Trying to decide how to deal with second.

[IBroke]

That strategy really only works if you file a chapter 7 bankruptcy before you do the settlement. Reason being, the 2nd is only left with a foreclosure right, the BK discharges your personal guarantee of the mortgage, so they have no recourse to come back after you for the difference.

How about offering them a 10% settlement just for the release of lien? Could the personal liability be discharged in a CH7?

I'm thinking of that option for our property just to make sure they have no "theoretical" chance of foreclosing so my mum could go with CH7 instead of CH13.

[justbroke]

I fell behind on payments during chapter 13 and they filed for and received a relief of stay.

Well, that would impact any new Chapter 13 as far as the Automatic Stay goes. However, nothing would stop your attorney from filing "first day motions" to get the stay for at least 30 days and in order to get a hearing if you're stripping the 2nd and have filed a Plan that would pay the first. Of course, you should seek a true professional if you really want to save the home.

Hoping that the 2nd would settle after a Chapter 7 is just playing the odds (gambling), not really a solid plan.

[HHM]

How about offering them a 10% settlement just for the release of lien? Could the personal liability be discharged in a CH7?

I'm thinking of that option for our property just to make sure they have no "theoretical" chance of foreclosing so my mum could go with CH7 instead of CH13.

Typically you would do the chapter 7 "first", otherwise, they really don't have an incentive to settle. Also, if by some chance you settle before you file chapter 7, and sign some sort of new note or something, then turn around and file chap 7, you could be facing a fraud AP.

The only strategy that seems to be working is this.

1. Home value needs to be significantly depressed, ideally your home is worth less than the balance of the first mortgage (or not very much more than the 1st mortgage.
2. Stop paying 2nd mortgage, keep paying 1st.
3. File chapter 7 bankruptcy, receive a discharge.
4. Get a Current Market Analysis of your home.
5. Approach 2nd mortgage holder with a 5-15% settlement offer to remove the lien.

No other variation on that order would work.

[albacore44]

Typically you would do the chapter 7 "first", otherwise, they really don't have an incentive to settle. Also, if by some chance you settle before you file chapter 7, and sign some sort of new note or something, then turn around and file chap 7, you could be facing a fraud AP.

The only strategy that seems to be working is this.

1. Home value needs to be significantly depressed, ideally your home is worth less than the balance of the first mortgage (or not very much more than the 1st mortgage.
2. Stop paying 2nd mortgage, keep paying 1st.
3. File chapter 7 bankruptcy, receive a discharge.
4. Get a Current Market Analysis of your home.
5. Approach 2nd mortgage holder with a 5-15% settlement offer to remove the lien.

No other variation on that order would work.

Hi Hmm,

Just looking at the above did you get item #2 and # out of order ?? should it not be :

3. File chapter 7 bankruptcy, receive a discharge.
2. Stop paying 2nd mortgage, keep paying 1st.

thanks

[HHM]

Hi Hmm,

Just looking at the above did you get item #2 and # out of order ?? should it not be :

3. File chapter 7 bankruptcy, receive a discharge.
2. Stop paying 2nd mortgage, keep paying 1st.

thanks

Nope, not out of order...but actually it doesn't matter. Keep in mind, the 2nd mortgage is not going to initiate foreclosure if the house is significantly under water, so there is no risk by stopping payment to the 2nd mortgage holder. So you can stop paying the 2nd anytime you want.

[albacore44]

Nope, not out of order...but actually it doesn't matter. Keep in mind, the 2nd mortgage is not going to initiate foreclosure if the house is significantly under water, so there is no risk by stopping payment to the 2nd mortgage holder. So you can stop paying the 2nd anytime you want.

The main reason I mentioned that is once you get ready to file Ch-7, and you need to show the UST you have been paying that 2nd to be able to use it as an expense in your petition. If they see you are not paying it they could file an objection and dismiss, pushing you into a Ch-13. I guess it depends on each case, but in mine i'm continuing to pay, untill after i file. I'll be meeting with my Att again in a few weeks and see what he advises. I would sure like to put that $$ away to save as a settlement on the 2nd.

[IBroke]

Typically you would do the chapter 7 "first", otherwise, they really don't have an incentive to settle. Also, if by some chance you settle before you file chapter 7, and sign some sort of new note or something, then turn around and file chap 7, you could be facing a fraud AP.

The only strategy that seems to be working is this.

1. Home value needs to be significantly depressed, ideally your home is worth less than the balance of the first mortgage (or not very much more than the 1st mortgage.
2. Stop paying 2nd mortgage, keep paying 1st.
3. File chapter 7 bankruptcy, receive a discharge.
4. Get a Current Market Analysis of your home.
5. Approach 2nd mortgage holder with a 5-15% settlement offer to remove the lien.

No other variation on that order would work.

Sounds nice - BUT by filing CH7 instead of CH13, they can LEGALLY still foreclosue on you because there is NO guarantee that they will accept the settlement. That's the problem I'm having with this "solution". Would they do it? Probably not...but they legally can.


Now to the fraud-part. Once they have released the lien, we wouldn't be in a hurry to file BK. They become an unsecured debt (one of many others) and can't foreclose. So why would it be a legal issue to file a CH7 - let's say - 2 years after the release of lien?

[HHM]

Sounds nice - BUT by filing CH7 instead of CH13, they can LEGALLY still foreclosue on you because there is NO guarantee that they will accept the settlement. That's the problem I'm having with this "solution". Would they do it? Probably not...but they legally can.


Now to the fraud-part. Once they have released the lien, we wouldn't be in a hurry to file BK. They become an unsecured debt (one of many others) and can't foreclose. So why would it be a legal issue to file a CH7 - let's say - 2 years after the release of lien?

You are correct, there is risk. There is no guarantee, but it is starting to happen.

But think about it for a second, there is no incentive for them to settle with you pre-BK. The loan still has value as a saleable debt. They still have recourse to you personally, we are starting to see 2nd mortgage lender treat the loan like bad credit card and sue the borrow's in order to get a judgment so they can garnish wages. No harm in trying to settle, but I wouldn't base your decision making on being able to get the settlement pre-BK because it probably won't happen.

[IBroke]

But think about it for a second, there is no incentive for them to settle with you pre-BK. The loan still has value as a saleable debt. They still have recourse to you personally, we are starting to see 2nd mortgage lender treat the loan like bad credit card and sue the borrow's in order to get a judgment so they can garnish wages. No harm in trying to settle, but I wouldn't base your decision making on being able to get the settlement pre-BK because it probably won't happen.

That's why I was thinking of paying them just for the release of lien - NOT to settle the entire loan. The value of the lien is just the same (before and after a BK), because the first mortgage is way higher than the value of the property. I'm actually offering them money for a worthless lien. If they would only release the lien, we would still be held liable for the FULL amount owed - they would just lose the currently worthless right to foreclose.

If this debt would actually be treated like a credit card, we wouldn't have a problem. It could then be discharged in a CH7 and we would be on the safe side.

You are correct - why should they SETTLE the account prior to BK? But getting paid for a worthless lien and still being able to collect the debt is certainly a different story. Isn't that what would happen IF they would foreclose? Only that they would save the cost of the foreclosure...

[HHM]

Your making a bad assumption about the lien being worthless...you are correct, the lien may be under-secured, but in the grand scheme of things, the loan is valuable because of the lien. They are not going to release it. I hope I am wrong, but I am usually not

[IBroke]

Your making a bad assumption about the lien being worthless...you are correct, the lien may be under-secured, but in the grand scheme of things, the loan is valuable because of the lien. They are not going to release it. I hope I am wrong, but I am usually not

Funny, right? So the loan has a value due to something they can't or won't enforce (foreclosure). When I was reading that line I thought "well, isn't the loan actually valuable because of the personal liabilty and not because of the lien? The lien remains after BK but the personal liability is discharged, so if the lender is more likely to release the lien AFTER the BK, what has more value? The lien or the personal liability?"


But you're probably right. But hey, lenders often do crazy things and it won't hurt to send them an offer prior to the CH13. If they don't take it, we already have the expenses for the BK covered.

[HHM]

It has more value in "collections", I know, it seems counter intuitive. It's a numbers game, from a collection point of view, the threat of foreclosure is still very powerful (even if they won't do it). Many people will cave even if the home is under-secured. Also, the other BIG power the lien has, "you can't sell your house unless you address the 2nd mortgage.".

There simply is no incentive for them to settle before a BK.

[Ineedhelp2]

So if the second cannot be stripped away, and if there is not enough in the value of the house for the second to foreclose, they could just do nothing and would have a lien on the house, and would get their money when it sells? (Or it couldn't sell until the value was there?)

If they are not paid during that time, do they get to keep adding on interest and penalties?

What is the usual way of working things out with a second mortgage when the value of the property barely covers the first?

Will they lower the principle?

[HHM]

So if the second cannot be stripped away, and if there is not enough in the value of the house for the second to foreclose, they could just do nothing and would have a lien on the house, and would get their money when it sells? (Or it couldn't sell until the value was there?)

If they are not paid during that time, do they get to keep adding on interest and penalties?

What is the usual way of working things out with a second mortgage when the value of the property barely covers the first?

Will they lower the principle?

Yes, they will keep adding interest, late fees, and penalties.

Unfortunately, there is no "usual" way to handling this. You have 4 choices.

1. Try for a modification (but good luck, none of the federal programs apply to to 2nd mortgages.).
2. Short Sale the home
3. If you qualify, file a chapter 7/settlement option as outlined above.
4. If the home value is less than is owed on the 1st, file chapter 13 and do a 2nd mortgage lien strip.

Unfortunately, they are not letting people have their cake and eat it too, there is no "private" lien strip and so long as they have recourse to you personally for the 2nd mortgage, settlement is usually out of the question. But you can always try.

[IBroke]

1. Try for a modification (but good luck, none of the federal programs apply to to 2nd mortgages.).

Let's see how long it will take to get the "2MP" program going...