Getting Red of Second Mortgage...

[getmeoutofhere]

Is there a way to get rid of my second mortgage? I have a first at $550K and a second at $150K for a total of $700k and the house is only worth 500K now, what happens if I default on my second mortgage? I read that they can forclose from the second position, but since I am upside down it will be a deficiancy which then is treated similary to a credit card debt.....which I could include in a bk? or....

Anyone have details on this? I tried to search forums, but did not readily see anything....

[fltoo]

You can default on your second mortgage and eventually it will be charged off or discharged.

But, the lien will remain on your house. When you go to sell your house, all recorded liens will be paid off. I don't see any reason to do this unless you plan on staying in your house until the market value catches up with all the liens, penalties and interest.

[justbroke]

Especially in this market, the holder of the second lien isn't going to foreclose on a property that doesn't even cover the first mortgage.

They'll likely 1099 you though.

You're not really getting rid of the lien, you're only getting rid of the debt. However, nothing would stop them from coming for the debt, but likely it may just be a 1099 (charge off).

[getmeoutofhere]

The reason I ask....if I stop paying on the second, I will be able to stay in the house. I can't make to whole payment now due to slow work. That said, the house is worth substantially less now than when appraised. If they get a judgement, can I include it in a bk filing and get rid of the judgement? And if the lien attaches to the property, what would the amount of the lien be? Just the actual loan balance? Or would they add interest and fees....

I would think that they can not have both...a judgement for $150K and a lien for $150K?

[AngelinaCatHub]

I sure can’t answer this question, but, the banks and particularly now, are in trouble. They do not want to own homes. Yes you will get a lien, and possibly interest, but you have a home you can afford on the first? Then stay there and do your best. The Country right now is in a shake out period. Never before seen. Let’s see what happens. ‘Hub

[fltoo]

You are not "going to get a lien", the lien was created when your home equity lender recorded their mortgage, so it has been there since day one.

Usually BK is filed to stop foreclosure to catch up with payments. BK judges cannot force the lender to modify, stop interest, cram down, etc.

Do you need to file due to other debt?

Sounds senseless to me to want to keep the house, but yes, you can stay there and pay the first mortgage until the second lender decides to do something. Then, you can still just walk away and foreclose on the property or come up with the money to catch up with the arrears of the second mortgage.

A judgment gets placed to garnish something to pay a loan. The lien is for the balance owed with interest and penalties. So, it's not a doubling thing as you think. If they garnish your paycheck, they put the money toward the balance due and that decreases the lien.

[getmeoutofhere]

I need to stay in the house as my first is VERY reasonable and I need to keep my family stable (another story). I heard that since I am in Arizona, letting my second go may be treated differently than some other states????

[r.m]

[QUOTE=getmeoutofhere;198785]I need to stay in the house as my first is VERY reasonable and I need to keep my family stable (another story).QUOTE]

Then do what you need to do to survive.

However, on a long-term basis, you're going to have trouble getting this back on track later.

So, don't be thinking of yourself as a homeowner, because any equity that's built will be eaten up by the second.

[woeisme]

I found this info on a BK lawyer's website:

Limitations on lien stripping

"The Bankruptcy Code prohibits the stripping of voluntary liens secured only by the debtor's residence. Thus under- secured mortgages on the debtor's home cannot be reduced to the present value of the property as can liens on some vehicles, etc.

Voluntary liens are mortgages, deeds of trust, and home equity lines; involuntary liens are judgment liens and tax liens.
The circuit courts of appeal are split on whether a voluntary lien on the debtor's residence that is not secured by any value (that is, the senior liens equal or exceed the value of the property) can be stripped.

In the 9th Circuit, which includes California, liens can be stripped if there is no value securing the mortgage sought to be stripped."

All of the information above applies to Chapter 13, not to Chapter 7. So it sounds like if you have no value securing the second mortgage (which if your info about owing 550K and the house only being worth 500K is true) then it is possible that you might be able to have the lein for the 2nd mortgage stripped. The particular lawyer's website was in California, don't know if Arizona plays by the same rules. But it seems like Chapter 13 might just be a way to get the second mortgage stripped. I've just started year 2 of my CH 13, and it's no picnic, but if you could get a portion of the 150K forgiven as well as any other debts, might be worth looking into. Good luck.

[justbroke]

That is exactly how most of the courts deal with this. If the senior lien (the one in the first position or "highest" priority) secures debt on the home where the value of the remaining balance of the note is more than the value of the home... any junior lien can be stripped.

The part that is contentious, is can you lien-strip, cram-down, bifurcate a first lien... and the answer is no. I don't know of courts that have done that, but have heard that very few do.

I'm doing a little lien stripping today. (Two Motions to Determine Secured Status). Also learning that the service process under Rule 7004 is a lot different than just "objecting" to a claim or other "general" notice things! It's basically an Adversary Proceeding, and the service is totally different. Hope I have it correctly as I'm not servicing in person.

[whatchuneed]

Is there a way to get rid of my second mortgage? I have a first at $550K and a second at $150K for a total of $700k and the house is only worth 500K now, what happens if I default on my second mortgage? I read that they can forclose from the second position, but since I am upside down it will be a deficiancy which then is treated similary to a credit card debt.....which I could include in a bk? or....

Anyone have details on this? I tried to search forums, but did not readily see anything....

Well since you owe more on the first mortgage than the house is even worth, you can pay a small percentage of the mortgage, since its then unsecured, if you file for chapter 13 bankruptcy and file for a mortgage stripping. ( src: http://bankruptcylansingmi.com/utili...cond-mortgage/ ) it differs location to location but i would recommend you getting in contact with a bankruptcy attorney because I think that would be your most beneficial option

[h0usekeeper]

That is exactly how most of the courts deal with this. If the senior lien (the one in the first position or "highest" priority) secures debt on the home where the value of the remaining balance of the note is more than the value of the home... any junior lien can be stripped.

The part that is contentious, is can you lien-strip, cram-down, bifurcate a first lien... and the answer is no. I don't know of courts that have done that, but have heard that very few do.

I'm doing a little lien stripping today. (Two Motions to Determine Secured Status). Also learning that the service process under Rule 7004 is a lot different than just "objecting" to a claim or other "general" notice things! It's basically an Adversary Proceeding, and the service is totally different. Hope I have it correctly as I'm not servicing in person.

I am in AZ and we have completed cram downs on the first mortgage. We are waiting for lenders to challenge our cram downs but have not received one yet.

[2xBK]

I am in AZ and we have completed cram downs on the first mortgage. We are waiting for lenders to challenge our cram downs but have not received one yet.

We'd all like to hear exactly how you will be cramming down the first mortgage, as the BK judges do not have the authority to do that.

[justbroke]

I am in AZ and we have completed cram downs on the first mortgage. We are waiting for lenders to challenge our cram downs but have not received one yet.

Good luck with that, as it is pretty well established that you cannot cramdown a mortgage secured by your primary residence. If this is an investment property, it would also be interesting as well. What you're probably see from the lender is an Objection to Confirmation.

We await your results!

[CH33 Paralegal]

There is something called a motion to strip the lien, which is what you could propose happen in a CH13. You're arguing that the 2DSD is completely unsecured due to the value of the house being less than what is owed on the 1DSD.

It is not a slam dunk. There needs to be indisputable proof that the house isn't even $1.00 more than the 1DSD . Also, that 2DSD is not actually "stripped" until your case is completed successfully....3-5 years later. If your case falls apart, that whole 2DSD is back on your head with retroactive penalties.

You should discuss this thoroughly with an attorney if you are interested in this process.