Second Mortgage and Foreclosure

[RickInMich]

We're still debating our options regarding our house. Truly, we are in a quandary on what to do. We currently owe 107,000 on our first mortgage with Countrywide, and we owe about 42,000 on our second with Ditech/GMAC (A 125% loan). That's a total of 149,000.

Our house, however, is worth at this point about 120,000 at best. My question has to do with Ditech/GMAC foreclosing. We are current on both mortgages, and we did state our intention on reaffirming with our Ch. 7 papers. If we were to stop paying on our second mortgage, I'm wondering if and when Ditech would move to foreclose. From what I understand, they would have to "buy" the first mortgage. It would make no sense for them to do so economically unless they were able to get Countrywide to sell it for much less than they are owed.

If we were to stop paying Ditech, but continue to pay Countrywide, it would be about the same amount as what rent would cost us. So we were considering just staying put for a while but stop paying the second. Obviously, at some point, they would move to foreclose.

Any one have experience with stopping paying the second but continuing to pay the first?

[rrockinggramma]

Ditech would move to foreclose but with some of the new programs out there to help people in your situation, why not contact an FHA lender and ask about refinancing to current value in their FHA secured program? That is, if you want to keep the house?

[RickInMich]

Ditech would move to foreclose but with some of the new programs out there to help people in your situation, why not contact an FHA lender and ask about refinancing to current value in their FHA secured program? That is, if you want to keep the house?

Well, now I didn't even think of that! What exactly do you mean by "refinancing to current value"? At this point, between the two mortgages, we owe much more than the current value of the house. We have a really good rate with our first, 5.35%, but that second is killing us. It's at 13.5%. The whole issue is that second.

Thanks, rrockinggramma, for all your advice!!

[howie]

Rickinmich, I am actually in the exact situation. It is amazing how close the situation is. I have the first with Wells Fargo and a 125% second with Ditech. They actually gave me closer to 130%. They never did an appraisal, they just said my house was worth that and gave us the loan. Impossible to get out of by refinancing. No one wants to touch it. We keep debating on whether to surrender or not. Scary decision.

[howie]

rrockinggramma, I haven't heard of anything like that either. Would you be able to explain further? Thanks so much.

[RickInMich]

BigBoy2U, we have filed Ch. 7, had our 341 meeting, and are just awaiting discharge. So I'm assuming we can't file a Ch. 13 to strip that lein until 10 years from now.

I guess one option is to just stop paying Ditech. Maybe they'll just write that debt off altogether. But, yet, they'd never release their lein. Ugh. What to do!!

Howie, are you still in the deciding stage?

[stljohn]

I was in almost identical scenario with Country and Greentree (Conseco).

Greentree bought Greentree out and assumed full mortgage.

[HHM]

BigBoy makes a good point, if you stop paying Ditech, your credit will pretty much be trashed for at least 7 years (compounded by the BK). With all the fees etc, YOU WILL PROBABLY NEVER BE ABLE TO SELL THE HOUSE, barring some drastic increase in real estate prices (which is VERY Unlikely in the next 10 years).

As everyone else said, they probably won't follow through with foreclosure, but to ding your credit with a foreclosure, all they need to do is file a notice of foreclosure (or whatever you state equivalent is).

Although there is more risk involved, I think your other idea of letting the house foreclose and having your parents buy it auction is probably a better long term solution.

Also too, you need to really ask yourself, if you simply stop paying Ditech, it would probably take you 20 plus years to have any equity in the house. If you look at it from an investment point of view, you are getting a negative return on your money (i.e. no different than renting) (even with mortgage interest deduction).

Honestly, from a financial perspective and practical perspective, it really doesn't seem to make sense for you to keep the house at all.

[RickInMich]

I think we agree with you, HHM. We're just going to stop paying either mortgage starting in February. It just does not make financial sense to keep it.

My last question on this whole house thing is this. I know what bankruptcy does to your credit. Will this foreclosure damage it even further, or do you think we're at the bottom anyway? I'm just wondering if we add this foreclosure now on top of this bankruptcy, will we not be able to get any credit, including a mortgage, for more than 7 years?

Again, thanks for all the great advice.

[Dirk Squarejaw]

I believe when you foreclose when filing bankruptcy, its one hit on your credit.

[FreshLikeADaisy]

Dirk, if the foreclosure precedes the bk, then yes, it shows up on your credit. But it seems that no matter the circumstances, all debts involved in a Ch7 show up as IIB once you have filed. So if Rick did not sign a reaffirmation, and basically surrenders the house, it may very well NOT show up on his credit as a separate foreclosure. I wouldn't swear to it, but that's the way it seems to shake out for most people from what I have been reading. Maybe someone can add to that if their experience has been different...

[nazstar]

We are also filing for Chapter 7 but are definitely letting the house go. We had a first mortgage and a second mortgage (125%). Then the housing market crashed, we found extensive structural damage to 3 out of 4 of the exterior walls, etc. It's at the point where we could see it for about $200K and the mortgage is $410K. We stopped paying the mortgage in November and they haven't foreclosed yet.

We are just walking away from the money pit and hoping that we don't get sued by the mortgage company for the difference until we are ready to file for bk.

[ssdsco]

I'm letting a house go to foreclosure. Last payment was June, 2007. Notice of default was October and no further communications until today.

My 1st and 2nd are both with the same mortgage company. The letter I got today is an offer to settle the 2nd mortgage for 20 cents on the dollar, release the 2nd mortgage lien and cancel the note.

This creates an equity situation even after selling expenses.

I'm trying to find out if there's tax on the forgiven amount given the new legislation.

[Boscoe]

ssdsco - If you filed BK, there is no tax on forgiven debt.

[ssdsco]

ssdsco - If you filed BK, there is no tax on forgiven debt.