Advice on Second Mortgage in Charge Off Status - The Bills.com Blog

What if your second mortgage was in "closed/charge off" status and you are going through a "short sale" with your first mortgage company? They are the same company (first and second mortgage). What happens then?

A short sale is when the lender will accept less than the full amount due on a mortgage when a property is sold. Usually, the lender will accept the short sale to avoid the time and expense of a foreclosure. If your lender has agreed for a short sale, then the remaining debt on the first mortgage will be forgiven. Now, even though the second mortgage is from the same company, they still might try to collect on it. I would clarify with the mortgage company to find out exactly what will happen in your case.

My second mortgage has gone into charge off - I recieved a letter from a bil collector asking for a 50% settlement.. My question is what is the lien situation with my hone at this point? does the bill collector own the lien now? How does that that work? Charlie

I think you are referring to the title of your property when you say "lien situation". Your second mortgage company has secondary rights to your property, meaning, in the event of a foreclosure your primary mortgage will be paid first and the remaining funds will be applied to your second mortgage. Sometimes, lenders employ the services of a collection agency to recover past due amounts. This means that although you are getting calls from a collection agency, the title of your home is still held by the lender of your second mortgage. It might also be the case that the collection agency now owns the title as they bought the debt from the second mortgage lender. I think it is a good opportunity for you to settle the debt as the collector is giving you an opportunity to do so. Remember that charge off is only an accounting term used by these companies and does not mean that you are absolved of the debt. The lender may file a suit at any time even after a charge off status.

my second mortgage is in default, and my home is going for sale very shortly. I have kept my first mortgage current. if I am not able to work out a payment plan with my second lien holder, is there a posibility that if I file bk, they can reinstate my 2nd mortgage?

If you file for Chapter 13 bankruptcy, you may be able to include the delinquent amount of your second mortgage in your filing, which would bring your 2nd mortgage current and stop the foreclosure action against you. I strongly encourage you to contact an attorney as soon as possible to discuss filing for bankruptcy protection, what options are available to you, and how filing for bankruptcy will affect your pending foreclosure. Filing for bankruptcy will bring your delinquent mortgage balance current, but you will be required to continue making your regular monthly mortgage payments on both mortgages, as well as your Chapter 13 payments, if you wish to keep your home. If you would like to read more about bankruptcy, you can visit http://www.bills.com/bankruptcy/. Good luck!

I have much the same question as chaz. I am current on my 1st but 2nd has been charged off. I have very specific questions. 1. Does this mean that the debt is now unsecured vs. secured? 1a. If unsecured, then the debt is not taken into account when applying the "means test" for Ch 7 bankruptscy, correct? 1b. Can the bank or collection agency still forclose on the property if debt is unsecured? The effect on my credit is no longer a concern as I already went 90+ days late on my 1st before I was able to get a modification. I just want to know what I need to do to keep my house.

A "charge off" does not mean that your second mortgage is no longer secured by your home, and does not mean that the creditor does not still have a mortgage lien on your property. Charge off is simply an accounting term meaning that the lender has moved the debt from its "accounts receivable" books to its "bad debt" ledger. This change in the accounting status has little effect on you or your obligation to the lender, except for that a charged-off account will likely have a negative impact on your credit rating. National banks are required by the federal Office of the Comptroller of Currency to charge off accounts which have not been paid for several months (usually between 180-240 day--the exact time changes periodically). This system is designed to prevent banks from using debts which will likely never be paid to inflate the future earnings projections they provide to investors and regulators. A charge off definitely does not make a secured debt become unsecured. Many lenders will offer to settle on defaulted second mortgages because it can be very difficult for a lender holding a second mortgage to foreclose on a property, especially if the homeowner also has a large first mortgage. A second mortgage is considered a "junior encumbrance" to the first mortgage on a home; in order to foreclose, the second mortgage lender would be required to pay the full balance of the first mortgage out of its own pocket, hoping that the auction proceeds will be sufficient to recoup its costs. If a lender knows that the homeowner has a large amount of equity it may be willing to take this risk, but in most cases second mortgage lenders are not willing to risk so much money with no guarantee of return. Because of the difficulty and potential cost of foreclosure for a second mortgage, many lenders prefer to cut their losses by settling the debt with the borrower. Since second mortgages remain secured debts after charge off, you would probably need to include the debt in your means testing calculations for bankrutpcy. Since I am not licensed to practice law in your state and do am not familiar with the details of your financial situation, I cannot provide you with legal advice. You need to consult with your attorney for a definitive answer to these questions. I wish you the best of luck!

i have a similar question we are currently behind on both 1st and 2nd mortgage we were haved filed chapter 13 but my husband lost his job before our first meeting with trustee so now we are probably going to switch to chapter 7, however, we have sold some assets are now able to pay our 1st and second mortgage arrears and bring us current, our first mortgage said they would accept but we haven't talked to our second mortgage yet. We are in charge-off status with them, are they able to, if they want to, accept our payment and bring us current, or is it too late. thank you.

You should consult with your attorney, but if you can afford the payment then you can probably work out a deal for loan modification to start making payments on your second again. Good luck.

I am in a similar situation. In July 2007, my husband filed a chapter 13 without my prior knowledge to keep our home from going into foreclosure with 1st Franklin Mortage. All the 1st mortgage and all other debts were included within the chapter 13. However, the 2nd mortgage was sold to real time resolutions, tx. 1st Franklin told my husband at the time he filed the 13 not to worry about the 2nd mortgage but to focus on getting the 1st mortgage caught up because the 1st mortgage is the one that would cause our home to be foreclosed if it went into default. Through the Chapter 13, we made double payments on the 1st mortage and now it is caught up and we recently filled out an applicantion for a loan modification with franklin mortgage and are waiting for them to get back with us. However, we are getting calls and letters from real time resolutions for the second mortgage and we are not able to make payments on that right now due to the chapter 13 payments and catching up arrears on other debts in the bankruptcy. When we bought the house in 04, the it was an 80/20 subprime where the 1st mortgage was $260,000 and second was 50,000. The arrears on the 2nd mortgage is 15,000. Can the second mortgage collector foreclose on the home? 1st Franklin told us that the 1st mortage takes presidence over the 2nd and that only the 1st mortgage holder can foreclose if you default on the 1st mortgage.

Your first mortgage is only looking after their interest and not giving you the complete facts. Here is the deal. Both the mortgage firms have rights to your property, the difference is that the 1st takes priority over the 2nd. For example, if you were foreclosed upon, the 1st mortgage firm would get the first chance to get their money back, and whatever money is left will go to the 2nd mortgage company. Now, if your home is worth less than or close to just your first mortgage, then there will be no money left for the 2nd mortgage. Trust me, if your home was worth enough to pay off both your 1st and 2nd mortgages, nothing can stop the 2nd mortgage firm in starting the foreclosure process. I suspect the reason they are not doing that right now is exactly because of the reason I stated earlier, in that your home not being worth enough to settle their balance. In addition, why didn't you include the 2nd mortgage also in the bankruptcy filing? If you had, then they would be bound by the court ruling would have accepted whatever payment the court would have ordered. I strongly suggest that you consult with your bankruptcy attorney once more, and not base your decisions just on what the 1st mortgage company tells you.

I have a first mortgage and a I had a 2nd mortgage. I am still paying the 1st mortgage on time, but the 2nd has been paid in full by AIG who is the insurance company. My home is worth a lot less than the 1st mortgage is worth. I am not concerned with credit, please tell me what it means when the insurance company has paid the debt in full. They have sent a letter asking for me to call to make payment arrangements. I just want to be informed before I make the call

Jackie--could you please provide some additional information about the circumstances under which AIG paid the second mortgage? Was this some type of lender-paid mortgage insurance (LPMI)? Did you default on your second mortgage payments, resulting in AIG paying off the loan? If that is the case, then you probably would be liable to AIG for its payment to your lender. You can probably settle the debt with AIG, though you will probably need some funds upfront, a good idea of your monthly budget and what you can afford to pay, and an explanation and documentation of any financial hardship which have have led to your defaulting on the loan. I would also encourage you to consult with an attorney to determine if AIG can force you to pay this debt under your state law. If the payment of the 2nd mortgage by AIG did not result from a default, can you please provide some additional explanation of your circumstances? Thanks, and I wish you the best of luck.

I had a 1st and a 2nd mortgage. Two years ago, I tried to keep current, but couldn't. I tried to short sale and even made the mistake of trying to have an invenstor come in and make a deal to sell my house as a short sale. I almost re-financed, but realized that realistically how can you pay more than you make. Well, the 1st foreclosed on my house and after selling it said they did not make enough for the 2nd, so the 2nd "charged off" that debt. I live in California, and I wanted to see what I can do to fix this issue or what are my rights.

If you got both of the mortgages at the time of purchase (meaning both of your mortgages were purely for the purpose of buying your home), then any balance that remains on either of the loans is non-recourse. Meaning, the lender cannot pursue collection on the balance, so you don't have to worry about the balance. Be careful though as this only applies to your primary residence and the status of the loan changes if you ever refinanced either of the loans, as that would put the loans in "recourse" status. If you still want to, you can look on your credit report to see how this debt is being reported on your credit profile. You can get a free copy of your report at www.annualcreditreport.com.

We have a house in foreclosure. When we started the process, we had an offer for short sale. The process to get a short sale approved took so long that we eventually lost the buyer. We then got another offer, which was lower. The 1st mortgage (GMAC) accepted a short payoff, but the 2nd (Chase) had moved into chargeoff. They want $90k (on a $173k loan) to "settle", or $50k (which we could do because the buyer can bring cash) to close and then will pursue the entire deficiency balance of $123k. Our circumstances have changed and we could afford both the 1st and 2nd payments, although our house is $200k upside down (it's an expensive house...). Chase (2nd) said if we move back into the house we need to give them 10% of the balance and will give us 6-9 months to pay and then want 60-70% to settle. The good news is we would then have paid off our 2nd. If we move forward with the short sale, the deficiency would be lower, but we would still have the same scenario of making payments for 6-9 months and then settling. The tax advantage of staying in the house is a wash against paying the 2nd. My question is: what would the 2nd (now in chargeoff and technically not a "2nd mortgage") do to us if we couldn't settle at the end of 6-9 months in either case? What would you advise with regards to staying - or not short selling - the house? We feel like if we have to pay Chase anyway, we might as well live in the house. Bankruptcy is an option, although not a good one because we are business owners (LLC), and also the only kind we would be able to do would be a Chapter 13. We may want to sell the business in 2-3 years, and so we might end up having to pay more on the 13. Thanks for any help!

The most important piece of advice I can give you is this--go talk to a qualified attorney licensed in your state who can help you determine which of the two options offered by your 2nd mortgage lender is the most viable solution given your current financial difficulties. I do not know enough about your situation to tell you what course of action you should take, and it would be irresponsible for me to try to do so. A qualified attorney should be able to tell you whether keeping the home makes sense, or if you should give up the property. He should also be able to tell you if filing for bankruptcy protection is a viable option. I wish you the best of luck!

I have 2 mortgages with Chase, both obtained to purchase my home in 2006. I am working on the Making Home Affordable Obama plan for my first mortgage and I feel confident that this will work out for me however I am 5 months behind on my 2nd mortgage and they told me they will charge off the account to a collection agency without any future payments. I have attempted to modify both of my loans with Chase, including the second but it seems each time they "lose" my documents or the modification gets sent to a new department to start over. I just spoke to them again this morning and they are asking me to submit my documents AGAIN which will take another 3-5 months. I am afraid that I cannot afford to keep up the monthly payment on the 2nd mortgage in the future, then my efforts for modifying (again) and making any payments will be wasted if they will just charge it off the next time I miss a payment. My question is should I let it just charge off and then try to settle the debt/work out payments with a collection agency? Its for about 31K. I am not making payments on any of my credit cards right now, trying to save money to settle instead. My credit is already crap and we don't plan on buying another home for several more years. I know some would say I'm stupid for letting anything else effect my credit, but I'm ready to just settle and get out of debt that way. The only other debt I have is a car payment which I am up to date on (they modified the loan for me). I appreciate your help and like that this site offers no criticism, only help from others.

Jennifer, a loan getting charged off does not mean that you do not have to pay it back anymore. Charge off is just a term that is used by the banks when they write the loan off of their books (accounting term). the debt will still show up on your credit report as past due and the creditor will have many years to follow up on it (as per the statute of limitations in your state of residence). This is also true for your credit card debt. I know that your priority is to save your home, but make sure that according to state law, no liens can be put on your home for all the debts that get charged off, this is a remote possibility but a risk nonethe less. you can check for state laws at http://www.bills.com/collection-laws/.

I have had a offer from gmac/homecomings for a 10% settlement on a 43,000.oo second mortage that is in the charge off state, My attorney said take the deal!! as long as they are not going to 1099 me on the balance. I dont want to miss this opportunity, any advice would be great, as my attorney could not give me a definate answer!! thanks Bruce and family

Hello, I have 2 mortgages on my house - the first is working out a loan mod with us to adjust the payments - i have submitted packages to the 2nd for a loan mod, they are Citimortgage but haven't heard anything, now they are saying that they are going to charge off the loan - they said that i can make a payment today and re-submit for a loan mod but i have submitted paperwork 3 times over the course of 9 months to just have them say they get it and then somehow after more follow-up calls to lose it - my question is what should i do? should i make the payment today and try and get a modification? (although i think they will just "lose" the paperwork again) let it be charged off and try to settle with the collection they give it to? file for BK and try and get it written off or settled though the BK judge? I live in california - any responses would be greatly appreciated.

Bruce, that is a great offer, my only concern is that they may send the 1099 at a later point. You need to make sure that they confirm that they will not declare that charged off amount as income, preferably in writing.

You should try your best to get a loan mod. If you are still current on the loan and your credit is still ok, then it is worth another shot. But if you have missed payments and your credit is shot, you might as well let them charge it off and then negotiate with the collection agency. I am not sure about filing for BK as that would put your home in danger of liquidation, but consult with a bankruptcy attorney, before you do anything.

We had refinanced our house. We had a 1st & a 2nd on the house both with the same lender. Our lender approved our short sale. House sold and our credit report shows "settled". Can lender pursue a collection on 2nd mortgage?

Not likely, as the lender for both your loans was the same, but you should check the terms of your short sale.

Hi: I have a a 1st (GMAC) and a second (USAA) 80/20..all money was used to purchase home and I never refinanced. My husband lost his job in april of 08..I held on as long as we could..called usaa to see what they could do to help..They gave me 60 days in Oct of 08 that I did not have to pay and balloon at the end of the payoff. We are 100k under in value (live in AZ). Usaa would not work with us after the 60 days saying that we modified..HA!! (Usaa is my second).. The First is foreclosing on us in August..my question is this.. Can Usaa sue us after the first forecloses, even though they were used ONLY for the purchase of the home since they are saying that I modified in october (repayment plan)?? I keep reading about the "charge-off" thing and my guess is that they will charge it off..but they are saying they will pursue the note after foreclosure..I was under the understanding that if used for the purpose of purchase money they had no recourse...?? Please help.. Thank you.

Purchase money loans in AZ are non-recourse. I am not sure about the exact circumstances where the status of the loan changes. Usually, if you were to refinance an existing mortgage, it would change the status from non-recourse to recourse. As I am not sure if just a payment arrangement changes the status. You should consult with a qualified foreclosure attorney to confirm the status of the loan.

I am a modifier working with a client who is 83 years old. His primary residence first mortgage is 1,960,000.00 and his second is $279,352.00++, his current appraised value is $955,000.00 and as you have guessed this property is in California. I am working with the first mortgage on a modification, second mortgage wont consider modification until the first is complete. IN speaking with the second lien holder the best scenario is a 1% rate for 2 years and up to 5 years on an exception and then it returns to its initial interest rate. They said that he can not go over 120 days late or they will charge off the account. In discussing this with my client and in considersation of the amount of negative equity....would it be advantageous on this case to allow the second mortgage to charge off and then work with them to settle for "less than the amount due"? I mean with the amount of negative equity would/could they even pursue a foreclosure? Im sure they could, but would they? Obviously they arent going to recoup over a million bucks to get anything out of it and they would be paying their attorney to foreclosure. If they were going to foreclose, wouldnt they have filed the required NOD and just set a sale date if thats what they were going to do? He has the cash to make a cash offer at the end and the way I was looking at it, is even if they issued him a 1099 @ 10% taxes....him paying taxes on the amount is far less than paying $279,000 on a property that has lost a mil in value. Do you agree? Please advise, I have done my research and I think I know the answer but I dont want to steer my client wrong without double checking my information. Thank you

IA homeowner wants to get a 2nd lien released from their property and pay it via promissory note. They are hoping they can then sell their house for only the cost of the first lien, which may not be possible due to market conditions. If they ask the first for a short, will having the second removed previously cause a problem with asking the first for a short?

Lisa - as you suggest the second mortgage holder has nothing to gain by pushing forward with the foreclosure, though it is still within their legal right to do so. However, if the homeowner agrees to a restructured payment plan with the second mortgage holder, and then blatantly breaks the terms of that agreement, the second lien holder may act irrationally. We suggest you avoid potentially putting the homeowner in that type of position without their full recognition of what they are doing. It's best to have the conversation with the second lien holder up-front about what the homeowner is able to actually pay, and then negotiate some type of one-time settlement to have the second mortgage holder release their lien. Keep in mind, this might very well be pennies on the dollar, as you pointed out that the second mortgage holder has no reasonable expectation of available equity.

Cindy - If I understand your question correctly, you are concerned that if or when a first lien holder (which will take the hit in an expected short sale) discovers that a second lien holder got promissory note for its full balance, it will reject the idea of a short sale. I think that's a fair assumption. What the homeowner here is doing is reshuffling the order of the lien holders to benefit one standing later in line. I wouldn't do it. Even if the first lien holder doesn't discover the promissory note right away, the homeowner will have to assume it will.

QUESTION: I took an 80/20 loan in 2005. I am current on my 1st mortgage since my lender for the 1st mortgage agreed to modify the mortage into a fixed rate of 5.2% because it was an adjustable rate before. My 2nd (20%) was a ballon loan worth 26K, my 1st is now 110K. I have been behind on payments on my 2nd and now the lender just informed me that my 2nd was chargedoff on 6/29/09. The lender for my 2nd states that I need to continue making the same payments that I used to make - but I can't afford to make these payments - the lender for the 2nd also told me that since my 2nd has been chargededoff, they will only require me to pay the principle amount which 26K and interest or late payment will not apply?? Please note that I am still current on my 1st mortgage. What should I do? Should I take this offer and continue to make the same payments that I used to make with my 2nd lender? 2nd lender stated that if I don't accept their terms then they will move my file to collections. My credit is already poor as I have other things on my credit that I need to take care of so please advise on what I should do. FL is my state.

If I understand your first question correctly, you want to know if you will need to pay interest and penalties on the second mortgage. I think you need to clarify the terms and conditions of the second mortgage holder's offer. Regarding your overall question, "Is this a good deal?" the answer is "maybe" and depends on the lender. Some pay hardball. Some are willing to negotiate softer terms. When you talk to the person who offered you the deal, ask them if their collections department has more authority to negotiate better terms. Some do.

This is a hard question to ask, but here it is. I have a truck that I paid for with my second mortgage. But I am having a really hard time paying my bills and maybe getting a divorce soon. What I'm wondering is if I get a bankruptcy would that dissolve the second and if we keep paying on the first can we keep our home. We owe around 500K on the home and it was appraised at 650K. What I'm not really clear on is if we have equity can we still declare bankruptcy and get rid of the second.

The equity in your home is just piece of the puzzle in deciding whether to file for bankruptcy. Your mentioning the truck in relation to the second mortgage tells me there may be some significant and relevant facts behind your question that have a bearing on you receiving an accurate answer. I think you need to spend an hour with an attorney in your state to 1) discuss the financial implications of a divorce, 2) talk about the second mortgage and its relationship to the truck and a possible divorce, 3) your filing bankruptcy, and 4) your options to bankruptcy. Look at the Bills.com bankruptcy page to learn more about it.

I bought an appartment in 2007 for $517K - 80/20. 1st mortgage - Ocwen, 2nd - GMAC. Of cause, I can't keep up with payments because my income after tax $3,600 total (I should not buy it in the first place!). Anyway, I was able to modify both loans, 1st and second mortgages, by myself in 2008. However, my monthly payments are still too high. Therefore, right now I am working with mortgage assistance/modification company (AmeriHope Alliance) to negotiate my mortgages again. I am current on my mortgages. My property value right now about $370K. I owe $93K in second mortgage - GMAC. If I can't negotiate my loans to reduce my payments I will be forced short sale or foreclosure. In this case, second (GMAC) wouldn't get anything. My loan negothator from AmeriHope will ask GMAC for settlement -$5K. I am kind of sceptical about it. I am thinking, if GMAC say "NO", then I will stop my payments to them (I really used all my 401K and other savings already!) and just see if they come back with a settlement offer. I can't think any other options... I will appreciate your suggestions on how to resolve my current situatuion...

It sounds like you have been active in trying to resolve your issue rather than letting it manage you. The first thought I have is recommending you look at the Home Affordable Refinance Program to see if this government program offers you anything. A second thought I have is a recommendation that if you get pushed to your breaking point, go with the short sale and try to avoid foreclosure. Finally, consider a Chapter 13 bankruptcy.

I have a question: My house current vuale is about $480K-490K, first mortgage is $361K, 2nd mortgage is $240k. They are both with Citi. The first mortgage' investor is Fannie Mae, the 2nd is Citi. Do you think if i stop paying the 2nd mortgage, is Citi going to foreclose the house? Or is Citi willing to settle the loan with me? Thank you.

I cannot speak for Citi, so what I think Citi might do is speculation. In general, if you stop paying a second mortgage, it is within the second mortgage holder's right to foreclose on the property. However, if the second mortgage holder forecloses, the holder of the first mortgage holder will be inevitably be notified and they will foreclose, too. Because the first mortgage holder is the first in line for repayment when the property is sold, the second mortgage holder is usually left with little or nothing, especially lately. The second mortgage holder's recourse is to sue the property owner for the balance of the loan. Therefore, the second mortgage holder has every incentive to find a way to reach a repayment agreement with the property owner

I bought my house for 678K in 2006, now market value is 400k. My first is w/ Litton Loan 505K, the second with Wilshire 180K. Litton is agreeing to modif which I can afford, but I would have to not pay Wilshire because I cannot afford to pay. Litton already has a foreclosure going on though they are agreeing to modify if I am good for the next 3 months. Then I met a realtor who was able to get me a buyer for a short sale offer of 455K. Is it in my favor to keep the house and have a charge off from from the second loan? or let a short sale go through (hoping my lenders will approve the short pay off)and get a better house I can afford in two years? My credit is gone anyway, why can't I just keep the house just paying the first loan and let the second charge off? Thanks for your input! Liz

There are too many variables at play here for me to give you a fast answer, so my first (and last) word of advice is for you to see an attorney in your state with experience in property law. Here are your wild cards: 1) A short sale is not something you can do unilaterally. Will your first mortgage holder agree to a short sale? 2) Did you get the second mortgage at the time of the purchase of the property? 3) Is your state a "recourse" state regarding home loans? In other words, are you personally liable for a deficiency balance on a mortgage? Aside from question No. 1, you need to see an attorney in your state to determine your status regarding the expected deficiency balance on the second mortgage.

My first mortgage went into foreclosure. My second mortgage is in default. I was served papers that they were sueing us. I recieved a call from the second mortgage today stating mt account was about to be charged off and if I did not want my wages garnished I could set up payment arrangements with them in the local office. Are they trying to bully me into paying them? I know all the consequences of my credit, and that is something we have accepted. If the account is charged off, can my wages still be garnished? If it makes a difference, we live in Louisiana.

It does not appear to me that the creditor is bullying you. When a creditor charges-off a debt, that does not mean the debt is forgiven or resolved. The creditor has simply made an accounting entry on its books (usually at 120 days) that the account is no longer current. Different creditors handle charged-off debt differently. Some sell the account to a collection agent, which will try to collect the debt. Other creditors transferred debt to a delinquent-accounts department, which will work with the debtor to develop a payment plan. To learn more about the collections process and garnishment, see "Collections and Garnishing Wages." To learn more about the collections laws in your state, see the Bills.com document "Collection Laws and Statute of Limitations."

We have a first mortgage with Chase balance 213,000 which we modified for 3.85% for 40 years fixed and then we have a second mortgage that was with Bank of America for 77,000 that was transferred to Green Tree who are ruthless animals. We are current on our first mortgage and 30 days behind on our second. We have filed Chapter 7 to get rid of credit card debt. Our lawyer is telling us to not pay the second mortgage and try to get a settlement offer or renogiate after the bk discharge. Our house values have gone down drastically and the average sale price is 160,000 - 170,000 from comps and realestate agent estimate. What should we do??? I am scared they will forclose on us and force us into a shortsale. Lawyer says that they wont do that because as long as we are current on the first that Chase wont foreclose because they are current. Greentree would not foreclose because the values are so low they would get nothing. Greentree says in a shortsale all they want is 5% of the sales price. Should we pay them or wait till after BK to neogoiate and can I try to negoiate now while in BK???

Listen to your attorney. I agree with his or her analysis of your situation. In the unlikely event the second mortgage holder forecloses, it is inevitable that the first mortgage holder will foreclose too. The first mortgage holder would get the proceeds of the sale of the property, most likely leaving the second mortgage holder with nothing except a claim against you. Since you are in bankruptcy, the second mortgage holder's chances of seeing a dime are pretty close to zero. Therefore, it is not in the second mortgage holder's best interest to foreclose. When in bankruptcy, I have seen a tendency for some people to become freelance debt negotiators and speak to creditors outside of the bankruptcy process. Do not become a freelancer. Work with your attorney. Involve him or her in ANY discussions you have with ANY creditors while you are in this process.

I GOT A CALL FROM MODIFICATION COMPANY I AM USING THEY TOLD ME THEY HAVE GETTING MY LOAN MODIFY THE FIRST ONE WITH OPTION ONE MORTGAGE, THEY ALSO TOLD ME LENDER HAVE CHARGE OF 2ND I AM WONDERING CAN I FILE BK CHAPT.7 ON SECOND HOUSE IS 100K LESS THN I PURCHASE IT FOR 2ND IS 60K ... I HAVE NOT SIGNE DOC. YET WHAT SHOULD I DO? CAN LENDER FORCLOSED ON 2ND MORTGAGE....

As I mentioned above in my earlier answers, it is not in the second mortgage holder's best interest to foreclose. To learn more about bankruptcy, see the Bills.com document Types of Bankruptcy. If your goal is to hang onto your house, then Chapter 7 bankruptcy is not in your best interest -- Chapter 13 allows you to preserve a large asset such as your residence. I recommend you speak with a bankruptcy attorney in your state about your options.

I have been offer a 30% settlement on by the collection agency for my 2nd mortgage. If I accept will there be a down side to this can they hunt me later for the rest.

By definition, a settlement is a final resolution of an issue. I can see no down-side to accepting the settlement offer. The alternative is foreclosure, a process in which no one wins. With this offer, you get the second mortgage off of your back for 30 cents on the dollar and the second mortgage holder gets to recover a fraction of the principal without spending a dime. I see this as a win-win, especially in light of The Mortgage Forgiveness Debt Relief Act, which allows homeowners to exclude from income debt canceled or forgiven by lenders. However, if you sense that the collection agent is not being totally forthcoming or underhanded in his or her dealings with you, take the settlement agreement to an attorney in your state before signing it and let him or her review it.

Like everyone else we are having trouble keeping up with the mortgage, in fact we have applied for a hardship loan modification on the first. Our second was a seller carryback. Over the last several years, we have re-financed several times, each getting a better deal than the last with the final a fixed 6.5 four years ago on the first. Along the line, I believed that the second had been satisfied. Having not heard from the second lien holder since 2005, how would I know different? A few months ago we received a demand letter from a real estate atty who represents the seller, who states that the second has a balance due. Apparently the second was never paid with the refinancing and a lien was not properly filed with the county. I ceased making payments in 2005 when I thought that the second was satisfied, now we are in breach of contract. Okay - so we owe it, through no fault of our own. The seller's atty is telling me that he will re-write the note taking the interest at 5% back to 1997 and have a 5 year balloon. I have tried to negotiate with him to no avail. He will now sue foreclosure. Question - do I have to get an atty to re-write the note? What if the seller's atty does not go along with it? Should I sign a balloon in this current financial climate. I don't see us selling and moving at our ages 61 and 74! Any input is most welcome! JUDY

It seems strange that the creditor took four years to contact you. I urge you to take this matter to an attorney in your state experienced in either property or contracts law immediately. There may be a statute of limitations issue in your case that has a profound affect on the creditor's right to collect on the balance due.

We had a first and a second mortgage like most here - and have gotten a work out agreement on our first for 3.25% for 30 years. After trying to accomplish the same on our 2nd, we were told the 2nd has been 'charged off' and sold. We havent heard anything since. We also filed bankruptcy - and included the house loan in the debt. I am curious if we are still liable for the 2nd and did our Bankruptcy discharge this debt? If so, does our 2nd have to release their lien on our property? Thanks!

These are questions best answered by your bankruptcy attorney. Hopefully, he or she included the second mortgage company in the list of creditors. If so, the discharge may have included the second mortgage, which would have, in effect, invalidated the lien.

We too had a 1st and 2nd mortgage but completed a short sale. We still had a balance owed on the 2nd after closing and were under the impression that the short sale forgave all remaining balance once they accpeted the buyers offer and it closed. We are now being contacted by the bank to pay the remaining balance on the 2nd. We are unable to make the monthly payment that they want us to pay. What happens if we stop paying this amount? I am also hearing that we will have to pay income tax on this balance??

Was the second mortgage included with the short sale? Reread your documents to see if both lenders were included in the short sale -- I would be surprised if both were. See collections advice to learn more about your rights in the collections process. See The Mortgage Forgiveness Debt Relief Act and Debt Cancellation to see if your debt forgiven in your short sale is exempt from taxation.

Yes, the 2nd was included. They asked for $3000 to close and release the lien which we thought was what they were willing to take to close out the loan. After closing, we received notice that we had to either pay the balance or set up monthly payments. Thank you for the links for collection and the Mortgage Forgiveness. We are just deciding whether it is better just to file bankruptcy on over this balance or try and fight it??

If I understand what you are saying correctly, you and the second mortgage company had an agreement to settle the second mortgage for $3000, and you have not yet paid the $3000 to the second mortgage company. If this is the case, then the second mortgage company has an unsecured claim against you. This is like any other unsecured debt a consumer may have, such as credit card or medical debt. You may resolve unsecured debt any number of ways. Please see What Are My Debt Consolidation Options? to learn, well, more about your debt resolution options. One is bankruptcy, but you have others.

My home value is $130,000, my first is about $241,500 and my second is $73,000. Both loans are with the same bank. My first is owned by Fannie Mae and my second is owned by the bank. The bank is modifying my fist mortgage but didn't, at least so far, modify the 2nd. I'm current as to the 1st mortgage and I'm 4 months past due as to the 2nd. I'm hoping the bank will modify it, however, if they won't, I will not be able to make the 2nd mortgage payments. I don't see why they would foreclose for non-payment! The house value is less than the balance of the 1st mortgage by over $100,000. Should I take any actions at this point that might help me in the future if the situation regarding the 2nd progresses to whatever, such as charge off, foreclosure, etc.

I agree with your analysis: from an economic perspective it makes no sense for the bank to foreclose. However, it is within the bank's legal right to do so, as idiotic as that would be. The bank's best outcome is to negotiate a settlement of the balance. Stay current on the first mortgage. Contact the bank and open a negotiation to resolve the second mortgage. Read Debt Negotiation and Settlement Advice before you open talks with the bank.

We also had a 1st and 2nd mortgage and completed a short sale. My situation is different though in that the 1st mortgage has been resolved but the 2nd mortgage accepted $4000.00 with the agreement that the remaining amount be charged-off. After months of no contact, I received a call yesterday from a BofA representative and without committing to a deal was offered a negotiation on my $18,000 balance. I conversation I let her know I recently lost my job and was on unemployment. Option 1 is $62.63 a month is for 10 years and option 2 is $156.00 for 5 years with no interest. Is this a good deal? And since this is the 1st offer, if I do try to negotiate a better deal, how should I proceed into the negotiation? I do not have the money for a large payoff. Thanks in advance for any advice.

If your numbers are correct, I have no idea why anyone would choose Option 2, given that it costs you $2000 more than Option 1. The knowledge-base of renegotiating second mortgages is not deep, so we are all (including the banks) entering uncharted territory. Here is what I have learned. Each bank has its own quotas and goals for its call centers. Accordingly, these goals and quotas filter down to the service representative level. It is impossible for me to say what the lowest offer BofA will accept. My advice is for you to read Debt Negotiation and Settlement Advice and gather as much intelligence as you can from each representative you speak to. See if BofA is open to a lower offer. If so, counter their offer with one of your own. Let us know how you resolve this debt.