Hi and question about BK & a balloon 2nd mortgage

[knucklecurve]

First let me say "hello"! Very happy I found this resource as my wife and I are beginning the process soon (meet with first attorney on Monday).

Anyway, my question has to do with our second mortgage. It is a balloon mortgage with the balloon scheduled to arrive in a year and a half. The balloon is a massive amount of money that we will not be able to pay...and because it is a 2nd mortgage (and our poor credit) nobody will consider re-financing it. What are our options in a situation like this? Is Chapter 13 our best bet, because if we can prove the 1st mortgage is worth more than the house, we can work to strip the 2nd completely? Or are there options under Ch 7 that wil allow us to keep the home and modify the 2nd balloon mortgage?

Any help appreciated

[UpsideDownMI]

Chapter 13 is your best bet if you can successfully prove that your 2nd mortgage is wholly unsecured. In chapter 7 your 2nd mortgage lenders right to foreclose will still exist even if you do not reaffirm the mortgage. However you could "roll the dice" in chapter 7 if you are confident that your house is so far upside down that the bank would not foreclose as it would cost them more money to foreclose than you already owe. In this case you would simply stop paying on the 2nd mortgage and try to negotiate a settlement agreement on the balance. The problem with this is that it is very risky and if the value of your house increases to the point where it is now worth your lenders time they will most certainly foreclose at that time.

[Flamingo]

I am curious as to when you took out this balloon and I'll bet it was during the predatory lending time where folks took out balloons basing a future refinancing on increasing house equity to refinance and pay off the balloon. With the housing crash, you are showing the danger of a balloon mortgage. Anyway, discuss all this when you meet with the attorney on Monday. I am assuming you have not talked to any lender as to modifications of either of your mortgages.

The housing market is starting to rally but by the time your balloon is due in 1 1/2 years, depending on what you owe on both your mortgages, you may or may not have enough equity at that time to refinance. The market is still iffy but who knows what it will be like 1 1/2 years from now.