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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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IN THIS ARTICLE:
  • 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

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  • K
    Kim,
    May, 2020

    I owe 209,000 thousand dollars on my house. How much would you think would be a fair settlement agreement? I would like to give 140,000 for the loan to pay it off and keep my house. Do you think the mortgage company will accept it? I have had the mortgage for 14 years. The loan is with PHH.

    • 35x35
      Daniel,
      May, 2020

      Kim, why should the lender settle the debt? What is the home worth today? Are you making payments? The lender seeks to maximize its return. Mortgage debts are not settled for less than is owed unless there is no way for the lender to get what it is owed from you or through foreclosure and auction.

  • CP
    Cassandra,
    Mar, 2017
    Not knowing anything about financing at 22 I got a mortgage on a 32,000 mobile home alone. In my mid 30s I got curious an looked over my loan papers to find I was stuck in a 30 yr mortgage paying 109,000 for a piece of crap. I thought I'd been cheated. I'm in 19 years now, and can't stop dreaming of the day this nightmare is over. Please tell me is there anyway to negotiate a payoff!? Would refinancing be a good option? I want out! What should I do with less than perfect credit? Thanks
    • 35x35
      Betsalel,
      Apr, 2017

      A 30-year loan is a very standard mortgage. I don't understand how you can owe $109,000 on a home that you purchased for $32,000. You should check your numbers with your mortgage servicer and if you have any problems or complaints, then contact the CFPB.  You can also contact your local/state regulator.

  • KB
    Kay J.,
    Louisville, KY,
    Apr, 2014
    My mortgage with 5/3 bank is with a 6.5% int. How can I get the int. rate lowered without refinancing?
    • BA
      Bill,
      Apr, 2014
      Speak with your lender about a loan modification. You may also want to speak with a free, federally approved housing counselor. Call one at HopeNow at 888-995-4673
  • LB
    lena,
    Memphis, TN,
    Mar, 2014
    I owe $69k on an FHA loan, and my loan is current. I am thinking of selling but a Realtor told me my area value is from $55k to $65k. Can I qualify for a principal reduction or something?
    • BA
      Bill,
      Mar, 2014
      The only one who can authorize a principal reduction is your current lender. Try speaking to your lender about the possibility of a short sale, but be mindful of whether you will be on the hook for any difference between the sale price and what you owe.
  • KR
    khris,
    B/o Lansdowne, PA,
    Jul, 2012
    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.
    • BA
      Bill,
      Jul, 2012
      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.
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