Loan Modification for HELOC after Chapter 7?

[themeis]

Hello;

If we do not Reaffirm our house (1st Mortgage and 2nd HELOC) during Chapter 7 and it survives, what is the possibility that our HELOC can be modified afterwards? The reason I ask is because the HELOC payment is due to Double in the future, although we can easily afford the 1st as is.

Thank you.

[shark66]

Are you underwater on your house or there's equity in it?

[themeis]

Underwater

Shark;

It seems (hard to tell exactly) that we are Under by maybe 15-40K. We owe 115K on 1st and 150K on 2nd HELOC. House may appraise for 225-250K.

Thanks.

[CCCrazy]

Equity is based on the value of the first mortgage compared to what your house would appraise for - so you have about 110k in equity. I'm guessing there might be a chance the second would foreclose on you. But who knows, maybe they would modify to keep you in the house. Good luck to you!!!

[themeis]

Almost Forgot

Thanks for the insight.

I should have mentioned that the 2nd HELOC is Adjustable and we have been paying the Interest Only for the past several years.

Don't know if that makes a difference.

[shark66]

That's a pretty tough spot you're in. With HELOC being adjustable and bearing more value than the first mortgage, they might take a gamble and foreclose on you.

Who's the HELOC with, if you don't mind me asking?

Good luck.

[ben1381]

I think CCCrazy is WRONG about equity. Equity is the value you have in your home after taking into account ALL MORTGAGES on the property not just the first. This is especially important for any homestead exemption in BK.

[NoMoreCards]

I think CCCrazy is WRONG about equity. Equity is the value you have in your home after taking into account ALL MORTGAGES on the property not just the first. This is especially important for any homestead exemption in BK.

You are correct. The OP's equity in the home is the home's sale value, MINUS all mortgages. The difference with the 1st and 2nds or even 3rds is the line they stand in to collect once the house is sold. So basically if the home sold, the 1st gets paid off first. The second is paid off second, and so on. Anything remaining after the mortgages are paid is the equity.

[themeis]

Staying in the House...

Thanks all for the comments...

Our intent is to stay in our House - hoping that after Chapter 7, the HELOC 2nd Lender would Modify our Loan since at the moment we are paying Interest Only!

After Discharge we (should) be able to afford at least the current payment - not sure about the increase once it goes into effect (approximately twice the amount due now).

Any thoughts?

[NewLifeAhead]

I think CCCrazy is WRONG about equity. Equity is the value you have in your home after taking into account ALL MORTGAGES on the property not just the first. This is especially important for any homestead exemption in BK.

Yes, that is your total equity in the house. But, what CCCrazy was pointing out to the OP was that after the first mortgage, there is 110k equity left over which gives the secondary bank (HELOC) a good incentive to foreclose IF the OP started missing payments on the HELOC.

[Mensa1]

themeis:

I disagree with the others here; there is NO gamble on the part of the HELOC... they WILL foreclose, no doubt about it. There is way too much equity for them not to.

2nd mtgs that aren't foreclosing stand to get nothing in return if they foreclose. Your HELOC stands to get all their $$$, or if not, at least the greatest portion of it even in foreclosure. Now I guess I should say that there is a chance that they might renegotiate something with you but nothing like what you hope here.

The discussion about equity needs to be quanitified between YOUR equity and the HELOC's equity. You have NO equity since the house is 100% leveraged. The HELOC has 90 to 100% equity since the difference between the property value less the 1st mtg equals about what they are owed... so their mtg is worth par, or about what is owed on it. They are not in any peril of losing any or much of their investment here, even if they foreclose.

[themeis]

themeis:

I disagree with the others here; there is NO gamble on the part of the HELOC... they WILL foreclose, no doubt about it. There is way too much equity for them not to.

2nd mtgs that aren't foreclosing stand to get nothing in return if they foreclose. Your HELOC stands to get all their $$$, or if not, at least the greatest portion of it even in foreclosure. Now I guess I should say that there is a chance that they might renegotiate something with you but nothing like what you hope here.

The discussion about equity needs to be quanitified between YOUR equity and the HELOC's equity. You have NO equity since the house is 100% leveraged. The HELOC has 90 to 100% equity since the difference between the property value less the 1st mtg equals about what they are owed... so their mtg is worth par, or about what is owed on it. They are not in any peril of losing any or much of their investment here, even if they foreclose.

Would a Chapter 13 be more likely to allow us to stay in the house?

[catleg]

The risk to the HELOC is that if they foreclose and the place gets trashed then maybe they lose 50% on their loan value. I think I'd try to negotiate with them to extend the interest-only terms for a while. Not sure if this is in your interests long term or not. You're probably a job loss away from losing it (aren't we all, though?)

[Mensa1]

Would a Chapter 13 be more likely to allow us to stay in the house?

Yes, probably would.. but I am no expert on Ch 13's so someone else could nail the answer down for you better.

The concern with Ch 13 is that since the 2nd mtg is in an equity position it cannot be stripped, which the real advantage on 13's. You might be in a position to have the pymt reduced on the HELOC, based on your ability to pay a certain amount. Since the secured amount is rather high this may limit what your other unsecured creditors end up getting to near 0, which wouldn't be a bad thing.

A 13 will surely keep them from foreclosing while the plan is in place.