Help!!! Please help!!!

[Struggling11]

Long story short...filed ch.7 3/2009, discharged & closed 12/2010. Did not reaffirm 1st or 2nd mortgage (both through Wells Fargo). We stopped making payment in January.

Truth is we can afford the 1st but not the second. We owe $300,000 on the first and $97,000 on the 2nd.

Now question if we are able to maintain the first but not the second, could & would the 2nd mortgage company foreclose us. Spoke with bank tonight after being bounced around for 2 hours. She told me the 2nd would have to buy out the 1st & the chances of that happening are slim since there is absolutely no equity in the home.

She said the 2nd would probably charge off the 2nd mortgage. What does that mean? If the charge it off & turn it over to a credit agency, how can they collect on the debt if it's been discharged in the bankruptcy!!!

So absolutely confused & have no idea what to do!!!!!

[chicagoannie]

Did you use an attorney for your Ch 7? Maybe contact them about the mortgage situation?

[keepsmiling]

Hi Struggling.
I am not one of the experts, but wanted to respond right away so you know people are listening
Many folks here have settled their 2nds for 5-15%. Look around while you are waiting and you will see lots of posts on this topic.
Best of luck.

[shark66]

So absolutely confused & have no idea what to do!!!!!

Well, first of all, downshift and take a deep breath, pour yourself a stiff drink and enjoy life because NO ONE can collect a debt that has been discharged in bankruptcy.

Could the second foreclose, speaking from a legal standpoint? Absolutely.

How often does that happen in real life and this economy? Very rarely.

A single caveat, and a big one at that:

What might work against you in the long run is the fact that both mortgages are with the same lender. That being said, the whole situation will depend on a number of things, the most important one likely being how underwater the house really is.

I'd be very surprised if they actually decided to charge the second mortgage off...

Good luck.

[stratos]

A secured debt is not discharged in a chapter 7. You can surrender the collateral, but you can't keep it and discharge the debt on it at the same time. The second mortgage may not have been a secured debt though, if the value of the property was less than the first. You should talk to your bankruptcy attorney.

[shark66]

A secured debt is not discharged in a chapter 7. You can surrender the collateral, but you can't keep it and discharge the debt on it at the same time. The second mortgage may not have been a secured debt though, if the value of the property was less than the first. You should talk to your bankruptcy attorney.

Absolutely, positively INCORRECT.

Secured debt (as in mortgage) is discharged as well as all other dischargable debt in Ch. 7.

There is no mechanism provided in Ch. 7 to determine the security of the second mortgage, that belongs to Ch. 13 only.

Both of your mortgages were discharged. You don't own a cent on either of them, from a legal standpoint.

But the lien on the collateral (house) survives the BK, providing the lender with ability to foreclose if the unsigned "pay and stay" agreement is not followed through...

Good luck.

[Struggling11]

Thank you for the feedback! I really appreciate it! My head is spinning. I wish I knew what the right thing to do is.

The truth of the matter is we could afford the first mortgage. However, not the second. I don't know whether to maintain payments on the first and pray the second doesn't foreclose or don't pay either and save the money to move.

It's a big risk one I'm not sure we are willing to take!!!

[shark66]

What is your house worth right now? Any clue?

How much would a similar (broadly speaking) house cost if you rented one in your neighborhood?

Good luck and let us know...

[Struggling11]

About $280,000. I owe $294,000 on the 1st and $98,000 on the second. Absolutely NO equity!

[stratos]

What if the debtor does remain current, can the lender legally foreclose on the property after ch 7 discharge based on the debtor's default on the contract? I realize the answer depends on the jurisdiction, but it looks to me that at least some jurisdictions have held that the "ride through" option is no longer available to prevent foreclosure on secured property even after a ch. 7 discharge.

[AlmostAmos]

If the 2nd is worthless, QUIT paying it and move on with your life. The 2nd will be charged off & you'll never hear a word from them. I had this same situation with CitiMortgage. As already stated, if the debts were discharged in BK, they cannot come after you for the $. The only thing they (the 2nd owner) can do is buyout the first and foreclose. That is NOT going to happen by a collection agency or even another bank. It isn't worth it.

[shark66]

What if the debtor does remain current, can the lender legally foreclose on the property after ch 7 discharge based on the debtor's default on the contract? I realize the answer depends on the jurisdiction, but it looks to me that at least some jurisdictions have held that the "ride through" option is no longer available to prevent foreclosure on secured property even after a ch. 7 discharge.

If that were the case in this particular set of circumstances, the FC papers would've been served by now, no doubt about that one. Furthermore, if there was such a stipulation in the original contract, WF would've moved to get a lift from stay while the BK was still going on, since the debt was not re-affirmed.

Back to the real issue at hand, if the market price is $280K they can expect to get $225K or less for it once it goes REO. Will they be willing to add another house to their inventory with the prospective loss of half of its value, if the first mortgage was still getting paid.

My gut feeling says "no". Not at this moment.

For how long is OP going to be safe is anyone's guess, but my math says that that zone extends to the time when the combined value of first and second comes close to the market value in the "quick sale" set of circumstances. So they've got a solid $100K to go before anything happens at the very earliest.

But the key question here is how much a comparable house would cost to rent? If it's a similar amount of money, staying until one is kicked out by the second foreclosing on the house (which may never happen, but let's count on it happening sometime in the future) is a no-brainer. If they could rent for significantly less, then forget all about it and move.

Let's not forget that even if the second decides to foreclose five years from now, they still have to go through all the motions, leaving the OP enough time to save money by stopping payment on the first mortgage if he gets served by the second...

My $0.02 only...

Good luck.

[stratos]

Absolutely, positively INCORRECT.

I should have said the security interest or the lien isn't discharged or removed in a chapter 7, but the effect is pretty much the same even if the "debt" was discharged. So while you're technically correct, I think your response was a little hyperbolic. I apologize in advance for moving a little off topic, but I felt a response was appropriate.

[shark66]

I should have said the security interest or the lien isn't discharged or removed in a chapter 7, but the effect is pretty much the same even if the "debt" was discharged.

The above statement is incorrect, unless one considers the possibility of owing a bank tens - possibly hundreds of thousands - as being "pretty much the same" as owing them nothing...

If it were not for the fact of debt being discharged in the BK, the bank could foreclose and then sue for any deficiency incurred in the process, especially the owner of the second note.

This scenario - omnipresent on underwater homes with more than one mortgage - is where filing a Ch. 7 makes a tremendous difference.

So while foreclosure remains a possibility until the house is paid off, if one decides to walk away from it, they are protected from any ramifications of the loss that the bank incurs in the process.

So, hyperbolic or not (I actually like the term - haven't heard it in ages) my answer WAS a correct one in every aspect.

Good luck to us all.