Bank Foreclosure from a Third Position???

[highlife]

Bank has a third position on my house as collateral for a business loan. They recently (about three weeks ago) got a judgement against me stating the loan was in default beacuse it was undercollateralized. I offered to have them simply term out the loan, so they are paid in full with interest, but no deal.

Just found out last night that they have already begun foreclosure. Not sure how or why they can or would do this. The values of the first and second mortgages are just under the value of the house. In this economy, the forced sale value might not even cover the first and second after sales costs. That doesn't even include my exemption. How can they foreclose from an undersecured third position? Why would they do so? My attorney states that they have never seen something like that before.

Also, all of the business debt is in my name, so only I was going to file a BK. Since my wife is on the mortagage, and we were planning on re-affirming, does she have to file a BK too, or can she be left off of the BK? If just I file a BK is that enough to stop the foreclosure, or does she have to file as well? No other reason for her to file other than this foreclosure issue.

Help please! Spent all night awake in tears.

[AbbeyA]

Hello Highlife, sorry this is so distressing, I understand your worries and concerns. Our case is similar to yours, my dh was only on the business debt - but I too am on the house. Our house is in foreclosure, so I had no choice but to file as well. Furthermore, even if the house wasn't in foreclosure and we reaffirmed the mortgage, the business bank lien would remain and any equity in the home would go to the bank when/if we ever sold it. Liens on the house that are already there are NOT discharged in ch. 7 bankruptcy. The bottom line is this --- in my opinion, your wife should file. The house is going to be foreclosed on by the business bank and there will be a judgment against her for any deficiency on the first and second mortgages. Any judgment against you will be discharged in your bk.

Here's the thing -- your first and second mortgages are going to answer to the 3rd mortgage trying to foreclose, so you will probably get some extra time in the house as the banks try to fight it out for whatever they can get out of it. In our case, the first and second filed foreclosures and the 3rd position business bank filed counterclaims against them, essentially trying to step in front of the other banks. Basically it is giving us a little more time in the house while we save up money for when we need to rent.

You guys have hit rock bottom and need to make a sound business decision to move on from this bad chapter. Both of you should file, discharge your debts (including any unsecured debt you both may have) and truly start over at ground zero. I'm speaking from a wife's perspective in this -- my dh kept thinking I didn't need to file. Once we realized that the house was going into FC, the decision was made and we haven't looked back.

[iv65536]

After the first and second answer, I think the thrid will shut up.

What state is this anyway?

[highlife]

IV65536, the case will be in Ohio.

Abbey, thanks for the reply. Sometimes it's nice to know your not the only person to have ever faced something bad like this. Best thing that happend yesterday was switching attorneys. I feel much better with the new attorney, who actually seems to have a game plan for everything. I know some things we will have to deal with as things unfold, but to have a battleplan is nice. Old attorney was more of a reactionary person. Not saying that it doesn't work, but not something that made me comfortable either. Looks like there is enough equity for first mortgage and all most all of second, probaly will be nothing there for the third. Having professional apprasial done. Starting to look up towards things at this point. I know there will be many horrible days ahead though. Every time I get a certified letter, it sucks the air out of my lungs. In a way, I am looking forward to starting this. The sooner I start it, the sooner it will end.

[ssmdem]

The sooner I start it, the sooner it will end.

BINGO!! Once I truly came to this conclusion, I felt immediately TONS better. Before then, I literally felt like my world was coming to an end. Didn't help that the first attorney we interviewed painted a very dreary, dismal outlook as well. I felt like I had failed my family, and most particularly my children. However, I found this board and spent hours reading - during all those hours I couldn't sleep. It helped to see I wasn't the only one in this boat, and that there really could be a light at the end of my very dark tunnel. We interviewed another attorney who I immediately felt a lot better with - but still wasn't entirely convinced. But one day it finally hit me that nothing was going to change or improve until I made a move. I could sit stagnant and terrified or make that first move heading in the right direction. The first step was hard - not paying the bills, picking up the phone and telling them I couldn't (practiced that speech over and over in my head) - it felt good. I knew I had to though or I would sit terrified and afraid in my house while it foreclosed around me anyway. I had to make that move towards the solution for my family and for my own sanity. I still have down days - but they're getting fewer and farther in between. Good luck to you and wish you all the best.

[justasking]

We have essentially the exact situation.

Mortgage foreclosure notice on the $4200 balance because they keep taking the payments and applying them to the biz LOC loan.

Our catch is this: we have our mortgage in first, the same bank has a substantial personal home equity line of credit loan in second and then this small loan in third.

I am amazed they are filing this. Top it off, we've attempted to make loan payments and they redirect the funds to other loans. And then they say go ahead and make a payment with that loan number and it will stay. But they won't return the other loan payments, so how can you believe them?

Driving me nuts ... trying to decide if we should counter sue or just pay it off.

We are in MN. Any advice anyone or ??