Stripping a 2nd Mortgage

[brokenomore]

Can a second mortgage be stripped in a chapter 7 or only in a chapter 13?

If someone filed chapter 7, was current on his first and 2nd, and then the house value plummeted to the point where the 2nd could be stripped, would he still be able to do it?

[Mensa1]

Sorry broke, can't strip a mtg in a ch 7, only a 13.
If what you described happens, value plummets, stop paying the 2nd... (well that has just described lots of folks), and then you file Ch 7, or previously have... the 2nd usually won't foreclose... If the 7 is discharged the only place the mtg has is to look toward the property for any equity.

The strategy some have used is to strategically default on the 2nd mtg, either in or after a Ch 7 discharge, then attempt to negotiate a release on the 2nd for 10 cents on the dollar... over time. Sometimes it works, sometimes it doesn't.

[justbroke]

Caselaw dictates they can only be stripped in a Chapter 13. There are a few rogue Judges (not Districts) that have done so in a Chapter 7. The answer is really no.

The method for removing a second lien in a Chapter 7 is to offer a settlement after the discharge is entered and the second lien is discharged. However, this has to be done very carefully that you don't reaffirm the first yet are able to "ride-through" and continue payments on the first. (The reason is that if you reaffirmed the first, and the 2nd won't settle, then you could be in a bad spot.)

It's all about strategy.

[brokenomore]

I'm in a sitution where the 2nd mortage foreclosed and force me out of my house, but now they seem to have seen the light that my house has no value after they pay off the first, and in fact, we may be upside down a little on the first too.

It appears that if they can't strike a deal with the first and get them to lower the payoff figure, that they might want to walk away from this, and I'm wondering what we could do.

We were once in chapter 13 and then it was dismissed because I could not keep up with the payments, and now we are preparing for a chapter 7.

I'm a little confused about where we technically stand with our house, because the second had a sale, and we left, but if the second doesn't pay off the first, then are we still the owners until the first sells the house?

[brokenomore]

What I wouldn't want to happen would be a situation where the second could just hold on and wait until the property increases in value.

[justbroke]

What I wouldn't want to happen would be a situation where the second could just hold on and wait until the property increases in value.

That's exactly their usual strategy. Unless you're ready to strategically default and make an offer to settle, you are at the mercy of rising home prices and their appetite to recover some of their money.

If the second already had the foreclosure sale, then it's a done deal.

[brokenomore]

This is what I don't understand.

The second had a foreclosure sale. They were the highest bidder. I thought it was a bad move on their part because there was no value in our house over and above the first mortagage, and I pleaded in vain with them through their attorney to make some kind of deal where we both could win.

Since then, they have approached me about a possible lease back, but they want me to contact the first to see if I can get the payoff figure knocked down, or else thy might just forget about it and not pay off the first.

If they don't pay off the first, and if they need me to negotiate with the first, it seems I still some form of ownership, though not for long if I don't make a deal with the first with whom I am also in foreclosure.

[justbroke]

The second had a foreclosure sale. They were the highest bidder. I thought it was a bad move on their part because there was no value in our house over and above the first mortagage, and I pleaded in vain with them through their attorney to make some kind of deal where we both could win.

It reads as if the 2nd lienholder was a "hard money" lender or otherwise "serious" investor type. These serious investors will in fact buy the home by buying out the first at foreclosure. They offer a leaseback, because they will probably sit on the house, leasing it, until the market bounces back. These types of investors may be in it for the longer or short term, can't tell you.

Since then, they have approached me about a possible lease back, but they want me to contact the first to see if I can get the payoff figure knocked down, or else thy might just forget about it and not pay off the first.

I don't understand. In order to actually foreclose, they would have to payoff the first within XX days of the foreclosure sale.

If they don't pay off the first, and if they need me to negotiate with the first, it seems I still some form of ownership, though not for long if I don't make a deal with the first with whom I am also in foreclosure.

There's something wrong. If they actually foreclosed, then they would have full title to the property. This puts it in the REO status (real-estate owned). Something is not adding up.

[brokenomore]

I was behind on two mortgages.

The first mortgage had a sale date, and the second foreclosed and set their date first.

The second bid at the sale, and were high bidders (enough to cover their own loan) but they have not paid off the first.

I'm not sure where that puts things, or what happens if they decide not to pay off the first.

The first must have postponed their sale, but I'm sure it will happen eventually.

The second thought there was more value in the house when they started this, and now have second thoughts about following through with paying off the first. If they do, in my opininion, considering the condition of the house and the current values, they will go further in the hole.

They floated the idea of a possible lease back, but only if I help them with the first. They think maybe I could get the first to reduce the principle, I suppose, so that they would have something to work with.

But as things stand right now there is a first mortgage that is in foreclosure and they have not paid them, and if the first follows through, who are they foreclosing on? Surely the second would just want to back out and let it fall back on me, or else they would not only be losers, but would screw up their credit rating, wouldn't they?

[secondtimer]

When did the sale happen?

There can be only one sale to clear the title.

That's the whole idea of a sheriffs sale. To clear the title of all liens so the title can transfer free and clear to the new owner.

Any proceeds from the sale are used to pay off the lienholders in order from the top down. Any liens that don't get paid go away.

[albacore44]

this whole thing sounds strange. I had heard that the high bidder must pay off the bid to take full title by the next day after Auction. sounds like they were in collusion with the 1st to get you out of the house.

[brokenomore]

When did the sale happen?

There can be only one sale to clear the title.

That's the whole idea of a sheriffs sale. To clear the title of all liens so the title can transfer free and clear to the new owner.

Any proceeds from the sale are used to pay off the lienholders in order from the top down. Any liens that don't get paid go away.

Nobody bid at the sale. The 2nd put in their own bid.

The way it SEEMS to me is that gave them the right but not the obligation to pay off the first and take the title. They seem to also be able to wait it out and let the first foreclose (on me) and walk away.

[Mensa1]

It reads as if the 2nd lienholder was a "hard money" lender or otherwise "serious" investor type. These serious investors will in fact buy the home by buying out the first at foreclosure. They offer a leaseback, because they will probably sit on the house, leasing it, until the market bounces back. These types of investors may be in it for the longer or short term, can't tell you.

I don't understand. In order to actually foreclose, they would have to payoff the first within XX days of the foreclosure sale.

There's something wrong. If they actually foreclosed, then they would have full title to the property. This puts it in the REO status (real-estate owned). Something is not adding up.

The 2nd foreclosed "SUBJECT TO" the 1st mtg. That means the 1st mtg was NOT a party to the foreclosure and is still in tact against the property and the 2nd mtg holder is now the owner of the property. NO requirement to payoff the 1st mtg, but the defaulted 1st mtg could now foreclosre and foreclose the 2nd mtg holder from title, and then the 1st mtg holder becomes owner of the property. Just what is common in a few states, usually deed of trust states, but can also be in mtg states too.

Nobody bid at the sale. The 2nd put in their own bid.

The way it SEEMS to me is that gave them the right but not the obligation to pay off the first and take the title. They seem to also be able to wait it out and let the first foreclose (on me) and walk away.

They can take title w/o paying off the 1st mtg. Of course if they don't bring the 1st current the 1st will eventually foreclose out both you and the 2nd mtg holder, now owner of the property. I would tell the 2nd to take a hike when they ask you to negotiate on their behalf with your 1st mtg holder. BTW, you are still on the hook for that mtg.

Which sate is the property??? Do you know if they offer redemption rights?

[brokenomore]

I just found out today that the first had their sale a couple days ago.

Bank of America took the house back. I called Bank of America and they said that Fanny Mae now owns it.

I called Fanny Mae and they said that I probably would be hearing from them within a few weeks and would have a couple months to move out.

I talked to a local realtor to get some info about this and about their "cash for keys" program.

He said it could be up to $3,000, which would be cool...not that it's cool we had to leave.

The problem is that we moved to another house a couple months ago, but still have a lot of stuff at the old house, and I've been keeping an eye on it and visiting regularly to take care of loose ends.

What I'm wondering about "cash for keys"--if they know you've moved out will they still do that? Again...I'm partially moved out, but still have a vehicle there and some furniture in the house, and a lot of stuff in the garage and barn. The realtor suggested I make it look good--like we're still there.

Anyone have any insights about "cash for keys"?


What will they do about the repairs that are needed? Will they sell the house as is, or fix it up first?

This is in Oregon.

[justbroke]

Interesting on the way your foreclosure happened. Yes, it must be specific for Deed of Trust States. I still don't understand why any State would allow a Deed of Trust. I like the good old Mortgage! I like Judicial Foreclosure! I hate non-Judicial where there really is no defense.

Oh well.