60 Days Late On 2nd Mortgage

[jmc]

When I file BK it will just be on me....not on wife.

The only account that we are both on together is the 1st mortgage. I've managed to make sure that THAT payment is current so as not to negatively affect her.

What can the 2nd lien holder actually DO to me about the late payments if the 1st lien holder is happy as can be? 2nd lien can't make the 1st lien foreclose can they? (Mortgages are with separate institutions)

The reason I want to confirm is I received a Notice of Default/Cost to Cure letter from the 2nd lien holder last week that has language that might lead someone reading it to believe that the 2nd lien can foreclose and take your house.

Here's a brief part of the letter - "Failure to cure the default by --- may result in the acceleration of all sums due under the Security Instrument. This means the entire unpaid balance will become due. Also, your property may be sold in accordance with the terms of the Security Instrument and applicable law. The Security Instrument entitles us to collect all expenses incurred in pursuing our remedies."

The way I understood it is that the 1st lien holds all the power and all the power that the 2nd lien holder has is to pick up whatever scraps are left over should the 1st lien holder decide to foreclose.

Am I on the right track here? Was the letter I received from 2nd just "talking tough" about what their power is?

[DeadManCrawling]

They are required by law to send the acceleration letter to preserve their rights later. You're right, the first lein-holder gets paid first. If there's no equity, the second won't get anything.

It's neither a "tough-talk" letter or a threat. It's just required by law, and could also be a first step toward a percentage pay-off if that is part of your situation.

[hereforinfo]

Is there any equity in the house, or is the house at least worth more than the first mortgage? What state are you in? In some cases, the 2nd could force a foreclosure but in order to do so they would have to pay off the first mortgage and then take whatever is left after the foreclosure sale. This is pointless if the house isn't worth more than the first mortgage. If that's the case, they wouldn't bother to foreclose but the lien would remain on the house and the loan would continue to earn interest. You would have to pay the balance plus interest if you ever want sell it. Or years from now if the value increases they could potentially foreclose then.

[jmc]

Is there equity in the house.....? YES on paper. The house is currently listed at recent comp sales prices and I'm fortunate to live in middle America where housing prices never shot up wildly. House listed for 90 days so far. But even here houses aren't moving quickly.
1st 232,400
2nd 59,100

I feel that an actual number that someone would buy at TODAY if someone had to unload is 315,000.... so potentially 25k equity.

I spoke with the 2nd lien holder today and they mentioned that they could choose to buy the 1st and then foreclose (that idea had never crossed my mind, but it makes sense).

My first reaction was to be quite concerned with them doing that (and maybe I should be), but the more I thought about the decisions that they would have to make to do that the less likely it seemed plausible to happen.

Citimortgage (2nd) would have to make a purposeful decision to ADD a liability to their books of 232,400 by paying off Aurora (1st). Then they could foreclose on me to get what they were really after in the first place which is their 59,100. If they were able to sell it for 315,000, then after realtor commissions of 18,900 there would be 296,100 to pay off the 2 loans. That's before whatever additional typical foreclosure costs are included which I understand to run in the 20% range on average....that doesn't seem likely to me that they would make that decision.

Should I take the possibility of them actually doing that more seriously than I am?

[hereforinfo]

Is there equity in the house.....? YES on paper. The house is currently listed at recent comp sales prices and I'm fortunate to live in middle America where housing prices never shot up wildly. House listed for 90 days so far. But even here houses aren't moving quickly.
1st 232,400
2nd 59,100

I feel that an actual number that someone would buy at TODAY if someone had to unload is 315,000.... so potentially 25k equity.

I spoke with the 2nd lien holder today and they mentioned that they could choose to buy the 1st and then foreclose (that idea had never crossed my mind, but it makes sense).

My first reaction was to be quite concerned with them doing that (and maybe I should be), but the more I thought about the decisions that they would have to make to do that the less likely it seemed plausible to happen.

Citimortgage (2nd) would have to make a purposeful decision to ADD a liability to their books of 232,400 by paying off Aurora (1st). Then they could foreclose on me to get what they were really after in the first place which is their 59,100. If they were able to sell it for 315,000, then after realtor commissions of 18,900 there would be 296,100 to pay off the 2 loans. That's before whatever additional typical foreclosure costs are included which I understand to run in the 20% range on average....that doesn't seem likely to me that they would make that decision.

Should I take the possibility of them actually doing that more seriously than I am?

I would be concerned. Based on your numbers above, they could foreclose and maybe get $50k when all is said and done. Even if they got $10k after all is said and done, it's still more than they'd get if you stop paying them. They don't necessarily have to pay off the first mortgage in order to foreclose. They could force a foreclosure sale and the first lien holder would be paid off from the proceeds, and then the 2nd would get whatever is left. And they can always come after you for the difference.

[justbroke]

Should I take the possibility of them actually doing that more seriously than I am?

I would be concerned.

Because the home has equity, they can foreclose and be able to pay back the first lienholder and be able to make some of their money back.

[frogger]

I spoke with the 2nd lien holder today and they mentioned that they could choose to buy the 1st and then foreclose (that idea had never crossed my mind, but it makes sense).

Should I take the possibility of them actually doing that more seriously than I am?

For them to foreclose, that would have to pay off the first mortgage. In my opinion, if they're not getting paid now, and could make 25k by foreclosing and selling, there's a good chance they would do that.

That letter was a warning shot. You need to pay attention to it.

[CCCrazy]

I have a general question...if a home equity loan has a zero balance and zero dollars due and it's been charged off...does that mean it's off the bank's books? I know the lean is still there, but if it's charged off if there still the possibility they could try to foreclose five years from now when there's equity? Or will they just move in when I sell it...

[hereforinfo]

I have a general question...if a home equity loan has a zero balance and zero dollars due and it's been charged off...does that mean it's off the bank's books? I know the lean is still there, but if it's charged off if there still the possibility they could try to foreclose five years from now when there's equity? Or will they just move in when I sell it...

It's possible, but not likely. Although, who knows what will happen 5 years from now, it could become the norm. The lien will have to be paid in full when you sell it, including the charged off amount and any late fees, interest, collection fees, etc.

[albacore44]

I would be concerned.

Because the home has equity, they can foreclose and be able to pay back the first lienholder and be able to make some of their money back.

I'm confused here. Do you really think the 2nd would buy out the 1st and then foreclose for that Measly amount of avaliable equity. seems like you could eat up $25k pretty fast with all the expenditures, cost to remarket the house and the forclosure process etc. I dont see any value in it for the bank

[justbroke]

I'm confused here. Do you really think the 2nd would buy out the 1st and then foreclose for that Measly amount of avaliable equity.

I know you know how foreclosure works, but I'm going to review it for the lurkers.

To understand how foreclosure works... any lienholder in any position can foreclose upon a mortgage under the terms of that mortgage and underlying State non-bankruptcy laws governing foreclosures or "Power of Sale" provisions in the mortgage/note.

What happens is not that they technically "buy" out the superior (senior) liens. For example, say you owe $100K on a home worth $150K. You have a first lien in the amount of $90K and a second lien in the amount of $60K. Say that you're paying the first lienholder fine. You default on the second. The second will foreclose upon their mortgage/note. At the foreclosure sale, they are required to pay all superior liens. Say that the home sells for $120K at foreclosure. The 2nd lienholder would pay the first lienholder $90K and keep the proceeds $30K for themselves.

seems like you could eat up $25k pretty fast with all the expenditures, cost to remarket the house and the forclosure process etc. I dont see any value in it for the bank

So, just say that they are owed $50K but may see $25K in a foreclosure sale. Let's say they only get $15K after paying off things. Guess what... that's $15K more than they'll ever get if the person files bankruptcy.... in their hands right now. It's called loss mitigation.

[jmc]

[QUOTE=justbroke;322303] Guess what... that's $15K more than they'll ever get if the person files bankruptcy.... in their hands right now....QUOTE]

I may be missing something real obvious, but could you elaborate on how 15k would be more money than if the person filed BK? They still have their lien position on the asset even if BK is filed, right?

[justplaintired]

But the thing is in the big scheme of things why would they foreclose if all they are going to do is mainly pay off the superior loan holder (1st Mortgage)? I mean it just doesn't make sense to me. Not doubting it may happen, but to be honest, it just seems like not a wise money making move for the 2nd mortgage co.

Have you tried talking to the 2nd? Perhaps you can negotiate now that you have fallen behind. I have read on here where other's have done exactly that and some have been sucessful.

If you intend to file BK sometime down the road, if I was you I would work out this with the 2nd before filing. Matter of fact, I would consult a few attorneys and see what they advise. Now is the time to work with the 2nd mortgage co, don't ignore their letters.

[justbroke]

Guess what... that's $15K more than they'll ever get if the person files bankruptcy.... in their hands right now....

I may be missing something real obvious, but could you elaborate on how 15k would be more money than if the person filed BK? They still have their lien position on the asset even if BK is filed, right?

They have a lien position that is subordinate to the senior lienholders. Say that the person files Bankruptcy. The first lienholder would file and get a Motion for Relief form the Automatic Stay and proceed with foreclosure. The first lienholder will sell to cover their mortgage. If their mortgage is not covered, guess what? The second lienholder is toast!

As a second (or junior) lienholder, would you take that chance?

[albacore44]

I guess I was thinking of this in the context of filing a Ch-7 and the ideas expressed in other threads relating to stopping payment on the 2nd mortgage, while staying current on the 1st, then negotiating with the 2nd for a Lein release.