Negotiate Mortgage Settlement

I can't afford my second mortgage. What are my options for negotiating a settlement?

We have a second home which we've been unable to sell due to not having enough funds to bring to closing--the market value is 50k less than what we owe. We've offered Wells Fargo 20k (taken from home equity loan on primary home) to settle our 50k second mortgage. They've refused, saying we need to come closer to 80% (40k). We are current w/WF, but have now missed Sept pymt w/1st mtg. We gave WF our best offer, and had hoped to do a deed in lieu with the 1st mtg holder once lien was cleared. What do we do? Why wouldn't they accept the offer: we've clearly demonstrated an inability to pay after losing a contract for deed tenant. Do we need to miss some payments (which is what will have to happen anyway) for them to take a second look? Thanks for your feedback.

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Bill's Answer
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  • Consult with an attorney about your bankruptcy options.
  • Open negotiations with the mortgage servicer.
  • Start negotiations at 10 cents on the dollar.

What I am about to write may seem a bit daunting, it is an effective approach to dealing with the situation you face.

Consult with an attorney in your state about your rights and liabilities, and whether you qualify for bankruptcy regarding deficiency balance you face on your second home. If you do, take careful notes of what the attorney explains regarding what will happen to the deficiency balance if you file for Chapter 7 or Chapter 13.

Call your mortgage servicer. (In your case you mentioned it was Wells Fargo.) Explain what the attorney told you should you decide to file for Chapter 7 or Chapter 13. Be non-emotional and business-like, and tell them their behavior will dictate your decision: a negotiated settlement on the junior mortgage or bankruptcy. The negotiator will probably want to see a financial disclosure to determine if you are totally forthcoming about your finances. In this situation with such large numbers at stake, provide the negotiator with the financial disclosure. The negotiator will take a week or so to study your disclosure. If the negotiator is stupid or evil, they will tell you to go ahead and file for bankruptcy.

However, if the negotiator is smart and believes you are willing to file bankruptcy, the mortgage servicer will relent and negotiate a settlement. Negotiations may take one phone call, or may go on for several months. In my observations, negotiators work on a monthly and quarterly basis, and negotiations may be more fruitful at the end of the month (or quarter) instead of the beginning.

I realize bankruptcy is frightening and pushes emotional buttons in many consumers. You need to work though that and realize this is a business decision for the mortgage servicer (it is not personal to the people at Wells Fargo at all), and a simple financial decision for you.

Start negotiations at 10 cents on the dollar. Depending on your circumstances, the final settlement may be higher.

I hope this information helps you Find. Learn & Save.

Best,

Bill

Bills.com

8 Comments

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  • 35x35
    Jul, 2012
    khris
    Bill, My wife and I have been hanging on by a thread for years now. I have a first mortgage with citifinancial mortgage for about $140,000 and a second mortgage with citifinancial for about $80,000. We've gone through some hardships and managed to figure out a way to hang on. Now the well is dry and we are living paycheck to paycheck with $0 savings. I have three daughters, one is going to college this year and another in a private school as the public school options here are scary at the high school level. I NEED to hang on for another 7 years to get my girls through school but I don't think I can manage the two mortgages in their current structure. I pay 6.3% on the first at around $1600 per month and 11% on the second for about $950 per month. I've tried to get help with refinancing but I'm told either I have to be in default or that I'm underwater and can't refi. My credit is already in the dump having struggled so long. I've been trying to repair it but just don't seem to be getting anywhere. I've considered putting my pride aside to default on the mortgages and maybe I'll qualify for some help. What do you think I should do.
    0 Votes

    • 35x35
      Jul, 2012
      Bill
      I would suggest taking several courses of action. First, check to see if you are eligible for HARP 2.0. If you are eligible, you may be able to cut the interest expense on your first mortgage, which will reduce your monthly payment.

      Second, consult with a local bankruptcy lawyer about a so-called chapter 20 bankruptcy. This is a chapter 7 followed by a chapter 13. This is tricky to accomplish, but if you are successful, completing a chapter 7 then a chapter 13 removes your personal liability for both mortgages, then strips the lien on the second.
      0 Votes

  • 35x35
    Sep, 2011
    NG
    Hi, Please help We purchased our town house in 2006 (brand new) for $360. In a very short period of time the house started to reduce in value and eventually got ~ low $200. We have 80/20 loan (One lender for both - WF) the 1st loan had 6.875% interest with interest only for 2 years and the 2nd with 11.75% P&I. We hardly qualified for the loan at first, and as the home lost its value we felt so stress and we have 3 kids- we were so stressed out and were not able to pay our mortgage 1st & 2nd. After 1 year of begging and writing every month the mortgage company reduced the 1st mortgage interest rate to 2.5% fix (extremely helpful- Thanks to WF). But the 2nd mortgage is charged off and the lender is not willing to even talk about it with us. Every time we call they say start paying your 2nd mortgage once you bring it current, then it can be discussed as to how to reduce the interest rate with them. It has been more than 2 years since we paid for 2nd loan. We are so worried as to what is going to happen to us and our 3 kids it feels like one foot is out of the door. We pay our 1 mortgage on time and it is current. But with property tax, condo fee$224/month, $1200/month for babysitter (for 3 kids) utility and other expenses this we can't afford to pay the 2nd mortgage. We are trying foreclosure and bankruptcy as much as possible. We used to make around $100K (combined). But my husband used to work 80-100 hrs a week to bring his share. He is not getting those hours anymore and it was extremely exhausting for him as he has done it (with no family time). Please help us as to how we can avoid foreclosure and as to what we should do. The information on this page are so help full and thanks for helping us. NG
    1 Votes

    • 35x35
      Jan, 2012
      Bill
      I don't know why the same lender was flexible on the first mortgage but not on the second.

      Do you know if your second mortgage is a recourse or non-recourse loan? If it is a non-recourse loan, you can't be held responsible for the debt beyond whatever equity the lender could get from a sale of the property. If it is a recourse loan, then I suggest that you speak with a bankruptcy attorney, to see if you can discharge the obligation that way or use your qualification for bankruptcy, if you do qualify, as leverage to negotiate a settlement.
      0 Votes

  • 35x35
    May, 2011
    Darren
    Hello Bills. We have two mortgages both with BofA, 1st @ $400k, 2nd @ $300k, the house in move in shape is worth $450k, we would like to stay in the home if possible, if not we will vacate. We recently filed chapter 7 and have not had our 341 hearing yet. We are current on 1st, but a year behind on second. No phone calls from 2nd, no letters? My wife is employed, I am on unemployment. We are both making much less than we were when we purchased, inlaws are willing to help with 2nd buyout, in a situation like this will lenders work with us? Or since we filled chapter 7 are they less inclined to work with us. We have not stayed in contact, as we didnt answer the phone for over a year. Thank You!!!
    0 Votes

    • 35x35
      May, 2011
      Bill
      It is impossible to predict the behavior of mortgage servicers because their actions to date have been so inconsistent and, from an outsider's perspective, incomprehensible. For example, it is still common for mortgage servicers to foreclose on homeowners who are in the midst of modification negotiations. We are still seeing relatively rapid foreclosures in some cases, and year-long waits in others.

      It would be folly for me to say whether your filing for bankruptcy will help or harm your negotiations with the second. I realize my answer is not satisfying. However, until the mortgage servicers either become more transparent in how they operate or become more consistent, it will remain impossible for an outsider to predict how mortgage servicers will behave.
      0 Votes

  • 35x35
    May, 2011
    ANGELA
    I carry a 2nd mortgage on a home in arizona and they are in default (more than a year). Can I renegotiate a new contract.
    0 Votes

    • 35x35
      May, 2011
      Bill
      If you bring something new to the negotiating table — if, for example you received a financial windfall — then you would be foolish not to open negotiations with your mortgage servicer(s).
      0 Votes