclose) or until it changes hands (title) somehow. I guess there is always the option to negotiate the balance down and pay it off in exchange for the lienholder to release the lien and remove it. But if you are not going to sell anytime soon and they are not moving to foreclose based on the 2nd mortgage (and your obligation to pay is gone), why are you looking to wake a sleeping dog?

[justbroke]

There is $27K in equity available to the 2nd. That is 36% of the balance of the second (27/75).

This is exactly the issue. The 2nd is what they call "partially secured" and since there is at least $27K in equity, the 2nd is going to want something in that neighborhood.

Griffy, if you want to see the settlement amount, you can ask them what they would take. They should do some due diligence (probably just run an automated valuation -- no appraisal -- or look at tax records). They would then make you an offer. You could make an offer as well (5-10% of your "balance") and see what the the creditor shows as their counter-offer.

There is no one that can tell you, one way or another, at what amount the creditor will accept, or if they will accept anything less than the full balance.