Selling Home

I do not believe it is reasonable for you to expect to find a loan for the anticipated deficiency balance resulting from the sale price of the property below the balances of the first and second mortgages. Therefore, your most reasonable course of action is to press the junior mortgagee into accepting a lump-sum settlement of this loan. Once the second mortgage is lifted, you will be free to sell the property at the market price.

Let us review your situation and look at my analysis in detail.

First, I suggest you read my answer to a fellow reader regarding Second Mortgage Foreclosure so that you understand the current landscape for second mortgages, foreclosure, and the challenges of selling a home.

Second, some states have laws that prevent mortgage lenders from collecting a deficiency balance from borrowers who are foreclosed upon or otherwise walk away from their home mortgages. See Advice on Bankruptcy and Deficiency Balance on a Second Mortgage to understand more about this issue.

Finally, if you do allow one or both of the properties to go into foreclosure, and there is a deficiency balance, that debt is unsecured. You can negotiate the unsecured debt yourself or hire a company to do it for you. See Negotiating Debt.

Regarding your first question, the junior mortgagee(s) are in the most vulnerable position because becaue if you default and allow a foreclosure, the foreclosure destroys all interests that are junior to the mortgage being foreclosed. It does not make economic sense for a junior mortgagee to redeem the first mortgage because property values in many areas are far lower than the mortgage balances on the attached properties. As a result, most junior mortgagees are willing to make a lump-sum settlement with a financially distressed debtor because the alternative is to recover zero in a foreclosure and bankruptcy.

Regarding your second question, I am unable to speak for mortgagees. My guess is it would be unlikely they would accept an offer to convert a secured loan into an unsecured loan regardless of your credit score. The fact that you have a less-than-perfect credit score makes it more unlikely that you will find a lender to take this risk.

Regarding your third question, my guess is that once you start shopping your local market you may find it difficult to sell your properties at the price you desire. Consider a short-sale or deed in lieu of foreclosure if you are unable to sell the property in a conventional sale. Alternatively, as I mentioned, if you resolve the second mortgage and lift it from the property, you will have more price flexibility.

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

Best,

Bill

www.bills.com/