Mortgages

Underwater? Negotiating a Settlement On a Second Mortgage

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CoreLogic has found that 38% of homeowners with second mortgages (including home equity lines of credit) are “underwater,” or owe more than their home is worth. Charles Phelan, founder of SecondMortgageAdvice.com has been advising debt-burdened consumers for years and has been observing a recent trend where lenders are more willing to negotiate settlements on second mortgages. In fact, he’s seeing settlements as low as 10-15 cents on the dollar in some cases.

“It’s not a guarantee,” he warned. “It’s situational.” What kinds of situations might lead to a settlement on a second? “The main thing is that the first mortgage has to be seriously underwater. If there is any equity at all in the second, (lenders) are going to want to get it,” he says. An appraisal that shows that the first mortgage is underwater can be a powerful tool, says Phelan. At that point, the second is essentially unsecured, and the lender may be eager to get something rather than risk losing everything if the home goes to foreclosure or the homeowner files for bankruptcy.

Another condition? The loan will have to be delinquent before the lender will consider negotiating. Lenders don’t typically settle on loans that have been kept current. (There is no guarantee that falling behind will result in a settlement, however, so don’t stop paying just to try to reduce the balance on a second mortgage).

In some instances, Phelan says it may be possible to stay in the home and still negotiate a settlement of the second or a deficiency. But typically a settlement occurs with a home that is in foreclosure or being sold through a short sale. (A deficiency is the difference between the balance owed, including fees and foreclosure costs, and the amount recovered through a short sale or auction of the property.)

Why settle at all? Why not just let the home go and forget about the unpaid balance? Phelan points out benefits to settling the debt. “It resolves it on their credit reports,” he says. Plus, he’s worried that the unpaid debt could come back to haunt homeowners in the future. “I see these unresolved deficiencies as a real problem,” he says. “In some states the statutes of limitations are very long. I have this sense that this is the front of the tidal wave and there is going to be a lot of debt purchasers buying these portfolios and trying to collect using aggressive collection methods.” Phelan notes that the only downside to settlement of an underwater second mortgage is the potential income tax liability on the forgiven balance, which may apply to consumers who do not qualify for the insolvency exemption permitted by the IRS. He cautions that consumers should also take this factor into account before agreeing to a settlement on a second mortgage or HELOC.

Of course, if you are considering settling a home equity loan or line of credit, you’ll also want to talk with a bankruptcy attorney to find out whether bankruptcy would be a better option for reducing or eliminating that debt.

[Related Article: 1099-C In the Mail? How to Avoid Taxes on Canceled Debt.]

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  • Russ

    any way to settle a second that has no equity and stay in the house ?

    • kari

      Yes, we are settling our second mortgage right now for 15 cents on the dollar. We are current on payments, but threatened to foreclose, which would leave the second mortgage company with zero dollars since even our first mortgage is underwater. It was pretty simple really. I sent in a letter requesting consideration for a cash settlement. Several phone calls and three months later, we have received a settlement statement for $8000 on our $53000 balance.

      • http://www.Credit.com Gerri

        Interesting Kari – out of curiosity, what city do you live in and who holds the second? How did you come up with the cash for your settlement?

        • Dinka

          Can you send me the copies of the letter that you used for your settlement pls. I am in same situation. Thank you

          • Art

            I settled a 190K (two second mortgages) for $22k. Time is on your suide, Don’t offer any personal information. I offered 5% and worked my way up. Don’t return their phone calls until they’re willing to settle. TIME IS ON YOUR SIDE.

      • Caroline

        Anyway I can get copies of letters that you used… You can delete your personal information.. My 2nd is interest only so I have kept up on my payments but in December it sky rockets.. I need tosettle I dont want to lose my home

        • Amir alamsjah

          i same problem with caroline. can you send copies of letter that you used? thks

      • Sara

        I just settled for 25K on an apparent 80K second mortgage, which my now ex did without my knowledge. Because I was not on the note, I did not find out anything about this until almost three years later. Yes, my name is on the house. I am current on all first mortgage payments and my house does have equity. Because my ex gave someone power of attorney, I did not see anything but fax from the bank with settlement offers. I have now paid the settlement. Should I have received any type of documentation showing this? The person that settled this for me said that the only thing that would happen would be that the lien would be taken off and documented at the courthouse.

        • Gerri Detweiler

          Sara – What do you mean the person who did the settlement for you? Did you hire a firm to help you settle? Did you get a written settlement agreement before you paid them? It’s never a good idea to settle without a settlement letter from the lender in hand.

      • Andrea

        can I ask who your lender was?
        I am in the exact situation and want to negotiate a settlement on my 2nd w/ Citi

      • Marie

        Kari,

        Did you have to fall behind in payments at all to get them to consider a settlement?

  • http://www.SecondMortgageAdvice.com Charles Phelan

    Yes, this is a possibility in some cases, provided the conditions are right. The second lien has to be 100% underwater, and the current home value below what’s owed on the first mortgage. The deeper the gap between home value and first mortgage balance, the less likely the second lender is to recover anything in the future, and the more likely they will consider a settlement.

  • Don Wachter

    I just settled a $64,000 loan for $6,000 -10% . I contacted GMAC told them I wanted a settlement. They hee hawed around with empty threats for almost a year before sending a letter with 10% offer. God is good my friends just keep the faith!!!!!

    • http://www.Credit.com Gerri Detweiler

      Don,

      Very interesting! Thanks for sharing your experience.

    • mike

      Were you late on any payments to get GMAC to move on it? i’m curious what was involved in that process. letters, bank statements ect ect? I’d love to try the same with Citimortgage but am not in the rear on any payments, way upside down on both 1st and second.

    • Mia

      Hi Don, where did you send the request for settlement and what number where you calling to regarding this matter. I have a secong mortgage with gmac too and i am current. Do i need to be behing in paymens? By the way, can you please share some of the info you put on your request lettler as a sample for me? Thank you very much.

      • Debbie

        Hi Don, I have my second with Bank of America with no equity in either my first or second. Please share more details. Thanks!

    • http://n/a denise

      did you get 1099d for the difficiency and or the difference for what was originally owed?

      • Gerri Detweiler

        Denise – It’s supposed to be for the amount of the “cancelled” debt which is really the amount that wasn’t paid back. It may or may not include taxes, late fees, or – in the case of a foreclosure – attorney’s fees etc. Whether or not these amounts are accurate is another story…

    • Cecilia

      how did you do it without any lawyer? what was your strategy? I’ve tried but they said I don’t have that option!

    • Marie

      Don

      Did you have to fall behind in payments or stop paying all together to get them to settle? What resources did you use to help you write/request your settlement? Im in the exact situation, 1st with Wells Fargo for 290K, 2nd with Chase for 66K and home is currently valued at 197K.

      • http://www.Credit.com Gerri

        Marie –

        I wouldn’t recommend you stop paying just in the hopes that will force them to settle. Instead, I’d recommend you get some professional advice to first determine if you may be a good candidate for settlement. There are no guarantees, but professionals who regularly help homeowners in situations like yours will have an idea of what the trends are for your lenders. I wrote about how to go about this in my piece, Underwater Homeowners Ask: Should I Stay or Should I Go?

    • lazaro vazquez

      i want to know .if the equity line settlement.how could affect the credit?

      • Gerri Detweiler

        Lazaro – The settlement will likely be reported as partial payment or charge off or something similar. It will likely be comparable to a short sale. You’ll find more information in this article: Why are Short Sales So Bad for Your Credit?

  • jb

    I have a re-fi from countrywide(2005),1st and 2nd written .1st has some equity of balance to home value,but the second puts the combined debt more than the value of the house.The first is a arm,the second has a 30 yr amoritization,but expires in 15 yrs,which I wasn’t aware of till recently.I was contacted by lender at a time when I was having financial problems,and mistakingly let them run numbers and set up a loan that allowed me to pay a couple CC companies who were garnishing my wages.I am looking for options as to how I can better my situation,I think I would rather sell than re-fi again,but I would be short on paying off the second.Any ideas appreciated.

    • http://www.Credit.com Gerri Detweiler

      JB – I would recommend you read the entire series, and consult with a bankruptcy attorney. You may be able to “strip” the second, or at least confirm that the second is really an unsecured loan, which can give you some negotiating leverage if you decide to try to settle it as Charles Phelan recommends. Now is probably the time to tackle it -the banks know the reality of the economic mess.

      You may also want to get an audit of your loans by an experienced real estate attorney. If there was anything fraudulent about the loans that you received to pay off your debt, you may be in a stronger negotiating position.

      Let us know what happens!

  • Tom

    Hi Gerri. My wife and I have two loans totaling 400k on a home in CT that according to comps and internet research is now valued at less than 250k. Our 1st mortgage (with Citimortgage) is 315k and our second (with PNC) is approximately 90k.

    We have perfect credit and have never missed a payment – on anything.

    Our situation is such that we will likely need to move in the coming year. And we’re left with all the very same questions your site uncovers. Our main question now: what do we do?

    If we were to strip the second, I’m sure we could try to sell the house for 100% of the first. Or at least very close. Does stripping/settling the second tank our credit? Can we stay in the house if we did that?

    Lost in CT

    • Gerri Detweiler

      Tom,

      So sorry to hear what you’re dealing with. I’d suggest you do two three things. First, talk with a bankruptcy attorney to find out whether it’s even possible for you to file and strip the second. Yes, that will hurt your credit significantly, but think about it this way. Your credit scores pretty much completely recover in seven years. Is it worth $90,000 to hold onto your current credit scores during that time? It may be, but look at the big picture here.

      Second thing I would recommend you do is talk with a real estate attorney who has handled a lot of short sales in your area. The attorney should have an idea of what your lenders are willing to do in a situation like yours and can help you understand if that might be a good option.

      Then finally, meet with your tax professional to find out the tax implications of those two options. That may help you make your decision.

      I know this is not easy at all. Just take it step by step and keep thinking big picture.

      Oh, and as far as settling the second, you can visit SecondMortgageAdvice.com for more information on how settling seconds work. That’s usually done in conjunction with a short sale, but Phelan says he has seen situations were people have settled the second and stayed in the home. That’s not typical though. And yes, it does hurt your credit substantially.

  • Paul

    Help ! :)

    I originally bought my home free and clear in 2005. I then opened up a HELOC against it for $340k a few years afterwards. Since then we have had financial problems and medical issues and have exhausted the Heloc and now owe about $300k. The house value has dumped and is now worth about $220k. What are my chances of settlement with BofA and for how much?

    Thank you

    • http://www.SecondMortgageAdvice.com Charles Phelan

      Paul, this would not be a settlement situation. The reason is because you only have a single lien holder on the property. Settlements take place when there is no equity against the second mortgage or HELOC, and that only occurs when the home is worth less than you owe on the first mortgage alone. In your situation, the creditor would have a strong incentive to foreclose on the property to recover as much as possible against the $340k note. A short sale would be one approach to resolving this situation. You may want to discuss that option with a realtor who specializes in short sales. And of course, I also recommend you consult with a local real estate attorney to review your options.

  • Kelli Jazombek

    I have two mortgages on my home, both with Wells. First mortgage is a standard 30yr at 5%. The second is an equity payment that is interest only. We have had both of these mortgages since we purchased our home 5yrs ago. The second mortgage needs to be paid in full ($71k) in 3 months. Tried countless times to re-fi the two mortgages together, but can’t do that since our house has dropped so much in value. We have never missed a payment on either mortgage and have perfect credit scores. Wondering if making a settlement offer on the second mortage is the way to go, but worried how it will affect our credit scores as well as what will happen come tax season since we live in MD and are not a debt forgiveness state. We don’t want to loose our house, but don’t know what is the best thing to do. We have paid over $40k on the 2nd mortgage and of course we owe exactly what we did 5yrs ago.

    • Gerri Detweiler

      Kelli,

      I am so sorry you are going through this. I would recommend you do two things. The first would be to talk with a housing counselor. That service will be free and they will help you understand what programs may be available to help. You can contact EndYourDebt.org or any approved HUD housing counseling agency.

      The second thing you should do is to talk with a bankruptcy attorney asap. You don’t have alot of time here and you need to figure out what you are going to do when that loan comes due. The attorney will be able to explain how bankruptcy may or may not be able to help you, as well as help you understand whether you may be liable for a deficiency if you default.

      I understand it must be totally devastating to go through such a set back with your credit, but keep focused on your main objective, which should be to focus on the financial issues here and worry about your credit afterward. You can always rebuild your credit later.

      Hang in there!

  • Ben

    Dear Gerri:

    We bought a house with a first mortgage of $390,000 and then added a Home equity of $100,000 over a year. Currently the house is valued around $320,000. Being a single breadwinner for the family comprising of wife, and 2 kids aged 7 and 2 and having to take care of 80 year old mother’s medical and old age home expenses, I am burried in debt and at times am spending more than I make (making ends meet through 401K loan). I had stopped making payments on both first and second mortgage for a while but when the first mortgage was up for foreclosure started making payments on first. However I have not made any payments on the home equity for the last one year. When the lender threatened to sue me for the money, I got scared and provided them with my paycheck, tax return and other information. They started with 75% offer and have come down to 25% offer. I offered to settle it for 7.5% and then 10%. But they are refusing anything below 25%. I am about to meet a bankruptcy attorney for initial consulting and even mentioned that. Lender is saying they can apply for litigation before my bankruptcy application. I make around $130K but due to exhausting list of loans ($2,800/month on first mortgage), mother’s expenses, other credit card settlements, 401K loan etc, I have a hardtime making ends meet. However lender keeps mentioning how much money I make. BTW I work for the lender. Can you pls advice? Your help is appreciated.

  • Gerri Detweiler

    Ben,

    I am so sorry to hear about what you’re going through. The stress must be enormous.

    You are doing the right thing by meeting with a bankruptcy attorney next. You need to find out what your options are if you file. Don’t worry about the lender threatening litigation before you file. Even if they get a judgment against you, part or all of that judgment may be dischargeable in bankruptcy.

    I can’t promise you any easy solution to this problem, and it sounds like the fact that you work for the lender only complicates things. But the attorney will be able to walk you through your options. Perhaps the second can be stripped and the lender may decide to work with you on a loan modification for the first. And perhaps getting rid of other debt will allow you to catch up on your first. I don’t know – the attorney will have to advise you on all of that.

    But hang in there and let us know what happens after you meet with the attorney.

  • ML

    My ex-husband received the family home in our divorce settlement in 2008. At that time, both mortgages had been paid on time. Per the court order, he was to refinance or sell the property to get my name off of the mortgage loans. That has not happened and the last payment he made on the 2nd D/T was in November, 2008, right after the court ordered the debt was his responsibility. The first mortgage has been paid on-time every month. The 1st D/T has a balance of about $205,000 and the balance on the 2nd is approx $174,000.00. The home has been listed for sale for 4 years with no buyer in sight (at the price needed to pay off all of the debt) and he can no longer qualify for a loan to refinance the debt out of my name. Homes of this size in our area are appraising and selling for less than $300,000.00. A substantial amount of the 2nd D/T is now unsecured, do you feel that Bank of America may be wiling to settle in this case? Because there is a court order indicating my ex is responsible for the entire debt on the house, could the bank come back to me for 1/2 of the deficiency because I am on the original loan documents? I have not resided in the home since June, 2007 and was ordered by the court to Quit Claim the property to my ex in the settlement.

    • http://www.Credit.com Gerri

      ML –

      Unfortunately, it doesn’t sound like you are off the hook for this debt. In fact, lenders can look to either borrower to pay the entire amount of any unpaid joint debt. I can’t tell you whether B of A would be willing to settle, but it could be complicated by the fact that you both owe the debt. (They may require both of you to qualify for a settlement or make both of you sign off on the settlement which could be difficult.)

      My recommendation is that you meet with a bankruptcy attorney and a tax professional (CPA or enrolled agent). This is a large amount of money, and you need to make the best financial decision you can here. The bankruptcy attorney can tell you whether you can discharge your liability for this debt. The tax professional should be able to help you determine whether you would owe taxes on forgiven debt if you instead settle the debt. You need to know the answers to both of those questions before you can make an informed decision.

  • Susan

    Gerri,

    I have a 1st and 2nd with BofA. I successfully modified the first in 2008. I had to declare bankruptcy in 2009. Chapter 7 was discharged. My mortgages were included in the discharge but I wanted to keep my house so I continued making the payments. Then my partner died and without his income I could no longer afford to make both payments. I stopped paying the 2nd this past Sept. I am current on the 1st. I am seriously underwater on the first so the 2nd is completely unsecured. I have been told that BofA would be foolish to foreclose on the 2nd since the 1st must be paid off with proceeds from the sale and the costs of foreclosure would make it even more costly to them.. Plus they are getting their payments for the 1st mortgage so why endanger that? I have received Notice of the Intent to Foreclose. Maryland is a judicial foreclosure state and has passed laws requiring mediation before a foreclosure can be concluded.

    Here are my questions:

    1.Could BofA charge off the 2nd as an unsecured debt and turn it over to a collector?
    2.If the debt was discharged and it is no longer collateralized what could they sell to a collector to collect on?
    3. Can the collector come after me or am I protected by Bankruptcy law?
    4. Since BofA cannot contact me legally should I call them to try to settle the debt for a lump sum?
    5. Would a mediator be able to negotiate a settlement with them?

    Thanks for any insight you can give me.

    Susan

    • Gerri Detweiler

      Susan,

      We have to defer the legal questions to your bankruptcy attorney. We don’t see how the second could be turned over to a collector if you successfully discharged that debt. Check with your attorney to make sure that’s the case.

      Why would you settle on the second? Is it because you want to stay in the home? If so, then please do not proceed without the help of an attorney. If you reaffirm that debt, you may jeopardize what you were trying to accomplish with your bankruptcy.

      Sorry we can’t be of more help but you need legal advice to proceed here.

      • Susan

        Gerri,

        Yes I do want to stay in my home. I did not reaffirm either mortgage and don’t want to do so. But BofA is threatening foreclosure on my 2nd. I am confused about what they can do or will do since the 2nd was discharged and is 100% underwater. I am current on the first mortgage which is also underwater and both are with BofA.

        Since I have already had a Chapter 7 discharged in 2009 I don’t think I can do a Chapter 13 so soon to strip the lien and I don’t really want to do that again. If I try to negotiate a settlement with BofA on the 2nd how would that reaffirm the debt anymore than continuing payment on it?

        I just don’t see what the bank has to foreclose on or if it’s charged off and sent to a collection agency what exactly are they collecting on since this is a discharged debt with no collateral value? I am not obligated to pay it thanks to the bankruptcy and they don’t have anything to take back. Sounds like a stalemate to me.

        I am willing to settle the 2nd to clear the lien from the title.

        Any thoughts on this?

        • Aaron

          Hi
          Have you gotten anywhere with this? I’m in a very similar situation.
          I filed Chapter 7 in 2010. I did not reconfirm my 1st or 2nd mortgage. At the time I was stupid and stayed in the house. I called my 2nd in fall of 2011 to see if they would settle with me after a run around one girl finally admitted we did not qualify because we were current. So I quit paying. I’ve called them asking about a settlement and get a run around every time. I have a phone call schedule with someone else tomorrow. I owe 98,500 on my first and the BPO came in at 98,200 quite ironic! I owe about 60K on my 2nd. Per my BK attorney I am under “no legal obligation” to these loans so I don’t think they can sell the debt to a collection agency. I would like to keep my home so i’m offer to settle on the 2nd. I just looked at Making Homes Affordable and HAFA and found out that if I were to short sale they 1st would pay the 2nd a max of $8500. I’m willing to pay that.
          No one can give me an answer on what the 2nd will do. We’ve had 2 letters from them but at 45 and 60 days. We are now at 7 or 8 months and haven’t had anything else. When I spoke to them today she kept talking about “reinstating my loan” finally I asked what she was talking about and she said “never mind, you are not in foreclosure.” We are current on our 1st.

    • eddie pullin

      Hi Susan,
      I also live in Md and I’m in the same situation, except with HFC, HSBC, or Beneficial whoever they are now.
      I filed chapter 7, they discharged my 2nd mortgage, but still hold the lien, I’m getting no where with anybody.
      I filed bankruptcy over 4 years ago, now I’m being told if I walk away I will have to wait another 4-7 years to purchase a new home, once they foreclose if they ever will. So basically I am renting the home I purchased. I’m responsible for the taxes, HOA dues, and insurance.
      I am so upside down its not worth it for me to stay, and if I leave they can screw up my credit that I rebuilt again. ugh,
      Where can we get answers? My attorney isn’t much help. He keeps saying stay until they foreclose, but that puts an adverse blemish on my credit again.
      What do we do?

  • Alicia

    I bought my property in 2007 for 192K (150K the first and 40K the second). Right now the value of the house is 66K. I just have my first loan modified. I can’t pay the 2nd Both are with BoA. I am behind 6 months with the second. Do you think BoA can settle it?

    • http://www.Credit.com Gerri

      The bank may be able to settle it, but whether they will is another matter! Given how far underwater you are, you may have several different options available to you. I would recommend you meet with a bankruptcy attorney to find out whether you could wipe out the second by filing for bankruptcy. (At this point, it sounds like the second is essentially unsecured.) Then you could always try to negotiate with the lender and let them know that if they won’t work with you you’ll have to file.

      But I also wonder if a short sale or even letting the home go is a better option given how deeply you are underwater on the first.

      I am not sure why you negotiated the first without negotiating the second at the time, but taking care of only one loan doesn’t solve the problem, so focus on getting to a solution that works for the long-term and not just temporarily.

      • Alicia

        I couldn’t negotiated the second because BoA is the servicer for both (they are owned by different investors) so I was told that I have to modify the first and then after it is completed, the second.The thing is that I cannot pay any other bill. If I settle the second I will have to take the money from my 401K so I will be paying it one way or another, so my goal is to extinguish that loan. My question is: Given my financial situation, do you think BoA can extinguish it? (BoA has my payroll and expenses information from the modification).
        Depending on the outcome with the second loan, I will consider to file for bankruptcy. Thanks to your answer, now I can see that it is another possibility and maybe better than the other one.

        • Gerri Detweiler

          Ah, I understand now. Still, it bothers me tremendously when these lenders agree to modify one loan but not the other – especially in cases like yours where it doesn’t solve the problem. I still think your next step is to meet with a bankruptcy attorney to find out whether it’s possible to get the second wiped out in bankruptcy. Good luck Alicia – hope this works out in the end.

  • robert

    can the bank (BOA) foreclose a house only because of a home equity line of credit ? even thou the first mortgage with another bank (WF) is up to date ? this in on a RENTAl or investment property, please advise.

    • Gerri Detweiler

      Technically, yes, they can. But they may not want to because they will have to pay off the first lender. Have you talked with an attorney about your options on this property? Unlike mortgages on primary residences, it is possible to modify mortgages on rental properties in bankruptcy.

  • robert

    thanks Gerri, i was actually dismissed from bankruptcy, chapter 13, this month, and i was never offered this option by my attorney. I guess I will have to do it myself at this point, but thank yo so much for your advise.

  • Sandra

    I live in NY and have a 1st mtg with Wells Fargo for which I owe 217k and a jt heloc with my mom for 80k with Chase a bank I work for; she is the primary on the heloc & I am the secondary person. For quite some time I have been in and ot of foreclosure, I have exhausted my 401k my salary was decreased by more than 50% and I am a single mom. I ve been unsuccessful with a modification and Chase wants to settle my heloc for 16k. I want to stay in my house, but at this time I don’t think I can. I also have a third mtg on the property that is coming out of my cking acct and my payck is being garnished every pay period so my take home pay is about 2000 oh and my 401k loan is also coming out of my payck. I use to make 72k and now I am down anywhere between 38k-45k. I don’t know whether I should just bite the bullet and file bankruptcy or try to negotiate with Chase to make interest only payments and or call my salliemae to try to get them not to garnish my pay and work something out with them. I would love to try and get a second job but I have been unable to find one because of babysitting issues.

  • riley

    I live in Minnesota. My situation is I own a duplex in which I currently live in one of the units. Due to many circumstances, at the end of the month there isn’t extra money at all and often I’m borrowing from next month to pay for the previous. My Mom is in the same situation. We have decided that I should move to her home and share expenses. I have $160,000 on the 1st mortgage and $25,000 on the 2nd – duplex’s in my area are selling for $100,000 if they sell at all and renting my unit wouldn’t cover all of the monthly costs for the house so renting wouldn’t help. I would do a short sale do a deed in lieu (can I do that with a 2nd mortgage on the house?) but don’t know how they are selling or how long it takes. If I walk away what would the possible ramifications be? Also, 4 years ago I filed bankruptcy but wanted to keep my home but I’m still drowning.
    Thank youl

    • Gerri Detweiler

      Riley –

      Second mortgages can be reduced or eliminated in short sales. It’s not guaranteed, of course; it’s a matter of negotiation. I would recommend you talk with a real estate professional and attorney with experience in short sales.

  • Caroline

    I need some advise about starting the process of offering a settlement to my 2nd mortgage.. I owe $148000.00 on my first… The value of the home is $153000.00 but my home is very distressed so I think it would be lower. Roof leaked, water damage in the kitchen, septic issues. I owe $110000.00 on my 2nd mortgage… it is interest only so I have only been a week late each month.. It will convert to a high interest rate in December..
    I need to know what to do to start the settlement offer on my 2nd and what do I say.. Also will my 2nd buy out my 1st mortgage if I start this process??
    I dont want to lose my home. I am recently divorced so my financial situation has changed dramatically..

    • http://www.Credit.com Gerri

      Caroline,

      Do you have funds available to settle the second for less than the full balance? If not, then you are looking at trying to do a workout not a settlement.

      If your goal is to keep your home despite the problems, the very first thing I would recommend you do is talk with a bankruptcy attorney. The attorney may be able to help you come up with a plan for doing that. In some cases, it’s possible to wipe out a second mortgage in bankruptcy. Even if you do decide to settle, though, you need to understand what legal actions the lender can and cannot take against you if you can’t work something out.

      I’d also recommend you check out SecondMortgageAdvice.com for more details on settling second mortgages.

  • Mike

    My first mortgage was closed with a consent foreclosure, however, the 2nd mortgage of 83K is calling to settle. They offered to settle for half, and I countered with 5%. They said the least they would consider is 20-30%. I was considering another counter offer of 10%. The bank is Wells Fargo. If we do not agree, they will probably refer the loan to a collection agency, but I’d rather settle. Anyone have experience dealing with Wells Fargo? Any advice would be appreciated

  • Mike

    Hi guys i have a question!
    I’m filing for chapter 7 at the moment.
    My layer said i should stop paying for Line of credit which is 40k interest only and settle with them. I also have first mortgage of 100k and currently my condo is worth around 90k
    so the second loan is unsecured.

    You guys think its reasonable to ask for settlement?

  • Nora

    Hi, I bought my house in 2004, 100% financing with a 80% first and 20% second loan. Got married in 2007, and refinanced in 2008 putting my husband on the the two loans but did not take any money out. In 2011 we moved out and rented out the house. We are now getting a divorce. I do not want to live in the house since there was a serious problem with the neighbor and the neighborhood has deteriorated. My ex does not want to keep the house, or participate in a short sale. The house is at least $250,000 underwater. I’ve been advised to just let the bank foreclose. I live in California, and the same bank owns both mortgages. Is this my only option?

    • Gerri Detweiler

      Nora,

      I would recommend you talk next with a bankruptcy attorney. He or she should be able to help you evaluate your options for dealing with the property.

      Gerri

  • darnell

    I have an 80/20, first is with Vericrest for 240k, second with citimortgage for 75k. I have no equity, and home is only worth 180k now. I stop paying both 6 months ago and tried doing loan modifications for both. After being jerked around my first approved a temporary modification, which is bull because I know I qualify for HAMP. But my second with citimortgage charged off the loan, but haven’t sold it yet to another lender. Does this mean they are trying to foreclose or should I try to settle with them. If I keep my first loan current can I stay in my home? Can the second foreclose if the first is kept current? I live in Maryland and there is a law here of mandatory mediation before foreclosure, so why did my second charge off the loan so quickly, without trying to work something out. Hope someone can help me.

  • CAMom

    Dear Gerri,
    Thanks for the great article. We bought a house in CA in 2008 with a 80% 1st (Amtrust Bank) and a 20% second. We filed Ch 7 in June 2010. We did not strip the 2nd because my husband’s mom is a guarantor and we were hoping we could work something out. We refinanced the 1st (+ 12 months of arrears) in Jan 2011 –$719k (HAMP –took 16 months total to get this done with Saxon Mortgage, which bought our loan from Amtrust when it was shut down). The 2nd was with a small private bank in Tacoma WA that had promised us (verbally of course) that the 2nd could be re-financed every five years, no problem. That bank went under and was taken over by a nasty little regional outfit called Heritage Bank. They have already (!) told us that they intend to foreclose in May 2013 when our loan comes due (approx $125k). Our house is worth about $680-700k right now. The 2nd is completely under water, but we can’t file for bankruptcy, as that ship has already sailed. I’m also concerned that the 2nd might NOT be a no-recourse loan (as to us –not the guarantor) because of the way the bank set up the initial purchase transaction. Anyway, the question is, why would the holder of the 2nd foreclose when it stands to lose money doing so? I just don’t understand why they would do that. We’ve offered to re-fi the loan for another ten years at the same (7.5%) rate. We’re current on the 2nd and pay it every month. Our credit is crap because of the bankruptcy, but our income exceeds 200k/year and we’re re-establishing credit. Is settlement even worth discussing when there’s a guarantor (who is not willing to file for bkrptcy)? Thanks so much for you thoughts.

    • Gerri Detweiler

      I wish I could offer you a simple solution, but unfortunately, I am not sure how this will turn out. As you’re well aware, many lenders don’t seem to be “making sense” when it comes to these loans.

      Have you talked with a real estate attorney who specializes in short sales/foreclosures? They may have a better idea of what this particular lender is doing on these loans, and whether there is any hope of negotiating with them.

      Is it true your husband’s mother is not personally liable for that loan, but you are? I’d encourage you to find that out for sure (the real estate attorney should be able to tell you that). If she’s personally liable, she may have no choice but to help you find a solution.

  • Steve

    I have a unique situation. I live in CA and purchased my home 6.5 years ago. Purchase price was $390,000. I put $90,000 down and currently owe $270,000 to my Chase first. In addition, I have a $55,000 Chase HELOC. Current appraisal is $235,000. My company is transferring me out of state and need to move. My relocation package offers $39,000 (10% of orig. purchase price) to offset an upside down situation and will cover all closing cost. If I did not have the HELOC the numbers jive for a traditional sale. We our current and have good credit. Is it possible to settle my HELOC while current and if so – how will me credit be affected. I don’t have the cash to pay $55,000. But could afford a settlement. Thanks

    • Gerri Detweiler

      It’s worth a shot to try to settle it. You may want to check out SecondMortgageAdvice.com for more help with your situation. Also be sure to find out whether you may owe taxes on any forgiven debt if you are able to settle. You’ll find more information about taxes on forgiven debt here.

  • MLH

    Just wanted to stop by and say that reading about what everyone else is having to deal with is somewhat calming. Apparently misery loves company. So I wish everyone the best as they try to do whats best for them. Our situation. We are in CA. Purchased a home in 2006 for 705K. We put 5% down (and a bunch more into the house), 565k (80% LTV) on the first with Countrywide (now BofA). It was a 5 year I/O that has matured into a variable rate with annual adjustments, and $105k (15%) on our second at an insane 8.75% with CCO Mort.
    Our first is still current (owe $550k) and we stopped paying the second in Nov 2011 (owe $100K). Home is likely valued at $525k. I am attempting to settle the second w/CCO. Was rejected on a loan mod, and have now sent letter to CCO asking them to settle (no response as of yet). I’d like to know if anyone has had any success settling their second. Or maybe a better question, has anyone heard of a second actually foreclosing on a home that was current with the first, when there was ZERO equity for the second to take? Banks are doing weird things, but that wuld seem to take the cake to foreclose for nothing (outside of the write off) when the homeowner was offering $20k cash.

    • http://www.Credit.com Gerri

      You certainly aren’t alone!

      One suggestion: I’d recommend you at least meet with a bankruptcy attorney to find out whether the 2nd could be stripped in a Chapter 13. That may give you some additional negotiating leverage if they fail to come back with a reasonable offer. It can also give you some peace of mind to know there is a Plan B!

      Let us know how things turn out for you.

  • Ashok

    Gerri,Its definitely a learning experience readying the blog,Thank you. I have exact situation as most have in this blog, Bought home in 2006 both interest only loans, my first mortgage of 282K @6.625% and 71K @8.825% fixed as HELOC with the same bank Wells Fargo. My first mortgage was modified in Oct-2011 3.75% and principal going up to 286K(reason asking me not make payment for 2 months and some processing charges). My second mortgage was modified from fixed to variable still interest only. My home value has tanked from 353K to 276K. Bank does not want to touch my second mortgage and refused to consolidate advising me to continue making my payments. I really dont get it, I am trying to mitigate my financial situation as my second mortgage is 8 year ARM loan and would pose a big threat soon. Is there any way I can ask for settlement and try to pay off. Thanks again.

  • jesse

    Guys,
    I need some brain power here for my situation as well. I have a house in Cali which i bought with my sister in 2007. Story short, it’s worth about $270k at present and we owe $340k on 1st loan and $139k on 2nd. I moved out of the state some years ago and bought my own place in NM but i am only responsible for paying the 2nd loan in Cali under my family agreement with my sister. My smart ass sister refuses to move out of the house or even consider a short sale and i’m stuck paying for 2nd loan for practically nothing….
    My question is:
    a) would my beloved BOA accept a settlement for my second for considerably less?
    b) if so, where do i start and what do i do? BOA have 20 phones lines going to timbuktu land for people like me
    c) i am current on my payment and so does my sister but i have made up my mind to stop paying starting the 25th of this month when its due. Again, my smart ass sister wants to live there so can i still settle the 2nd and have BOA let her keep the house and the payment for the 1st?
    I appreciate everybody’s responses….thank you
    —-may the force be with me—–

    • Anupam Oberai

      I just went through this…my first = $942k 2nd – $315k. House is worth $800k. I am negociating with SLS on my fist to bring loan down to $750k. Just received settlement from Realtime Resolution for 20% of my 2nd. $65k.

      You have to show hardship and the fact under foreclosure they get nothing. They will work with you.

      • Gerri Detweiler

        Good to know. I’m curious – how long did it take? Did you do this on your own or did you get professional help?

  • Magna

    Hi Gerry, thanks for your support giving advices about how to keep our houses, this is my situation: I have two loans, 1st. loan balance is $57,000 -Wells Fargo and 2nd. loan balance is $98,500 – Chase I’m paying just interest; the value of my house is $90,000; until now I didn’t stop making my payments. I bought my house in 1998 and I got the 2nd. loan because four years ago I put the money in some investments but it was a fraud, I want to keep my house, please tell me If I have chance a Settlement on a 2nd. Mortgage.
    Thanks in advance for been so kind, God bless you.

    • Gerri Detweiler

      Magna – Your first step should be to talk with a bankruptcy attorney or a consumer law attorney who helps consumers in foreclosure. This will give you an idea of what your options are legally for dealing with this debt. Then, after you have some idea of where you stand you can try to negotiate with the lender for a settlement. I can’t say for sure how this will turn out for you, but if you want to stay in your home, then it’s certainly worth giving it a shot.

      • Magna

        Dear Gerry, thank you very much for your advice, I certainly going to look for a Consumer law attorney.
        Magna

  • David H

    Hi Gerry. This might be an interesting one for you.

    I was divorced in 2010 (California). My ex-wife and I owned a home with a first mortgage of $175k (Citimortgage) and a second mortgage of $51k (Bank of America). I no longer lived in the house but the ex-wife remained. I am obviously still on the hook for both loans. The house would be lucky to sell for 140K. Short sale would be futile because the ex wouldn’t agree to leave.

    My ex-wife was able to negotiate a loan modification on the first mortgage. I asked if could she try to re-negotiate the second with Bank Of America but she says “NO”. I did inform her that she was legally responsible for the second too and that Bank Of America could initiate foreclosure proceedings but she say’s that she isn’t on the second mortgage and that the loan is my sole responsibility and that she doesn’t need to do a thing. I was able to prove that she signed the loan papers but she still won’t do a thing.

    Cut to Feb 2012, no payments have been made in 25 months and the 2nd remains in limbo. In the beginning, I tried to negotiate a settlement with BOFA and was flat out denied. I’d like to resolve the issue but not sure if I should wake the sleeping giant or just be quiet. Obviously my credit can never start to repair until I resolve the issue.

    Do you recommend any course of action? Will BofA ever come after me? Thanks for any reply.

    • Gerri Detweiler

      David – Do you know if the second is a recourse or non-recourse loan? That’s the first thing I’d suggest you find out. A significant number of mortgages obtained to purchase homes in CA are non-recourse loans and that will be a major factor in how you deal with this. If you aren’t sure, I’d suggest you contact an attorney to review the documents for you.

  • David H

    That is a good question. The loan originated with Quicken and I guess it was sold to BofA. I never refinanced the second. I took it out to consolidate debt and for home improvements. The home was the sole collateral for the loan. I dont even know how to classify it. Is HELOC the same as a second mortgage? I guess I can ask my lawyer.

  • Mimi

    I have 2 condos, one investment and the other is my primary residence. I stopped paying the mortgage on the investment property in june 2011, In Jan 2012 I rec’d NOD and am thinking about filing for bankruptsy to get rid of my credit card bills and the investment property, I soon will start the short sale though. My question is regarding my primary residence. I bought it for $190,000, my 1st mortgage is now $126.000, my second mortgage is $ 88,000. the condo is now worth about $ 170 TO $180,000.Is there anyway that I can settle with BOA on my second mortgage? I do want to keep my primary residence. Please advise.

    • Gerri Detweiler

      Mimi –

      It is much harder to settle a second mortgage when you want to stay in your home than when you are letting it go. I would recommend you talk with your bankruptcy attorney before you decide to anything more. The attorney should be able to advise you on your options.

      • Mimi

        Thank you,

  • Bill

    Hi…hoping you can give some advice:
    Like others, we are underwater with our townhouse. We live in Minnesota. We have two mortgages, the second one being a HELOC that was used to purchase the home…and it’s interest-only.
    We are considering a strategic default and my undertanding is that even though MN is non-recourse, we would still be on the hook for the HELOC. Both the first mortgage and the HELOC are held by the same bank.
    So, here is my question: what would happen if we defaulted on the first mortgage but kept paying the HELOC? Would this be the thing to do?
    Thanks for your help!

  • Aaron G.

    Hello: I have almost that same situation as everyone else here except: my property is a tri-plex income property, and I don’t live there. I have two mortgages, a 1st for $230,000, and a 2nd for $81,000. Zillow.com says the property is worth $325,000 but a a local Realtor says we’d get less than $290,000 if we tried to sell it. Both mortgage loans are with the same lender: American Home Mortgage Servicing, Inc. I’ve written a letter to AHMSI, requesting a loan modification on the first and the second. Are they likely to work with me?

    • http://www.Credit.com Gerri

      Aaron,

      All you can do is try. But I’d also encourage you to meet with a bankruptcy attorney. Bankruptcy may give you some attractive options for handling the mortgages on an investment property. The bankruptcy attorney can also help you understand what is at risk if you can’t modify the loan and fall behind.

  • perry

    hi, i bought new home in 2006. countrywide gave me an 80/20 which is what i thought. in arizona u can walk away on first buy have 2nd to deal with. the 2nd has hinted they would conside 10 percent to settle. can take chapter 7 but would like to settle it w/o b.k. HOW does one find out if i would be responsible for tax on that settlement? the money was used to make improvements along with using for living expenses including making 1st & 2nd mtg pymts. the 2nd was refinanced 5 yrs ago. now have rec’d notice of foreclosure on 1st. am older man with limited income but always pd my bills and a high credit score. not interested in buying any kind of home. want freedom not tied to any long term obligations and always lived with my own theory of “live today for today and to heck with tomorrow”. very few needs in life now and always been single. any ideas on tax liability? b.k. atty says 2nd may or may not sue and to sit tight or try to settle 2nd. i want to get past it all and live my life and be rid of the stress. am late 60’s. thanks for any help ur able to give.

    • Gerri Detweiler

      Perry,

      You need to find out whether, if you settle, you would qualify for the Mortgage Debt Relief Act, or the insolvency exclusion. You’ll find instructions and a worksheet on the IRS site. (Look for Form 982 and Publication Form 4681) There is an insolvency worksheet in Form 4681. Keep in mind the Mortgage Debt Relief Act ends at the end of 2012, and we don’t know whether it will be extended. If you don’t qualify for either of those exclusions, you may have to consider bankruptcy since debts discharged in bankruptcy aren’t taxable.

      I assume this is a substantial amount of money involved, so if you aren’t sure whether you qualify, make an appointment to meet with a tax advisor to walk you through it.

  • perry

    hi gerri, thank u for this info and your suggestions. my 2nd is $47,000. i almost never talk with either 1st or 2nd people calling me. did speak with 2nd and she suggested her board might consider 10% but am hoping can do it for less but no just waiting as i have rec’d my foreclosure and need to leave by may 23rd. what a relief to get the notice so i can get on with my life. have spoke to my accountant and waiting to hear from her whether i would have any tax liabilities with a settlement on the 2nd. not sure i am very trusting on that info right now but will go to the irs site and print those forms u mentioned. thanks again for the help. perry

  • Doll

    Im hoping someone can help me with this question. First of all I am current with my mortgage payments. I have two mortgages. one with Chase for 136k and the other with GMAC 27k. I have never been late on a payment. I want to sell my house but I owe more than what the house is worth. The homes in my area are now going for 130k ro 140k. I had the house up for sell and then took it down because it would not sell. I was wondering if I paid off the second mortgage in full which I am currently saving up. Will there be any bad write off on my credit. Im not asking to pay a percentage back to the bank. I want to pay it off in full so i can sell my house for a good price. I need to downsize. I need ti get rid of the second mortgage. I guess what I am asking is will there be any penalties for paying the mortgage off in full. I had my house for 6 years now.
    Doll

    • Gerri Detweiler

      Doll,

      As far as your credit is concerned, it’s perfectly fine to pay off your loan in full. Your lender may charge a prepayment penalty – a specific dollar amount for paying it off early – but that doesn’t affect your credit. Check with your lender to see if there is a prepayment penalty.

  • Doll

    Thanks! Gerri

  • AL

    Gerri,
    WE like many others here are in a similar situation. We own a electrical contracting business, and it has been like the perfect storm for us. With not being paid and slow work. WE fell behind. WE started trying to work with Bof A before we were even behind but they would not do anything while we were current. WE have since settled the first, after spending several thousand to attorneys. ( so many crooks out there) Now our problem is the first. IT too is held by B of A although the servicer is Greentree. We have always been up front with them, and have been trying to work out something, as our house is only worth about 385 yet the first is 417 k and the 2nd is 85 +k. They are getting increasing aggressive and rude with me as they try and pressure us to pay them. Today he said I needed to pay them 10% down or 8500, then payments of 850.00 a month. Now if I couldn’t pay the original payment of 677 a month , what makes them think I could pay that? The loan has already been charged off, so my understanding is that there really isn’t much more they can do to us? Or is there? Our credit is already trashed. They called and said they will only settle for 90%. They say time is running out for us? Do you have any advice?? I guess maybe we need to hire an attorney again, it is just that if we have to spend another 2500 or more, that is less we have to try and settle this debt.

    • Gerri Detweiler

      Have you spoken with a bankruptcy attorney to find out whether bankruptcy can help? I wrote about this in my article, When to Say No To a Loan Modification, not too long ago. If you haven’t met with an experienced bankruptcy attorney, I would encourage you to do so.

      If it turns out that bankruptcy is not an option, then it’s hard to say what will happen. You may lose your home to foreclosure or you may be able to stay in it for a while before it is foreclosed upon. Or they may decide to negotiate more aggressively later. Again, it’s hard to say and depends on a number of factors.

      As for this statement:

      The loan has already been charged off, so my understanding is that there really isn’t much more they can do to us? Or is there?

      If the loan is recourse loan and the lender is allowed under state law to pursue the deficiency, then it’s possible that you could be sued. That’s another good reason to talk with a bankruptcy attorney. Ask him or her whether the lender can come after you for a deficiency on that loan. If they can, then ask about your options for dealing with that.

      Hang in there – I hope you find a way to resolve this soon.

  • mm

    hi —
    i just secured a HAMP mod for my first mort. (330000) and my second (interest only) lien for 27000 that has not been paid in over 2 years is threatening foreclosure.
    this second is only in my husbands name who filed ch 13 last year while the 1st is in both our names —
    i have many questions based on this info – like “can they even do this?” but ultimatly they ARE threatening foreclosure if i dont get current within 30 days.

    i do not qualify for hamp for 2nd liens because its interest only and payments were less than 100$ — (both the 1st and 2nd are both Bank of america- originally countrywide)

    just wondering why they are bothering – this house is at 250000 on zillow – aka WAY underwater —
    if anyone had any advice — or similar situations —any help would be appreciated!
    mm

    • Gerri Detweiler

      MM –

      I would recommend you make an appointment for both of you to sit down with your husband’s bankruptcy attorney to learn your rights here. If he or she can’t assist, then ask for a referral to someone who can. One question to ask would be whether the second lien was “stripped” in the bankruptcy (meaning wiped out). In some states that’s possible. I mentioned it in my recent story, “When to Say No to a Loan Modification.”

      If the second was not stripped, then you need to ask what your options are with regard to the second mortgage. Perhaps the bankruptcy attorney can negotiate on your behalf.

      Either way, I’d urge you to get professional advice here since it is a legal matter.

  • DSG

    We have a first with Seterus ($350K) and a second with Chase ($70K). Our house is in Whittier and worth about $262k according to Zillow. I want to stop paying for my second but don’t want to be forclosed. We want to keep our house. We are able to pay but I am frustrated with our situation. We plan to keep our house and have some money saved. Any advise?? Thanks

    • Gerri Detweiler

      DSG – It’s really hard to say what will happen when you stop paying. You could end up in foreclosure, or the lender may drag its feet, not wanting to foreclose because the first is also underwater. The lender may or may not be willing to settle for you for less than the full balance, but you’ll need to be able to come with money to pay them if you are able to settle. Can you do that?

      I would recommend you at least talk to an attorney to find out what your legal rights/obligations are here. Many consumer bankruptcy attorneys also have expertise in foreclosure issues.

  • ECM

    Hi Gerri-
    We went through a modification on both mortgages (1st and 2nd) a few years ago with an outside financial professional outside of our lenders. We were told at that time that this professional was negotiating with the banks and was told that we should not start paying until the new payment plan has been finalized. In the end, turns out that this “so-called” professional was not doing anything for us at all and was a total scam. We ended up negotiating with our first lender to excuse the past due fees and we will get back to paying like before. However, by the time we had reached our second mortgage (citimortgage), they have closed our account and transferred to United Guaranty (bank mortgage co). AFter not hearing from us for 6 mo., United Guaranty has transferred our account to a debt collection agency. Now the Debt collection agency is saying that United Guaranty is holding a lien on our home until we pay the debt. I forgot to mention that our house is not even worth the first mortgage let alone the second mortgage. Now the debt collection agency is willing to settle our 2nd from $40K to $20K but it must be paid in full. With the past two years of my husband not having a job and now he has one, we dont have that kind of cash, considering we have used most of our savings to live for the past two years. We were thinking about going to our first lender (Chase) to ask if they can add this $20K to our first mortgage or apply for a personal loan to pay it off. But i’m not even sure if we should, considering that we are paying the $20K for nothing when our house isnt even worth that much.
    We do want to stay in our home. Please advice on what our options can be.
    thanks

    • Gerri Detweiler

      I’m so sorry to hear you were taken by a mortgage modification scam. With regard to the second, you can only do what you can do. If you don’t have the money to settle for the amount they are offering, then you’ll have to tell them that it’s simply not possible. Getting a loan from your first lender is not going to be an option. They’ll turn you down. And getting a personal loan – if you could qualify – is also a lousy option because it will no doubt be a high-rate loan due to your credit problems.

      I’d advise you to meet with a bankruptcy attorney, if you haven’t done so already. Perhaps this debt can be discharged or modified through bankruptcy. At a minimum, the bankruptcy attorney should be able to tell you what may happen if you can’t settle the second successfully. It’s possible that if you continue to hold out, you may be able to get a better deal to settle the second. But it depends on a number of factors, and the attorney should be able to help you better evaluate the situation.

      Remember, too, that sometimes forgiven mortgage debt can be taxable. So keep that in mind as you decide how to proceed.

  • ECM

    Gerri, thanks so much for your quick response. we will follow up with your advice…also i forgot to mention that our first lender (chase) is letting us do the Harp program to lower our interest rate, however, there’s the lien from the second mortgage. They, too, are trying to help us and find a way around it. Would you know if there’s a way to override the lien from the second mortgage?

    • Gerri Detweiler

      My understanding is that you are going to have to get the lender to agree to subordinate the new loan (under HARP) – and it sounds like that could be tricky. I don’t know how to get around it, other than to work with a really good mortgage professional who may be able to help figure out a strategy.

  • Brian

    Hello, we live in Arizona and purchased our home in 2007. Qualifying was so tight for us the lender worked out a “deal” where we had 2 loans in order to avoid jumbo rates. The loan balances are 416k and 59k respectively (second was secured at the time I guess since it was based on the value of the home). The kicker is in order of us to qualify, both loans were interest only adjustable in 7 years (2014). Like the majority of people in Arizona, we’re underwater. The value of our home is estimated to be 315k. The 2 loans are held by different processors and the large loan is held by Fannie.
    We have a few issues impacting us personally. First, my wife will be losing her job at the end of May and her income makes up about 20% of our income. In addition, I will be taking a 5% cut in pay this month. I’m not sure if the cut in income will qualify us for any assistance or not, my guess is the mortgage company will still say we make enough to pay the payments. I gross around 130k.
    Due to the lack of equity, paying interest only and never making a dent in the equity, we started working with a company we trust to refinance under the new program (harp 2.0? I think). We have never been late on either loan, but that may change when our income changes. The change in rate on the first (6.25 to 3.5) will save us approximately $700 per month, but it will only apply to the equity and our payment will remain about the same. In theory it’s a good move, but we still will be underwater for 15-20 years depending on the market. Also, the rate on our second is at 9%!!

    My questions are as follows:
    1. Should we continue with the refinance as this program has a June expiration date if I understand correctly.
    2. Based on your description, do we have any option to work with the second mortgager to get the loan reduced since they really have no security.
    3. The loan company we’re working with mentioned foreclosing on our house may be the smartest financial decision to make, but he recommended speaking to a legal and tax professional to make that choice. Based on our details, I’m curious what you would advise. Our intent was to stay in the house until our last child graduates from high school in 2 years. By then, we would have to come up with a significant amount of money to get out from under our house because the market is not expected to recover, at least not significantly, by then.
    4. Finally, our lender also mentioned if we were to foreclose on our home, it would need to be done this year as the law will be changing and after next year the ramifications will be significant (no forgiveness). Is this correct, or is it dependent upon each state….I.e. may be the case in Arizona but not other states. If this is the case, would we need to be through the foreclosure process by the end of the year or just in the process before the year’s up. Thank you!

    • http://www.Credit.com Gerri

      Brian,

      It sounds like you have some very difficult decisions to make. It’s good that you are trying to address the long-term financial issues here – no matter how difficult they are. Here are a few thoughts:

      1. HARP 2 has been extended through the end of 2013 so you are OK there.
      2. It is very difficult to negotiate settlements on seconds when you stay in the home. It’s not impossible, but not easy. The fact that you make an above average income probably won’t help in that regard. My guess is getting them to do anything with the second would be really good luck. It might help if you find out who owns the second. If it’s a smaller lender that actually owns the loan, you might luck out and get something worked out.
      3. I agree that you should explore other options before making a decision here. I’d recommend you find a good bankruptcy attorney who should be able to tell you whether stripping the second in a Chapter 13 is an option. (I am not sure what’s going on with that in your state/area.) I wrote about when to say no to a loan modification here: It may apply in your situation with your refinance as well.
      4. The Mortgage Debt Forgiveness Debt Relief Act does expire at the end of the year unless Congress acts, so that is a consideration. However, Arizona is a non-recourse state so it is possible that you may be able to avoid paying taxes on any wiped out debt that way. The attorney should be able to refer you to a tax professional who can help you determine the possible tax consequences. (Debt wiped out in bankruptcy is not taxable either.)

      I know this must be incredibly stressful, but you’re asking the right kinds of questions. Get the information you need then make the best decision you can. Hope things work out OK for you.

  • Bill

    Any suggestions dealing second mortgage settlement. I have been battling this settlement this Nov 2011 and I haven’t have any luck. All the bank keep asking is bank statement and pay stubs every couple of months.I asked 10 cents to a dollar. I have a lawyer who is working on it but it is very frustrating. Now I am deliquent for 120days, I stopped paying since Nov. Any suggestions

  • Ruby

    Any suggestions on what settlement letter should state? Does it need to say anything about the “Promissory Note” being satisfied with county recording?

    Ocwen just accepted settlement for a second loan that was floating around my credit for the past 3 years. I foreclosed three years ago, but was still being charged for the second loan. By the way, my second loan was taken out with the 1st in order to pay for down payment, so it was not HELOC. Ocwen was the owner of both loans.

    Thanks you for your time.

    • http://www.Credit.com Gerri

      Ruby,

      I am curious what kind of settlement deal you were able to get, and I would guess other readers would be interested as well. Also, it wouldn’t be a bad idea to get a real estate attorney to look over the settlement letter to make sure you haven’t missed something. You can also visit SecondMortgageAdvice.com which I believe offers a similar service. Given the amount of money likely involved, you’ll want to make sure you cover all your bases here!

  • http://credit.comNews&Advice mike

    I need your opinion on my situation. I have 1st & 2nd mortgages with the same lender- Decision One Mortgage Co. since 2006. The house is under water because it was overvalued by the bank appraiser prior to the closing. House was put at 530,000.00 ( 80-20 Loan closing). There was obvious fraud in the whole process. I had hardship and could not cope with the payments on both. 1st loan started foreclosure action which got dismissed because of lack of standing. 2nd mortgage got charged off and now sent the balance of $98,000.00 for collection as unsecured debt.
    Q. what do I do with this 2nd discharged loan? I want to know the legal defenses to put to frustrate boa on this alleged debt. I live in my house and do not think of losing my house to anyone. Boa through the collecting law office does not think of settlement other than 100%. I do not really want to think about them. What do I do with them. The house is not worth more than $300,000.00

    • Gerri Detweiler

      Mike,

      Have you talked with a bankruptcy attorney? You may be able to get this debt wiped out in bankruptcy and still keep your home. I’d recommend you meet with one to discuss your options.

  • KAthy

    Gerri,
    Long story short…Currently have 2 mortgages held by same bank. We are current on 1st which has been modified. About 8 months behind on 2nd. Bank will do nothing to help with 2nd. Also both mortgages were discharged through chapter 7. House is underwater by about $130000. 2nd mortgage is $98000. What can we expect the bank to do at this point? Any help would be much appreciated. Neither mortgage was reaffirmed.

    • Gerri Detweiler

      Kathy,

      It’s so hard to tell. The bank may or may not decide it’s worth trying to foreclose. Or they may want until the market improves. Who knows? Some banks are dealing with thousands of foreclosures and short sale requests every week. I’d suggest you discuss your options with your bankruptcy attorney though the truth is he or she may not know what to expect either!

  • yolanda lopez

    Here’s our situation. When economy crashed, my husbands job was effected,we tried to stay afloat, we eventually had no recourse but to file a chapter 7 banktupcty. Bring 2years behind in mortgage payments on a jumbo loan/two loans with b of a, we got our first loan current! They capitalized on the loan, lowered intetested rate, but included all our late fees, etc into loan. Our chapter 7 was discharged. But the second mortgage, which has not been paid for 3 years is in limbo. Our homes current value is 441,000, we owe 454,000 on first loan. With no paying do long on second, we owe with lates 195,000. We know that the second is not secured for to the discharge of our chapter 7. But it still worries me that years from.now it will haunt us. Should I request a settlement on second? We don’t have much to offer.

    • Gerri Detweiler

      Yolanda,

      You need to discuss this with your bankruptcy attorney. If you don’t have much money to settle then you may open a can of worms that you aren’t prepared to deal with. On the other hand, the fact that you are falling further and further behind may also prompt the lender to try to foreclose. Or maybe the lender on the second mortgage may not even have you on their radar since you filed for bankruptcy and your first is still underwater. (They may have to pay off the first to foreclose on the second, and that may not be attractive to them. What will they get out of the deal?)

      As you can see, there are some different scenarios here and your attorney is probably the best person for you to discuss them with. Your options may depend on your state’s foreclosure laws as well as the details of your financial situation.

  • yolanda lopez

    Thank you Gerri for your prompt response, it is very much appreciated. I have been researching this for awhile, and got three different scenarios/opinions….#1. don’t worry about it!, you are fine. The bankruptcy protects you since it has been discharged & your second was listed on chapter 7 discharge, so bank has no recourse (my mortgage statement on second now reads: “The discharge on this debt means you have no personal obligation to repay it. The discharge also protects you from any efforts by anyone to collect this discharged debt as a personal liability of the debtor. You cannot be pressured to repay this debt. On the other hand, the security agreement allows foreclosure if the requirements under the loan documents are not met”. This is from Bank of America. #2. Told to wait four years of filing chapter 7, at that time if your first loan is more then what your home is worth, you can file a chapter 13 & do a lien strip ( I do not know how that works), but we would have to wait another year in a half to try that, by then…we would have paid more into our first & home values may go a little…so we might not be where we need to be to qualify for chapter 13. #3 We were told to offer a settlement amount on second loan, that you can offer pennies on the dollar & they might accept, seeing that they would get nothing if we walked away. (Mind you our first is current & we really do not want to walk away).. But pennies on the dollar on amount of 195,964.00 = 19,596.00, which is great, but when u don’t have it, you don’t have it, I thought about trying to sell any items we can think of to raise the funds to offer an amount they might consider. Also wondered if offering way lower would make matters worse?? Amount such as 10,000.00. My husband thinks I am a worry wart & all is fine. But, I wonder down the line, if we hand down to our kids in 20 years, would it come back to haunt them & the amount owed would be ridiculous, & home would be lost. Another senior bank employee recommended that I go downtown L.A. and see if they put lien on home, although she felt we were in clear too…so I am really confused….????? These decisions……are really tough. Just thought listing all the things I have been told would be an eye opener for some, and wondered if you have heard of any of this either…..thz again for your thoughts & experience on this situation.

  • http://yahoo james isom

    hud is saying they will garnish my ss checkif i dont make arrange to paid off a motgage that was foreclose 10 years ago is that possible

    • Gerri Detweiler

      James,

      According to HUD, it sounds like yes, they can go after your Social Security income to pay this defaulted debt:

      If your loan is assigned to HUD, your failure to pay the debt in accordance with the terms set by HUD may result in any or all of the following actions:

      ● Seizing your federal income tax refunds, Social Security benefit payments, federal employee wages or retirement, or other federal payments,

      Also on the HUD website it states: There is no statute of limitations for administrative wage garnishment or administrative offset cases

      James, I’d recommend you see a bankruptcy attorney as soon as possible. You may be able to discharge this debt in bankruptcy to avoid garnishment of your Social Security Income.

      Please note I am not an attorney and this is not meant as legal advice.

  • robert

    is it true that some banks are no longer offering settlements on underwater second loans, even thou they used to a few months ago? or is it something that are trained to say?. I been dealing with BOA for the last 5 months and they keep repeating over and over that they are not longer offering settlements and the only option is to apply for a loan modification, the 2nd loan is totally underwater, could they foreclose my house? even thou the 1st mortagage is up to date? they sent me a letter of “aceleration proccess” that started it on may 15th. Please advise.
    thanks.

  • robert

    is it true that some banks are no longer offering settlements on underwater second loans, even thou they used to a few months ago? or is it something that are trained to say?. I been dealing with BOA for the last 5 months and they keep repeating over and over that they are not longer offering settlements and the only option is to apply for a loan modification, the 2nd loan is totally underwater, could they foreclose my house? even thou the 1st mortagage is up to date? they sent me a letter of “aceleration proccess” that started it on may 15th.
    thanks.

  • Missy

    Approx. 5 years ago, we were asked to buy into my husband’s business. The bank financed it as a 2nd mortgage against our home. They said that this would be the fastest way to to get us the money and promised to roll it into a business loan. This never happened. The amount was 250k. The payments were debilitating and at one point when we were behind, they asked us to sign some forms and they would “allow us to be behind and take late payments.” The banker ran into my very busy workplace and had me sign the forms, which were apparantly a personal guarantee. I had no idea what I was signing. So, my husband lost his job, we lost the entire 250K (which was backed by big time investors from Manhattan (who also lost their money) in the economic downturn. Now, my husband has found a new job and they are going after a judgement to garnish wages. The 2nd is not worth a thing…….what can I do?? I cannot afford to pay this back and the bank has manipulated us every step of the way. This should have been a business loan with some risk on behalf of the bank…they never explained the personal guarantee and it was never a business loan as it should have been.

    • http://www.Credit.com Gerri

      Missy – you could certainly talk with an attorney to see if you have legal action against the lender. The other alternative would be to talk with a bankruptcy attorney to find out whether you can file for bankruptcy and discharge your debt. Either way, I’d recommend you get legal help as soon as possible.

  • jane

    We have a house currently valued at $275k….the 1st mortgage is around $265k and is with BOA…..there is also a second mortgage for $70k which BOA charged off and sold to Real Time Resolutions for pennies on the dollar……we are negotiating with BOA on the first to try and stay in the house……we need help trying to settle the 2nd w RTR…..they want $41k! we offered $2k…..Can anybody tell us anything about RTR? How should we handle this?

  • Jimmy Harvey

    Gerri, found your blog and question and answers from so many people. Here is my situation in Savannah Ga. My now ex wife and I have 2 mortgages on a home. 1st mortgage is paid on time by my ex wife and house was deeded over to her after the final decree; 2nd mortgage was left for me to pay; at which at that time I lost my job. I have not at this time paid 2nd and it is coming up on 2 years. I have called the bank with the 2nd mortgage numerous times to get some help; well the bank was bought out. So after numerous calls, finally found someone in 2011 who said that they did not know where the file was at that time: WOW! Never heard from anyone until now; my ex wife said she recieved a letter on what I believe is a pay it now or face foreclosure; not sure, but I have not recieved anything from the 2nd mortgage bank ever since the final decree.
    My ex wifes name is on the 2nd mortgage; just as mine. My question to you is; who is liable for the mortgage and its payments. I know I was made liable, but cannot pay for being in such debt due to losing my job. Will the bank work with me or both of us?
    Thank you for some insight
    Jimmy

    • Gerri Detweiler

      Jimmy,

      If you obtained the loan jointly then you are both legally responsible for the debt. It will complicate things, as the lender is likely going to require both of you to negotiate a settlement.

      If you can’t pay the debt, then you may need to consider filing for bankruptcy, but that will leave your wife as the sole person responsible for the debt. (You’d need to check with your divorce attorney to find out what you can and cannot do here given the terms of the divorce decree.)

      I understand this is a difficult situation for both of you, and may be more complicated if she wants to remain in the home but can’t afford to do so. I’d suggest you get legal advice from an attorney in your area with expertise in bankruptcy and foreclosure issues. Your divorce attorney may be able to refer you or you can visit Nacba.org to locate a consumer bankruptcy attorney.

  • bryan

    Gerri,

    We filed chapter 7 two years ago at that time we were never behind on a payment of any kind our credit was in 700’s need to relocate with my job to earn more money. During this time an inspection revealed we had a mold problem. The home was deemed un-marketable by the relo company.

    Well with the thought of already going to lose money in the sale and add a big mold problem, I felt I had no choice but to file for Chapter 7. It was a business decision, had try to take the emotions out of it.

    We almost two years later, thinking I was done with the home and what was I thinking to think I could get qualified for another home. I discovered that the home must be out of my name. The home has sat empty for two years now. I asked my attorney, why did not do a ”in lieu of foreclosure”; he said you were not behing on payments..

    So now I’m in the process of getting a short sale going. Needless to say I’m a little upset that all of this time has gone by.

    I had two loans one for $202,000 and the 2nd for $51k.

    What should I expect?

    When can we buy again?

    Thanks a lot

  • thomas

    i have a contract on my home but choose not to short sale but I will not have enough cash to pay off the 2nd. Is there any help for us

    • http://www.Credit.com Gerri

      Are you asking whether you can settle the second? If so, I don’t know. It would depend on your financial situation and what the second lender would be willing to negotiate. If you have the cash to pay it off, that makes it more difficult, but if you are cashing in retirement accounts early to try to pay off the second it may be a different matter. I’d suggest you talk with an attorney who handles foreclosures and short sales asap to see what they think.

  • Jaclyn

    HI there,
    We are current on our payments but are at the end of our ability to do that. I’m beginning to contact the mortgage companies. We owe 247k on the 1st and 56k on the 2nd (9.5%) house is worth 208k Our first mortgage lender seems to think they can lower our rate and make our payments affordable. I can’t reach a live person so far on the 2nd. Is it really possible to request a settlement on the 2nd? I no longer work due to having children, our income went from 170k to 60k we have no debt outside of our mortgage. Do I need an attorney for this type of process?

    • Gerri Detweiler

      Jaclyn,

      It can be very difficult to negotiate second mortgages while you stay in the home. Not impossible, but difficult. It depends on a lot of different factors, and lenders change their policies all the time. If I were you, I would meet with a bankruptcy attorney with this type of experience to find out what he/she thinks about the possibility of either stripping the second in bankruptcy and/or negotiating a settlement on the second. You’ll also want to ask about what will happen if you stop paying; specifically, can the lender pursue you for a deficiency?

      If I were in your shoes, I would definitely get professional help, though, as it can be excruciatingly difficult to deal with these lenders.

  • http://www.credit.com CC

    Hello. We filed chapter 7 in IL approx 6 years ago and reaffirmed on our 1st mortgage but not the second mortgage. We haved been paying both mortgages since. We are having a hard time selling the property for what is owed on both mortgages. Is there anything we can do since the second mortgage (with Greentree) was technically discharged with the bankruptcy? Any ideas???

    • http://www.credit.com Gerri

      CC – This is a question for your bankruptcy attorney and/or a real estate attorney with experience in short sales/foreclosures etc. You may be in an excellent position to pursue a short sale or even negotiate a settlement on the second and stay in your home. But you need legal advice.

  • http://www.credit.com CC

    The house is worth a little less than the first and second mortgages combined.

  • Vina

    I’m current on my first mortgage but my second lie was on collection agency . I try to contact with my lender chase bank to modify but I was denied. I was worried I don’t know whom I get help right now. Is my lender can still help me settle my problem because I want to save my home,

    • Gerri Detweiler

      Vina,

      You need to make an appointment with a bankruptcy attorney to find out what the collection agency can and cannot do to collect this second from you. The attorney should be able to answer some of the questions that no doubt are causing you a lot of stress.

  • Deb

    Hello. We just had our house approved for a short sale by our first mortgage holder. We owe $200,000 and they are accepting $115,000(appraised value). The problem is we have a second mortgage with Wells Fargo for $30,000. They want to be paid 100% of what they are owed. About 6 months ago we were approved for a short sale which fell through because Wells Fargo wouldn’t negotiate with us. We moved out of the house in Florida and back to Mass. to live with family due to my husband’s unemployment. So the house has been vacant since July 2010. We don’t want this sale to fall through, we just want to be done with the house! Any advice for us?

    • Gerri Detweiler

      Deb –

      I wish I knew what to suggest. Have you talked with an attorney about your options, including bankruptcy?

      • Deb

        Gerri-
        We hired an attorney and are considering filing for Ch7 bankruptcy, but may not qualify and may instead file for Ch13. What is so upsetting is we have no other debt-credit cards, cars, loans. Unfortunately so many are in the same boat as us.
        Deb

        • Gerri Detweiler

          I hear you. Really a mess.

  • O.A.

    I had a first and second tied to the same property, the first went into foreclosure and the second remained open. No payments have been made on the second nor has there been any attempts to collect on this debt by the mortgage company since March 2007. Recently a debt collector has contacted me trying to collect on the debt. The SOL in Florida for an open account is a 5 yr SOL. I have requested from the Morgage company and received documentation that verifies last payment made to the account was indeed March 2007. Do I merely write a cease and desist letter to the CA and tell them to go away?

    • Gerri Detweiler

      O.A. – I am guessing this is a large debt. If so, I would recommend you talk with an attorney to make sure the statute of limitations has expired. If that’s the case then you could send them a cease contact letter.

  • O.A.

    Let me also add that the mortgage company has been reporting this as 180 late since 2007 and the credit report only states open, no collections, no closed or charge offs. It is reported on credit report to go positive in 2014 which would be 7 years. So I am well into repairing my credit and I have no desire to make any payments that would reset the SOL. Is my thought process clear here?

    • Gerri Detweiler

      Yes, making payments at this time could potentially restart the statute of limitations but won’t affect how long those accounts are reported since that’s covered under the Fair Credit Reporting Act. (Statutes of limitations are a matter of state law.) However, it could open you up to a lawsuit for the deficiency and if a the creditor obtained a judgment that could put a new, negative item on your credit reports.

  • Ryan

    Has anyone ever heard of secondgone.com? I’m considering using them to settle on my second with Chase.

  • Bill Miller

    WE had a company call us from New Jersey which was under contract with Bank of America to offer us a settlement on our second mortage for pennies on the dollar. What they don’t tell you is that although you may be getting rid of your debt with the bank the IRS has other plans and you will be taxed on the full ammount of your loan.

  • Tom

    I owe 215K on 1st and 70K on 2nd HELOC with BoA. I didn’t realize until reading these posts here that at some point– I think in a few years– I am supposed to pay the whole 70K HELOC off: I have been paying interest only as required, although both debts were discharged ch7 in 2010. I have never been late on either account.

    The market value is now 200K, so 7% underwater on the 1st, 100% underwater on the second.

    What can I do? I am willing to consider anything, even walking away. Should I stop paying the second? I would like to get into a new home if possible one day.

    Right now with my 1st and my interest only, I pay about the same as rent monthly, which is why I paid and stayed– but not sure this is wise now.

    • http://www.Credit.com Gerri

      Tom –

      I’m glad you found out that your payments will go up ahead of time. Many of these second mortgages are ticking time bombs and are going to hurt homeowners and the housing market in years to come.

      The very first thing I would suggest you do is to contact the servicer for your second mortgage and find out when the interest-only period ends, and how the loan will be amortized after that. (Will payments be stretched over 10 or 20 years, for example)? Then take a look at whether it’s realistic for you to make those payments – including interest, which could be at a variable rate and go up in the future – once the interest-only period ends.

      With that information, you can then start exploring your options. I’d recommend you read the entire series of your six options when you are underwater, so you have an basic idea of how each works. Then I recommend you meet with a real estate attorney with experience in short sales/foreclosures to find out what the repercussions would be if you went that route. And I’d suggest you clarify with a tax professional what your tax liability may be if you decide to pursue either of those. You’re going to have to make some tough decisions, but stay focused on the big picture here.

      Let us know what happens.

  • Lara

    So – in my situation (in AZ)- I am going thru Chapter 7 currently – I am reaffirming the first mortgage $203k – and getting rid of the 2nd $60k – in the chapter 7 – but I understand even though I would be discharged of the debt on the second – the lien still remains. The house is currently worth $110 at best. So – I am clearly under on the first – and the second has no equity. (2 differnet lenders) My question to you would be – after a Chapter 7 is discharged, and the second along with it – has a settlement ever been reached to remove a second lien in this type of situation? I am curious if I would have any chance of “convincing” the second to remove the lien after the debt has been discharged – so that later I can get the first refinanced at a more affordable rate. I understand there are times where a chapter 13 following a chapter 7 making a chapter 20 may achieve this – but I was looking to negotiate just with the bank directly. My rationale is that if I can’t get the house refinanced at a lower rate – (because a lien is blocking me to do so) then – I could let the first take the house – at current market value – the first wouldn’t get enough to pay off the first so the second wouldn’t see a dime – I would think they would rather get something than nothing at all – with no recourse to come after me for the difficiency – since the actual debt would have been discharged.

    • Gerri Detweiler

      Lara,

      Your thinking makes sense to me, and you would think this would be negotiable, but it’s so hard to say what lenders/servicers will actually do in these situations. I’d suggest you talk with your bankruptcy attorney for advice on this. If he or she can’t help, you may be able to get a referral to a real estate attorney with experience in short sales/foreclosures who can help you negotiate. Hang in there.

  • BBS

    Hello Gerri –
    Thank you for having such an informative blog. There are so many of us struggling to find the right solution to our mortgage debt problems and talking/reading about it certainly helps.
    We have been trying to short sell our house – to settle the first and the second, but the mortgage company doesn’t acknowledge receiving the offer. We have had an offer since Feb. 2012. Our Realtor has sent the offer to the bank several times. We have received a Notice of Sale now indicating foreclosure is immanent.
    We owe $266,000 on the first and $150,000 on the second (HELOC). The bank appraised the value of the house at $235,000. (We really felt that the value was closer to the amount owed on the first). We had our mediation in January and the first mortgage agreed to do a short sale – especially since we weren’t far under water (on their loan). We immediately listed the home – for above appraised value – and got a great offer – $270,000–
    We were hoping to settle the first and the second through this short sale.
    It seems to me that the Bank is not acting in good faith. We have done what they have asked us to do and the first mortgage will be almost be made whole. (The first is BofA and second is US Bank). We do have an attorney helping us and they suggested filing for CH 13 bankruptcy. My question – what would be your suggestion to move forward? Our goal is to settle our debts in a manner that is equitable to the first and second. We don’t want the possibility of a deficiency judgement hanging out there for who knows how long. There were even verbal workouts between the two banks – based on the offer that they say they didn’t receive. BofA offered to give US Bank $6,000 and US Bank verbally accepted. Now BofA says they haven’t received an offer and we are left scrambling to figure out what to do next.
    What are your thoughts about trying a deed in lieu for the first mortgage and settling for some dollar amount (up to 10%) with the second?

    • Gerri Detweiler

      Thanks for the kind words and for sharing your story. Your situation illustrates so much of what is wrong with the current system for homeowners are trying to make the best they can of a difficult situation.

      I don’t have any easy answers for you. I don’t see how what you’re proposing – a deed in lieu on the first and settling the second – will work given the proposed offer you already made with the short sale. If they won’t take what seems to be a pretty good short sale offer why would they agree to the latter?

      It sounds like Chapter 13 might be the next most sensible move, depending on how much you would have to pay in a Chapter 13 plan. The attorney should be able to help you figure out what your options are there. The good thing about bankruptcy is that it will force the lenders to get their act together and you’ll have the legal protection of the courts. Plus there is no potential tax liability for debt cancelled in bankruptcy.

      I’d like to say I see another option, and who knows? The bank(s) could change their policies tomorrow but it’s so hard to predict.

  • Tony

    Hi dear Gerri, Thanks for all your advice to everyone, my question is, I bought my house 5 years ago 690K and I owe about 600k to 1st WF and 130k to 2nd in BOA and recently County of my home town apperise my home to 447k and reduce my tax from $920 a month to $640 a month now I need to remove my 2nd and I do behind of 2nd about 3 years, I need some advice how do I settle my 2nd in the very low one time payment, I have one income and not that much saving , is anyway we can ask them for forgiveness or it possible to forgive by BOA. no equity and my 1st is under water, what is the best strategy of settlement Thx

    • Gerri Detweiler

      Hi Tony,

      I wish I could tell you exactly what to do to to resolve this, but in so many cases there is no clear answer. It’s a matter of one step forward, two steps back – on a tightrope, no less!

      A couple of questions for you. Where do you live? California or Arizona? Do you know if you have a recourse or non-recourse loan?

    • tont

      Thankx for reply, I live in CA and I don’t know what kind of loan how do i find out?
      thx

      • Gerri Detweiler

        Tony,

        I believe it is important to find out whether your loan(s) are recourse or non-recourse. If they are non-recourse loans, then the lender(s) cannot try to collect a deficiency from you if you walk away. That would, in turn, give you more negotiating leverage with those lenders. If it’s not clear from your loan documents, then you’ll need to hire a real estate attorney to take a look at them.

        As for how to negotiate, I wish I could tell you exactly what works but it depends on so many factors. If you’ve been trying on your own unsuccessfully, it might be time to get some professional assistance. I wrote about some possible resources in this story: Underwater Homeowners: Should I Stay Or Should I Go?

        You may also want to listen to my interview with a real estate attorney who negotiates short sales and negotiations to get an idea of how this process works.

        Do let us know what happens!

        • Tony

          Thanks for your advice, I will follow up

  • Adam

    Hi Gerri,

    Thanks in advance for any help. I have a first loan (5 year ARM 6.25% IO) with Suntrust of $350,000 and a second loan for $50,000 (5 year ARM 10% IO) also with Suntrust. We bought the condo in 2007, and in 3 months (10/2012) the ARM will adjust. The loans are both Fannie Mae loans. I no longer live in the USA, and am currently renting out the condo to a very solid tenant (thank goodness). My income has decreased drastically over the past 3 years, and I am struggling to make the payments on the 2 mortgages. I was looking to do a HARP loan, but it is impossible for me to prove that the condo is owner occupied. Any advice? Should I try to settle the 2nd loan? FYI, I want to keep my home. Thanks!

    • Gerri Detweiler

      How much does the condo appraise for Adam?

      • Adam

        Hi Gerri,

        Maybe $250,000

        Thanks,
        Adam

        • Gerri Detweiler

          Adam,

          HARP is allowed for second homes and rental properties, but my understanding is that most investors don’t want to go to that high of an LTV – especially on a non-owner occupied property. I wouldn’t recommend you try to pretend you live there. It’s a rental property for the time being and you need to be upfront about that. If you haven’t talked with a mortgage professional recently you may want to try again since there have been various changes to HARP recently. YouCanRefi.com is one option.

          Another thing you may want to do is talk with a bankruptcy attorney. It may be possible to strip the second or to get the bank to negotiate with you if you file for bankruptcy. I’d recommend you talk with one in the area where the condo is located. Visit nacba.org to find a consumer bankruptcy attorney.

          It sounds like you need to do something asap though, since you’re going to be in an even greater bind when the loans start fully amortizing.

  • Maria

    Dear Gerri,
    I refinanced my home in 2005 with Country Wide and I added a second mortgage loan in 2006. Now My house is underwater and my loan is 225.000.00. My first mortgage is interest only for the first 15 years and then as you probably know agter 15 years the mortgage payment will double up. I’m not adding money to the property the loan continues the same and the second mortgage is 22,000.00 has an interest rate of 10%. I’m struggling to afford my bills. Do you think that I qualify to modify these loans? do you think short sale will be a solution? or going to bankruptsy? t

    • http://www.Credit.com Gerri

      Hi Maria,

      It is hard to say what your lenders will agree to, so you need to look into all three options, find out which one best works for your goals and give it a shot. If that doesn’t work, you may have to try something else. I suggest you meet with a bankruptcy attorney and find out what it can/cannot do for you. Meet with a real estate professional who has helped homeowners sell their homes in short sales. Call a HUD housing counselor to find out whether modifying your loan is an option. You need more information before you can make a decision about which way to go. You may want to also want to read my story, Underwater Homeowners Ask: Should I Stay or Should I Go?

  • Adam

    It’s good to see some recent settlement success. I’m in an awkward situation. I filed Chapter 7 a few years ago but my wife didn’t. The mortgages were included for me, but not my wife, and we’ve been paying ever since. We want to relocate but are still severely under water. I sent a letter last week to get settlement talks going but I’m not optimistic. The entire second is under water. If they don’t settle we are going to have to make some very tough decisions soon. I’m considering not making anymore payments until I get their full attention, but worry about them going after my wife. Any tips or suggestions?

    • Gerri Detweiler

      This is a tough situation. Presumably you were trying to protect your wife’s credit, but she may have to file anyway.

      Have you thought about trying to do a short sale? That may be a way to get out from under without filing for bankruptcy. It will hurt her credit, but if she really doesn’t want to file, it may be worth considering.

      Adam, if you haven’t done so already, I recommend you read my series on your options if you are underwater on your home. Underwater on Your Home? Your Six Options. Next step after you do that is to meet with real estate and tax professionals – and even a bankruptcy attorney – to help you gather the information you need to decide which way to go.

      • Adam

        My understanding is that a short sale does nothing about the deficiency. That’s what I’m attempting to resolve pre-emptively, especially if it would allow a traditional sale and not block us from buying again for a few years.

        • Gerri Detweiler

          I would only recommend a short sale if you can get the lender agrees not to pursue the deficiency (or at least require you only pay back an affordable amount). If you have that in writing then you won’t have to worry about them pursuing you for the balance.

          But there may be tax implications so you’ll want to talk with a tax professional who really understands 1099-C’s (not all are experts in that) and do it before you decide how to proceed as it may affect your options. Debt discharged in bankruptcy is not taxable but debt cancelled through a short sale or settlement may be. You can learn more in my series about dealing with 1099-Cs.

  • James

    I have an 80 / 20 loan, and I filed chapter 7 bankruptcy 23 months ago. I have never been late on any of my payments. My bank recently sold the 80% mortgage to a new company, but still own the 20%. What should I do in this case?

    • Gerri Detweiler

      James – I am sorry but I don’t understand what you are asking. Can you try restating the question? Have you discussed this with your bankruptcy attorney? Did you reaffirm your mortgages when you filed for bankruptcy?

  • peter

    A relative of mine was just informed that her 2nd was written off for $80,000.

    They were offered a settlement of $40,000 but couldn’t come up with the funds in time.

    Since they wrote it off, they are now willing to take $25,000 to release the lien.

    Is their any way for them to have the write off reversed so it doesn’t ruin thier current worst than it already is and so they don’t face the tax liability that goes along with the write off?

    They do not want to

    • Gerri Detweiler

      Peter –

      Unfortunately I am not aware of any way they can change that. Some of it may be due to accounting regulations and some may be due to internal policies. I would encourage you to encourage them to talk to a tax advisor asap. They may be able to avoid paying taxes on that forgiven debt but they need to act quickly while the information they need to figure out whether they qualify for the exclusions is available. (In other words, they should not wait until they get a 1099-A or 1099-C).

      And they may want to talk with a bankruptcy attorney about the $80,000 deficiency. If they are going to have to file to reduce or eliminate that debt then they may want to get it over with. At a minimum, the attorney can explain what will happen if the lender or a collector sues them to collect the deficiency.

      I am sure this is very stressful for them and it’s great you are trying to help them through it.

  • Joey

    Need advice. House was just appraised for $370k since I’m doing a HARP 2 however, reading all your blogs and experiences, I found that we can also try to negotiate with the HELOC lender with BofA. My 1st td is with Wells Fargo Bank, NA. for $269K, and the HELOC from BofA is at $221K for a total combined balance of 490K. Since my balance on my 1st td with WFB is not underwater what would be my strategy to try to negotiate on the HELOC. Will BofA perhaps buyout WFB to get the remaining equity…in this case they can recover $100k from the $221k balance. Just throwing it out there, what would be the chances of trying to negotiate with BofA? Would it be wise or still have a shot of reducing the balance from $221k to $100k? Thank you in advance.

    • Gerri Detweiler

      Joey –

      I can’t imagine any scenario where BofA will “buy out” WF so I wouldn’t spend any time pursuing that strategy.

      Also the problem you are going to run into is that your second is not entirely underwater – and you want to stay in your home. It’s easier to negotiate a settlement on a second (easier but not easy!) when the second is underwater and you are walking away from the home.

      I’d suggest you do a couple of things:

      1. Find out if your second loan is recourse or non-recourse as that affects your negotiations. If you aren’t sure, consult a real estate attorney.

      2. Get some professional advice about your options for the second. You need to talk with professionals who are dealing with these lenders on a daily basis to find out what is realistic given your situation. You’ll find some suggestions for the types of professionals who may be able to help in my article about deciding whether to stay in an underwater home.

      3. If you are in California or Arizona, you may want to check out a new program that may be able to help you get back to positive equity. Not saying it can or will, but may be worth looking into.

  • Adam

    Hi- I am current on both 1st & 2nd. I live in CA and the house now severely underwater is in Maryland. I offered a 10% settlement to the 2nd; however the y (Bank of America) rejected the offer stating that there is no hardship. Please guide me how to settle on the 2nd. I’m trying to keep the house.

    • Gerri Detweiler

      Adam –

      It is much harder to settle a second when you want to stay in your home than if the home is going into foreclosure or you are selling it with a short sale. It may or may not be possible to get a deal that works for you.

      I’d suggest you get some professional advice from a real estate attorney or some of the sources mentioned in this article, as well as this article I wrote: Underwater Homeowners Ask: Should I Stay or Should I Go? You may also want to check out this program: The New Solution to Getting Your Home Above Water

  • Alex

    I received my discharge from Chapter 7 Bankruptcy on January 18, 2011 but did not reaffirm my 1st and 2nd mortgage; I am current on both mortgages at this time, The last unit sold on 08/12/12 like mine, was for 107.000 Dollars. The 1st Mortgage balance is $134,000 and the 2nd Mortgage is $54,400. What happens if I stop making payments on my 2nd mortgage and stay current on 1st mortgage? Will the 2nd mortgage settle for pennies by dollars? Can 2nd mortgage foreclosure if I stop make payments and the 1st is current? My 2nd mortgage lender is Indymac/one west Bank. I can Pay my first mortgage but not my 2nd. What can I do? Thanks

    • Gerri Detweiler

      Alex,

      If your mortgage continues to be unaffordable, you need to talk with your bankruptcy attorney to find out what will happen if you stop paying. The bankruptcy attorney should be able to fill you in on the foreclosure process in your state. (If you stop paying either loan, the lender could try to foreclosure, though how quickly they will act depends on a lot of different factors.)

      You can also talk with your attorney about whether he or she can help you negotiate a modification with your lender – or refer you to someone who can. It may be possible to modify your loan and even get a principal reduction. I say possible because it’s far from guaranteed. It’s a negotiation process and there are many factors that will affect whether you are successful. (Nationwide, less than 3% of loan modifications under the HAMP program resulted in principal reduction, for example.)

  • Jaime

    Gerri,

    My husband and I bought our house for 625K in 2006 and put down 5%. We financed 470K through GMAC at 6.5% 40 year term and took out a home equity through Chase for 125K. We have paid down 25K of the home equity that is unlocked and based on prime so staying around 3.5%. Problem is we have had a significant increase in expenses and major decrease in income with my husband losing his job and birth of twin sons. Our house is now estimated to be work between 400-425K based on comps in the neighborhood. We are not eleigible for any HARP programs as the GMAC loan was not FHA backed and not owned by Fannie or Freddie. Our first is underwater by about 40K leaving Chase holding the bag with 100K of unsecured debt. What should we do?? We have just applied for a loan modification through Chase but have had such bad luck with any refinance hopes and modification hopes that I feel like it truly is hopeless. Any advice would be greatly appreciated.

    • Gerri Detweiler

      jaime –

      I can’t imagine the stress you are under, especially while caring for twins. My best suggestion is for you to get some professional advice about your options.

      Have you spoken to a bankruptcy attorney? Some attorneys are having success negotiating or even eliminating second mortgages in Chapter 13.

      I’d also suggest you find out what the repercussions would be if you sold your home in a short sale and/or walked away. Will you be responsible for a deficiency? Would you potentially owe taxes on cancelled debt?

      WIth answers to these questions you’ll be able to make a better decision. Plus it sounds like you’ve done all you can on your own and now it’s time to get some advice from professionals who help homeowners like you all the time.

      You may want to read my other article, Underwater Homeowners Ask: Should I Stay or Should I Go?

  • Pingback: Underwater? Negotiating a Settlement On a Second Mortgage … | House Foreclosure Credit()

  • Kyle

    Hi Gerri. Thanks for all the great info. Our case is another underwater house in AZ with a first and second mortgage. My wife and I purchased the house for $188K in 2006 and it is currently vallued at $80K, first mortgage is $131K and second is $91K. Everything is current on both but we are unable to continue making both payments. We moved out of state two years ago and have rented the house with help from a property management service ever since. What is the best next step in our situation if we can’t pay one of the lenders? If I file for bankruptcy and stop making payments on both loans, will it drag down my wife’s credit status along with mine? She is not on the first or second mortgage but I guess the community property state law considers her responsible. Is there a way to protect both of us from a second mortgage lender’s deficiency suit but still save her credit score from crashing? Thanks!

    • Gerri Detweiler

      Kyle – I am glad you are finding it helpful. My suggestion is that you next meet with a bankruptcy attorney so he or she can answer these questions for you. If your wife has to file for bankruptcy then it will hurt her credit, of course. But it may be that you can file yourself. .

      Are the loans currently listed on your wife’s credit reports? If not, then it’s likely they won’t be reported under her name if you default on them or file bankruptcy by yourself either. An attorney should be able to give you more specific information.

  • Sandy

    We are in the same boat as many of course, underwater, two loans, the first we are trying to refinance before the interest rate goes into variable and it is interest only with Deutsche Bank (under IndyMac), they dont participate in any program that is out there, and the second we tried to modify but we were told we could not modify because we have been paying on time…crazy but true. Our second loan is a balloon with Citi which will come to maturity in 8yrs. Of course our income has changed from the time we purchased the home but we still pay on time…never missed a payment.

    If there was a way to come to a settlement with our second loan it would be great! But we would be fine with just a lowered interest rate since right now it is at 8.25%

    Sometimes we are tempted to stop paying the second loan and see what happens…

    What advice can you give to me?

  • LarryC

    HI – I purchased a house in California in 06 for 540. Houe is worth $250 now! :-( I now owe $400K on first with Wells. $100K on second with Greentree at 8.5%. Niether are freddy or fanny loans. I’ve read a lot and feel it’s time to get out of my Second Mortgage somehow. I stopped paying 3 months ago and now am bombarded with calls. I now realize I’m not so prepared to deal with this. I’ve neve been late on any pament at all! I would like to settle my 2nd for 10 to 20 cents on the dollar but need advice on how to proceed. Any ideas would be greatly appreciated.

  • Margaret

    Hi. We live in CA. We have a first and second mortgage with different banks. Our house if about $150K upside down. We have been asking for loan modifications from both banks for about two years, but since we were current on our payments and have decent salaries, they were unwilling to help. We finally stopped paying both the first and second 4 months ago. The first bank has agreed to a loan modification that we are very happy with. We are trying to figure out the best way to deal with the second, since they are unwilling to modify. Would it be best to request a cash settlement on our own prior to looking into bankruptcy? Or there is the option of Bankruptcy. My husband and I keep our finances all separate except for the home loans. If he were to file Bankruptcy on this own, is there a chance to have 2nd striped, even if I’m not filing? Any other options for us that you recommend?

    • Gerri Detweiler

      Margaret –

      The only way to know if you can strip the second in bankruptcy is to talk with a bankruptcy attorney. That really is the next step in your situation. It may not do you a whole lot of good to modify the first if the lender with the second won’t work with you.

  • Lisa

    We live in AZ. Owe 187K on first, in the process of Modifying first . Payment plan for three months has been lowered but Citi did not include 2nd and now 2nd mort. (37K) has been charged off. Current value of our home is 147k. Can second foreclose, if we decide to stay in home if modification goes through.. What do you recommend?

    • Gerri Detweiler

      Lisa,

      We have moved this discussion over the Credit.com forums so others can weigh in. You’ll find my response posted here.

  • Tony

    Hi All,

    Here’s a question I have not seen posted, please let me know if you have any advise or can point me in the right direction.

    Our home was foreclosed on in November 2011 by BOA. Now the second has charged off the balance of $102k and is requesting either payment or a settlement offer. I’m wondering about if a settlement makes since or maybe BK?

    Thank you,

    Tony

  • Paul

    I have a 2nd with Citi, I hired an attorney who negotiated a short sale on the 1st. Citi filed suit, we have had the trail date pushed back several times but the attorney says the Citi won’t negotiate. I’ve offered .10 on the dollar looking for a counter. Any ideas

    • Bella

      Hello Gerri, We just re instated our mortgage ( $129,000) after Hudson City Savings Bank lied to us and tried to cheat us out of our home,(long story) they told us ti miss 3 months payments and they would give us a modification, which THEY said was already approved. They didn’t give us the modification and then tried to foreclose on the house, because we have equity. They are known for this fraud. They deceive on purpose. However we are now dealing with our second mortgage with Wells.

      We owe them $52,000 on the second the house is worth $190,000. Wells is threatening to foreclose. We are in negotiations with them trying to settle. We are trying to settle with Wells for lower than what we owe. They are asking for our financial statement however we owe a lot of money- ($64,000) that we had to borrow to re instate the 1 st mortgage. We are being told that the bank will not consider this as debt because it was borrowed by a third party and not a bank. We own 2 other properties, but we can not sell as the market is not moving in this area, they have been up for sale with no luck. What can we do to show our financial woes and have them taken into consideration? We are under a time line because they sent a letter of intent to foreclose 10/17/13. Please help us. Thank you

  • Suzanne

    Have been trying to settle a third lien HELOC with Chase for almost a year, but no luck so far. I stopped making payments in March since they would not even talk about settlement before that. The house might sell for about $675,000. The first mortgage has a balance of $313,000, the second HELOC has a balance of $278,000, and the third with Chase has a balance of $500,000. We want to keep the home if possible, and have been keeping up with the payments on the first and second. Do you think Chase will settle? By the way, Chase got this loan for pennies on the dollar from Washington Mutual.

  • filomena combatti

    Hi Dear!and God Bless you for all your good advice!and help! I originally bought my house in 2005; have a first with indymack for $167,000; and a second with bofa $116’000; (home equty loan ) which i havent made payment for about approx 2 years since i dont have the money;the property is currently appraised for $117,000; i really want to stay in my property; since i being strugling with lupus and many complications that it brings; and ;dealing with my mom with cancer and my dad that had a stoke and half paralysed about 3 years ago; and now living with the sadness that they found a maligneount cancer on him; single mother and no job; finally after two years ; indymack approved my loan modification; and i am trying to settle the second with bank of america; and they told me that they dont do it? that they will consider a loan modification; i provided them with my complete tax returns that are underwater; my doctors letters regarding my illness and complications and medical bills; had offer them ; that my friend is willing to lend me $10,000; to settle ;so it will take some stress out of my shoulder and they keep asking me for bank statements? Please any advice ? or who should i contact? Thank You so much for all your help!Fil

    • Gerri Detweiler

      Filomena –

      Please see a bankruptcy attorney as soon as possible. In some cases homeowners can “strip” their second mortgages in a Chapter 13. If you are able to do that then you will have the protection of the court and you will not owe taxes on debt cancelled in the bankruptcy.

      • filomena combatti

        tHANK YOU SO MUCH GERRI! ANY SUGESTIONS OF ANY ONE THAT YOU WILL RECOMEND; i will follow your advice! THANK YOU !!!:)

  • Ozzie

    I have a very similar situation in that I have a first mortgage (through Seterus) that is almost 100k under Zillow estimates and the second mortgage (through Chase) is at 96k, which has no backing, obviously. Should I reach out to an attorney before talking to Chase?

    I would be fine with continuing to stay in the house for 4 or 5 years to pay it down some more with the money coming back from the second mortgage payments. Maybe the house values will come back up a bit to give me zero balance.

    Also, I haven’t missed a single payment on either loans. Any advice?

    • Gerri Detweiler

      Ozzie –

      I am not sure what you’re asking here. It sounds like you can afford your mortgage but perhaps you just don’t want to keep paying on an underwater home? It’s much harder to negotiate a settlement on a mortgage when you can afford it. I would suggest you read my article, Underwater Homeowners Ask: Should I Stay or Should I Go?

  • Estella

    Greetings, we have a 1st with Carrington for $154K and a HELOC with Wells Fargo for $48K. Our son was recently diagnosed with a severe learning disability. Medical insurance won’t cover physical therapies or virtually anything. We were denied modifications from both lenders. We’ve would like to settle HELOC with Wells Fargo with tax return. Any advice you can give would be of great help.

    • Gerri Detweiler

      Estrella – Have you asked a real estate professional to give you an assessment of how much your home is worth? What is the current value?

  • Crista

    Dear Gerri,
    Thank you so much for all your good info! We are in CA. We have a 1st ($110,000) and 2nd ($112,000) and our house is worth $121,000-145,000 depending on which tool I use. We filed chap 7 a year ago and charged off both. Tried to modify 1st and BofA sold it off to another lender after 6 unsuccessful months. They had advised to pay 1st if we could only make 1 pmt but now have sent us an Acceleration letter on the 2nd. Will not modify the pmt or put past due to back of loan (about $7000). Are in a trial period with 1st now. The house has some major issues with foundation, pool and septic that we have been working on but would have to be disclosed and would lower the value and make it hard to sell. We would like to stay. Thought about writing to BofA and informing them of these issues and letting them know that if they try to foreclose we will show up at auction and tell any potential buyers all the problems. We could offer $10,000 cash out of our 401K to settle the 2nd. Any possibility they might do it even though 2nd may not be technically 100% underwater? Thank you!

    • Gerri Detweiler

      Christa – I think part of the problem is that we assume that someone with the ability to make decisions is looking at these loans and making decisions based on all the facts and circumstances. But often these loans have already been packaged and sold and the servicer is not the one who holds the mortgage, and may be hindered from free decision making. (The securitization of loans is a large part of the reason that we had the mortgage meltdown.) The other problem is that at many of the servicers have staffed up with employees who may not have the kind of experience and/or authority to make the kinds of judgment calls we would expect.

      So anything is possible. Probable though? I have no idea.

      If you really want to keep your home it may help to hire a real estate attorney who specializes in this area to help you negotiate. Since you are in California, you may also want to look at this option: The New Solution to Getting Your Home Above Water. I don’t know if they can help but it’s worth exploring.

  • Chris Corino

    We bought our california Bay area house in 2005 for $320k first and $80k on the second. We modified the first with green tree They deffered $120k and lowered the interest rate and extended to a 40 year loan.This was a “In House Modification”. The Second loan is with Select portfolio services (SPS) for $76k. Zillow est.our home at $200k With the advise from Hud we waited till the First was modified. Its been 18m and SPS is calling asking for a 25% settlement. We gave a offer of 5% the response was The Underwriter wants closer to 10% and They are asking for the last 2years tax returns and all income and Bank/savings data My Question is For a “Cash Settlement” Are these Normal requirments to ask for all the personal monetary Data? & Can My finanical data work against me despite being over $100k underwater? Thank You -Chris

  • http://www.SecondMortgageAdvice.com Charles Phelan

    Chris, yes, it’s very common for the lender to ask for financial disclosures before approving a settlement below 20-25% on an underwater second. This is especially the case when you’re staying in the home, vs. settlement of a recourse deficiency after foreclosure or short sale. Just the fact of being underwater is usually not considered to be a hardship. If the financials will only serve to illustrate financial hardship, there is no compelling reason to withhold the data, but if it will work against you, then it’s better to decline and continue negotiating. As time goes by, they may decide to get it over with and accept an offer without financials.

  • Val Mojica

    hello … My wife and I have a first and a second on a rental property. Both loans equal $210,000.00.
    $150K on the first and $60K on the second. The first is a fixed loan. The second is a no reduction loan, meaning, I make payments (have for 12 years) but the principal is never reduced. The home in 2006 was worth $525K. Can I walk away from the second? Please help!

    • Gerri Detweiler

      Val – It’s very unlikely you can just walk away from a second and keep your home in the long run. But if the second is totally underwater you may be able to negotiate a settlement, sell it in a short sale, or wipe it out in bankruptcy. (You didn’t mention how much your home is worth now.) I’d recommend you talk with a real estate professional who does a lot of short sales to get their opinion on your prospects and consult with a bankruptcy attorney to find out how that may help you. If you decide to keep it and don’t want to file for bankruptcy, the attorney may be able to try to help you negotiate a settlement.

  • Chris

    My wife and I bought a house in 2004 with 100% financing. I believe it was an 80/20 loans. We had to refinance 2 years later in order to afford the payments due to the 2-year ARM on the 1st. Both loans were re-fi’d. We ended up walking away from the house because we were underwater 3X the value of the house. The house was foreclosed in 2008 and the first mortgage was charged off and is now just a hit on our credit. The second shows as a charge off on my credit report but I am still receiving notices from a collection agency trying to collect on the unpaid second. I live in California and am unsure how this works in a non-recourse state. The original loan amount on the refinanced second was $94000. Can the collection agency do anything if we try to purchase a home now and if so, what are some of my options?

    • Gerri Detweiler

      Chris –

      You need to talk with an attorney. This is a very large amount of money and you need to confirm whether this loan is a non-recourse loan or not. If it is not, the attorney can advise you on your rights and options. An attorney who regularly handles bankruptcy and foreclosure cases should be able to help. NACBA.org provides referrals to consumer law attorneys.

  • Hans

    I bought my house 5 years ago in California for $830k
    1st loan is has now a balance of $380k
    2nd loan still has the original balance of $320k with First Tennesse Bank
    The value of the house is approximately $500k
    I received loan modification on both loans 2 years ago and they both will be due in June, 2013.
    After this date the second loan will be based on the ARM rates. I am currently paying 1% interest on this loan. Once the interest rate will go up it will be at least triple the monthly fee on the second loan at around $900k which will no longer make it affordable.
    First Tennessee told me that they would not settle the loan.
    What are my options?
    I could refinance probably the first loan to a 30 fixed rate. How could I get a fixed rate on the second loan? Can I force a settlement on the second or a fixed rate? Otherwise I will loose the house.
    I have always been current with my payments.

    • Gerri Detweiler

      Unfortunately, there is no simple answer. It all depends on what the lender will agree to when you make it clear that you can’t afford to keep paying. It’s a negotiation process and every lender is different. It’s good that you are trying to prepare now for what may happen. I’d suggest you next read my article Underwater Homeowners Ask: Should I Stay or Should I Go?

  • Hans

    I bought my house 5 years ago in California for $830k
    1st loan has now a balance of $380k
    2nd loan still has the original balance of $320k with First Tennesse Bank
    The value of the house is approximately $500k
    I received a loan modification on both loans 2 years ago and they both will be “due” in June, 2013 with interest rate increases.
    After June, 2013 the second loan will be based on the ARM rates. I am currently paying 1% interest on this loan. Once the interest rate will go up it will be at least triple the monthly fee on the second loan at around $900.
    First Tennessee told me that they would not settle the loan.
    What are my options?
    I could refinance probably the first loan with a fixed rate for 30 years. How could I get a fixed rate on the second loan however? Can I achieve a settlement on the second laon or get a fixed rate? Otherwise I will loose the house in the long term.
    I have always been current on my payments.

  • http://Credit.com Mike

    Hi, I took out a second mortgage 6yrs ago for 28k I have paid back 24k, but I still owe 25k because of the high interest rate of 13.25%. Right now my mortgage is underwater, but I do want to negotiate a settlement on my second mortgage. Both of my mortgages are current and I’ve never been late paying either of them. I know that this is going to affect my credit score but my wife score is around 800 so I’m not too worried. I just want to come to a fair settlement amount and get rid of that second mortgage and still keep my house. Right now I’m applying for the mortgage assistance tool program to hopefully come to a fair settlement amount. What do you think a good settlement amount would be. Thanks

    • Gerri Detweiler

      Mike – A good settlement in my mind is one that you can afford. It will be different in each situation. For every homeowner who settles a mortgage for less than the full balance, someone else has taken a loss. And that someone may not just be a lender, but may be a pension or retirement fund, for example, that invested in the loan. So it’s really a matter of making the best of a bad situation. Make sure you find out as soon as possible whether you will have to pay taxes on any cancelled debt so that can figure into your decision.

  • Mita

    Hey Gerri,
    2 Loans in ex husband name only one with Chase for $95000 which includes fees as the home is in foreclosure. No payment made to Chase since 2011 and no payment for 2nd since 4/12. 2nd loan with Springleaf for an addition to the home totaling $6700. I have currently been approved for a re fi an home appraised at $97,500. Is it possible to negotiate a settlement with both companies or just try with 2nd loan only. Since 1st loan is not really underwater but is due to sale next month would it be worth negotiating both . Would Chase have to pay 2nd mortgage out of sale. Should I negotiate a settlement or obtain an attorney. Please help …time ticking

    • http://www.Credit.com Gerri

      Mita – I am moving your question to the Credit.com forums. You’ll find my response here.

  • Sylvia

    To make my long story short, I have my 1st loan with Central for $350,000 my 2nd with
    B of A for $90,000. I have Modified my 1st loan 3yrs ago with the interest of 2% the 1st two yrs and it will continue to increase until the 6th yrs for up to 6%. Now my biggest problem is the home in worth about $130,000 less. I tried to modify with B of A three times now, I was denied all three times…. I seen a commercial for John Ribarich in Sherman Oaks and all the man did was through numbers at me of how much it would cost to swipe off the second loan. Attorney’s fee is $7,000 they want it paid with in 5 months plus I would have to pay a settlement of $10,800 to B of A to wash out the 2nd loan. I was told never pay to any fee until every thing was done. Any advise? And who can you recommend? I am running out of options before I decide to short sell my home……

    • Gerri Detweiler

      Sylvia –

      I assume the person you are referencing is a bankruptcy attorney…? If so (or if not!) why don’t you talk with another bankruptcy attorney to find out what they suggest? If they are saying the same thing then you’ll know that what you are being told is probably the only option available (at least through bankruptcy). Or the other attorney may have another suggestion for you.

      You can also call a HUD-certified housing counselor to see if they have any suggestions for you.

      Your story is an example of the problems so many homeowners are facing. You can get the first mortgage modified but if you aren’t successful modifying the second, then it doesn’t do you a whole lot of good.

  • Larry

    I am current with my 1st but haven’t paid anything on my 2nd for about 4 years now. The 2nd (approx. 82k) has been written off and I have received 3 collection notices from 3 different agencies over the past 3 years. I get a notice from a new collection agency and thats it, nothing else until I receive another one from a new agency. I am still underwater with my 1st (I live in Las Vegas) Statute of Limitations is 6 years. I have consulted with a Backruptcy Attorney and my 2nd can be wiped out but I would like to know all my options. Should I contact the latest collections and offer a settlement? How do I do this without starting the Statute of Limitations over again? What to do… what to do?

  • Julio

    Just like Larry, I am current in my 1st (close to be underwater) but haven’t paid nothing for 3-4 years. The 2nd loan was originally for $57,400 and it has gone all the way up to $84,900. Has been written off and bounced from one collection agency to another, when I ask for validation. This latest bank (Partners For Payment Relief) were able to show all documentation, including an Assingment For Mortgage, in which the proved to had purchased the debt “In consideration for the sum of $10.00″!! They are offering loan modification (??) and threatening on foreclosure. Any suggestions on how to approach this? bankruptcy or make an offer (5%)??? HELP!!

    • Julio

      I meant to say that I haven’t pay anything on the 2nd mortgage. 1st is current!! Thanks

    • Larry

      Julio, You can actually find out what “they” paid for your 2nd mortgage? That’s good to know for an attempt to negotiating a settlement I would think.

      • Julio

        Hi Larry; after asking for validation of the account, the bank sent, among other proofs, an “Assignment of Mortgage” in which states “…in consideration for the sum of $10.00 and other good and valuable consideration…”. I will give it a try and start trying to settle and see what happens. I know that if I take this road, I would most likely get a 1099-C, but at this point, I’m willing to deal with the IRS if it comes to that. Wish me luck!!

        • Larry

          Good luck!

        • Gerri Detweiler

          Julio – Good luck and keep us posted!

    • Gerri Detweiler

      Julio –

      I would suggest you do two things:

      1. Get a consultation with a professional such as a bankruptcy attorney or one of the experts I mentioned in the article. You need someone who can look at the situation and give you some feedback in terms of your overall situation. (I think talking with a consumer bankruptcy attorney with experience in real estate issues is a very good idea.) You need to find out whether they can sue you for this debt and when the statute of limitations expires, if nothing else.

      2. Talk with a tax professional now to figure out whether negotiating a settlement on this debt would create a large tax liability for you. You may not have to pay taxes on settled debt if you qualify for the insolvency or Mortgage Debt Tax Forgiveness Relief Act exclusions – but now is the time to find out, not after you have already settled and you discover you owe the IRS a big chunk of money. If you are not eligible for an exclusion then bankruptcy may be your best option as debt cancelled in bankruptcy is not taxable. You’ll learn more in this article: What is a 1099-C? Your Top 11 Questions Answered.

      • Julio

        Thanks for your prompt answer!!

  • Melissa

    I have a few quick questions. We short sold a home in Arizona. We were 1099 and have never heard anything again from the mortgage. However, at this time we were not able to keep up with payments on the Home Equity Loan. They have now sent us to collections, why are they not just 1099 us also? Can they in Arizona sue us for the amount of the H.E.? Will they be able to garnish wages? We have a special needs child who is 3 that’s medical bills have been a cause of us not being able to keep up. What should we do because we honestly don’t have money to pay a payment.

    • http://www.Credit.com/ Gerri Detweiler

      Melissa – These are questions that really need to be answered by a consumer law attorney. I would recommend you talk with a consumer bankruptcy attorney who will explain your rights. You can search for one in your area at NACBA.org.

  • L. Marie

    I posted twice before and then my posts seem to disappear, so I apologize in advance if this is repetitive. We have a situation with a 2nd mortgage. We have filed a chapter 7 bankruptcy in the past and following that a chapter 13 which was discharged in November 2008. During the chapter 13 we fell behind on our first mortgage and reaffirmed it and have not had a problem after that. We listed our 2nd mortgage on the chapter 13 and since 2006 we haven’t been paying on it. We would receive statements but they would always say if you are a debtor in bankruptcy or have been discharged of bankruptcy that this was for informational purposes only. We had no issues until the mortgage was sold to a new bank. We have been called twice and have received creespondence and a statement. The correspondence states we need to pay over $36,000 to be current and we should call them to redo the terms of the mortgage. We have not yet called but I am concerned that they will now try to start foreclosure proceedings even thought they are the 2nd lienholder. It seems like we could negotiate with them to settle but from some of what I have read on this blog, it seems like we should not provide them any documentation of pay or taxes, etc., is this accurate? I have also read about lien stripping. Our current principal balance is around 135,000. The second loan was originally for $35,000, but now they are looking for over $36,000 with fees etc. I was on zillow.com and it shows our home is worth $140,000, but houses around us are showing values of $127,000. Looking at past sales, the most recent sale last August was for 132,000 and current listings are $119,000, $118,000 and $107,000 and all state they are short sales. I am not sure if we are underwater based in these things, but is lien stripping a possibility? Since we have already filed a chapter 13, could we file chapter 13 again to do a lien stripping? I am not sure what to do, but we have had several financial setbacks, including some major medical problems and we just can not afford the 2nd mortgage, there is basically no extra money to put toward anything else. We have 3 kids and of course, we don’t want to lose our house. We have to figure this out and any information you can provide would be helpful. Thanks in advance.

    • Michael Schreiber

      Sorry! Our comments are moderated, so they don’t post automatically. We’ll get you some feedback soon. Mike

    • Gerri Detweiler

      L Marie – I don’t have a simple straightfoward answer for you. There are a lot of moving parts here. My first suggestion is that you talk with your bankruptcy attorney and find out what the status is of that second mortgage. Was it wholly or partially discharged? What can the lender do now legally to collect? If all they can do is foreclose (but can’t sue you) you may be in a very good position to negotiate a settlement. The first person I would talk with about that strategy is your bankruptcy attorney. He or she may be able to negotiate on your behalf. I do think you need legal advice so you don’t inadvertently give up your rights if you start to pay on this debt.

    • Gerri Detweiler

      Have you talked with your bankruptcy attorney about this? I would not recommend you do anything with the second until you have clarified with your attorney what the status is on the second. Did the attorney try to strip the 2nd when you filed for bankruptcy? Why or why not? What happened? What is the attorney recommending now? This sounds like a situation where it’s important for you to get good legal advice.

  • Rudy

    I have an investment / vacation rental with 1st and actually 2 Heloc’s. Or one heloc and an
    installment loan all with same lender. We went thru some tough times but only lately
    late on the Heloc and installment. The 1st and Heloc not underwater but 3rd is.
    Can I get this modified?

    • Gerri Detweiler

      It’s hard to say Rudy. It depends on so many factors. If I were in your shoes, I would meet with a consumer bankruptcy attorney with experience in loan modifications. Mortgages on investment properties can sometimes be stripped or modified in bankruptcy, and that means there may be some negotiating leverage in terms of getting the lender to work with you. But keep in mind you may owe taxes on cancelled debt (not debt discharged in bankruptcy though) so you may also want to talk with a tax professional before you decide which way to go.

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  • Cindy

    My mortgage is with Ocwen. I agree with the frustration with the outsourced call center staff. They really are quite useless. Now you have to remember, this is a Native American owned company and they are out to do nothing but make money. Because of their Native American status, they are not subject to a lot of the rules other companies would be.

    I too have tried a loan modification 3-4 times. Each time I’m denied because of some loan to income ratio not being exactly 30%. I’m sure if I could get the paperwork to show that, then there would be another excuse.

    Please keep in mind that the mortgage company doesn’t lose money if you default on your loan. That’s what the PMI is for. They get whatever difference from that insurance, plus they factor in all the interest they have already made off of you in the years before. They will always make out ahead. It’s not their job to care whether you have a house or not.

    With a loan modification off the table, the next option is to short sale. Beware here too, because OCWEN will stick you with a bill for the difference, plus you will have to pay 1099 rate taxes on that as well. Still, you will have no house & some lucky person will have had the opportunity to buy it for what it was really worth, while your still paying the difference. This is a really bad & twisted idea. Who thought this gem up?

    I saw online that there is this lawyer named steve beed who says that Ocwen has introduced a new program called the “SHARED APPRECIATION LOAN MODIFICATION”. Ocwen will receive 25% of Property future appreciation in return for reducing the principal balance to 95% of Fair Market Value, reduce the interest rate to 2% & forgive any deficiencies in 1/3 increments if the borrower stays current on their payments for the next 3 years. Sounds good, but I’m skeptical. I’m sure they’ve rolled this out for the PR Sound Bite alone, and in reality it will be next to impossible to qualify for… but I’m sure that will all reveal it’self shortly.

    In the meantime, I am considering bankruptcy. Think of it this way… continuing to pour interest into a mortgage, while not even touching the principal on a house that during it’s life time will never see that return investment just does not make sense. period. First secure a place to live that you can stay put for a few years while your credit is still somewhat good. Second, secure all your assets in trusts, etc… Third, file bankruptcy. What this does is wipes all of the loans you report in the filing. You will then be debt free and after a few years you can start over from scratch. What I have found from people (including security cleared government workers) is that a person with no debt is more favorable to someone who is loaded with debt and paying on time. You truly do get penalized big time for doing the right thing.

    After a few years you will be surprised to see that lenders will fall over themselves to have you start “reloading” your debt. seriously, this sounds crazy but it’s true. A friend of mine that did this is now (5 yrs later) buying a 1/2 million dollar house at the low 3% interest rates in Northern Virginia this very month. If I had just dumped my house as he recommended at the same time he did, I would be in the great shape he is in now. Live & learn.

    Of course, if you can qualify for HARP & be refinanced in the 3’s%… worst case is that you can rent the place out, pay any difference out of your own pocket & pray that in 30yrs property values on a really old house will go back up and you’ll break even.

    Another thing you may be able to do (if the house is only in 1 spouses name or you have a family member that can help you out) is to let it go into foreclosure, then have that other person buy it back at current market prices and the great interest rates we have now. You can be guaranteed that even if you get into a bidding war with someone, since you are emotionally involved (tho I advise you not to be), you will be willing to go higher than someone who is sheerly looking at the house as an investment vehicle and whatever you buy it for will be far, far less than you owe now. It’s only short sale that has rules relatives cant buy and that you can’t live in the house again. Just a thought….

    Emotions and financial decisions are never a good mix. It is only a house & you will find another one. It’s better to think ahead and do this intelligently than to be unprepared and put yourself into an even worse situation that you will not be able to lift yourself out of. Break the ties when you see there is no place to go but down, buckle in, wait for the ride to end and then rebuild. I wish I had, although I am extremely lucky to have not been in a situation yet that forced my hand. I can still prepare. Better late than never.

    oh, & btw… the only reason I bought the house at the price it was in the first place is because my fiance at the time was a real estate appraiser. He swore to me up and down that the house was worth the price and the values would only go up. I didn’t buy the house to make money or flip it… Now that my loan to value ratio is so extremely high, this affects my credit & it slaps me with PMI payments & other negative aspects. Additionally, what could have been a reasonable retirement safety net (thanks to welfare class eating my SS payments) or something in the event of a catastrophic illness like cancer that could provide a little emergency money… is now nothing but a black hole. Yeah, I could have sued him for his crappy appraisal skills, but so many other people sued him first that he lost his license and disappeared. Like I said – never let emotions and finance mix.

    What I learned after living w/my real estate appraiser fiance (who set up his business in the office located in the house) is that the appraisal process was a partnership with the real estate agents. They would call him and say “Ed, I have a house that is for sale at x$’s. I need you to make that happen.” He would say “sure, I can finesse that for you.” As long as he found a way to make the #’s work… he kept the work rolling in. Once the banks dried up the mortgages and everyone was underwater, then he got sued left right and center by poor elderly people who had lost their entire life’s savings. I felt bad for everyone. So… this isn’t just the fault of predatory lenders or greedy people buying more house than they could afford thinking they could flip it or people sucking the equity out of their homes to finance stuff (although that did exist too)…. I think a large part of this false inflation was mostly enabled by the appraiser/real estate agent relationship. I saw it with my own eyes & I fell for it too.

  • Crista Blackmore

    Dear Gerri,
    We are going to try to settle an underwater 2nd mortgage of $112,000 with BofA. We have recently hired an appraiser and the house appraised at $100,000. We owe $110,000 on our first with another lender. We filed Chap 7 Bankruptcy in 2010 and both loans have been charged off but we were current on the mortgages at the time and we are now 6 months behind on our 2nd. When our income dropped (my husband was laid off) we tried to modify the payment with BofA but they turned us down because they would only consider the 2nd mortgage separately when calculating our debt/income ratio. Where inside BofA would your recommend sending our offer letter and a copy of the appraisal? Thank you very very much! Crista

    • Gerri Detweiler

      I wish I knew Christa! You’re dealing with a large lender, as you know, and your guess is as good as mine. Did you work with a bankruptcy attorney to file in 2010? If so then I would suggest you talk with them and see what they advise.

  • Tom

    Hi Gerri, I have a 1st mortgage with Citi which I redid last year using HARP. I also have a 2nd mortage and HELOC with KeyBank. I don’t have a problem with the HELOC terms. I have tried to get Key to redo the 2nd mortgage terms twice now. Just last Friday they called and said they could not do anything for me again. So today I skipped my first payment on the 2nd, as I was told they may be willing to do something if I got behind on payments. The 2nd is at 7.9% with a balloon that’s coming up in a couple years. I need to redo the terms desparately. Am I on the right track? I live in Wash. St. Last week my house was appraised at 280K and I owe 350K. 217K of that is the first. Thanks, Tom.

    • Gerri Detweiler

      Tom,

      Unfortunately, Tom, I have no idea whether the bank will be amenable to working with you. Overall, nothing substantive has been done to provide relief for borrowers with large second mortgages. It remains up to the lenders, and their response has been all over the place. If you can’t get them to work with you then you may want to look into a short sale or consult with a bankruptcy attorney with experience negotiating with mortgage lenders.

    • http://www.Credit.com/ Gerri Detweiler

      I wish I could tell you – but I have no idea how this lender is handling seconds and what they will do when you start falling behind. It may help you to talk with a consumer law attorney with experience negotiating 2nds like these. I wrote another story that may be helpful:

      Underwater Homeowners Ask: Should I Stay or Should I Go?

  • Ryan Heinz

    Hi Gerri,
    We had a foreclosure in May 06′ which puts as at 7 years exactly. The 2nd mortgage still appears on my credit and I’d like to move on with my life. Is there a way around this or do I need to negotiate a settlement on the 100k 2nd?
    Thank you

    • Gerri Detweiler

      How is the second reported? As a charge off? What is the date?

  • Christopher Guerra

    Hi Gerri,
    I have a 2nd mortgage from a home that I foreclosed on in 2008. They’re still reporting “150 day late” on my credit every month. I’d like to settle the debt so I can get it off of my credit and I can start looking to buy a new home. Can you please point me in the right direction to help me? I don’t mind settling; this is the only thing keeping me from qualifying for a new home. Thank you for your time. I look forward to hearing from you soon.

    • http://www.Credit.com/ Gerri Detweiler

      Christopher –

      The creditor is allowed to report the current status on the account for up to 7 years. If you were 150 days late when the house went into foreclosure, then its my understanding that is what they can continue to report for 7 years. If you brought it up to date, and then started paying on time then it would be reported as paid on time for 7 years, but if that wasn’t the case, then the status is still late.

  • Nikki B.

    Hi Gerri,
    I have a 2nd mortgage that I did a buyout on in 8/2010. I currently still own the home, and rent it out. It was a bad situation that Wells Fargo backed us into after they refused to extend help to us in terms of a loan mod on our 30 due in 15 HELOC. We settled for $20,000 on a $79,000 second. They are currently reporting it on our credit as “settled in full, for less then the full balance…..charge off”. We bought a new home in May of last year and had to do an FHA loan…..even though we had 20% to put down……we still could not qualify to go conventional. Fannie Mae told me that Wells is “coding” this account as a foreclosure. I have contacted them several times over the past year regarding this issue. I am trying to refinance the home I currently live in and would like to resolve this issue on our credit so that we can get rid of our monthly MI and go into a conventional loan. They have repetitively told me that they are not “coding” this as a foreclosure and it is a charge off. I already know that everyone that I have dealt with in their credit dispute department is a complete moron! Can you please give me some advice on how to resolve this on my credit. Every lender that I try to submit my refinance with is telling me the same thing, “you need to get Wells to code this differently in their system so that we can get a DU approval”. Is there something more specific that I can tell Wells Fargo when asking them to change the reporting status? Or is this just par for the course when settling a second mortgage……that is reports on your credit as a foreclosure and haunts you for 7 years?
    Thanks so much for the advice, I sincerely appreciate it!!
    :-) Nicole

    • http://www.Credit.com/ Gerri Detweiler

      Nicole – it shouldn’t report as a foreclosure if it was not one. Have you tried getting the Consumer Financial Protection Bureau involved? If they can’t assist then you may have to get a consumer law attorney to help.

  • dollarjoez

    youre in a bad position. the 2nd isnt going to settle with you, because the assumed equity stake is close to the outstanding balance. They can and probably will force it to go to foreclosure, even if you are current on your first. youd better work something out with them.

  • Amy

    We settled on our second mortgage over 3 years ago and it still shows a balance with “UNPAID BALANCE REPORTED AS A LOSS BY CREDIT GRANTOR SECURED LOAN CHARGE OFF AMOUNT IS 97977″ on our credit report. I don’t think this is correct, but I am not sure how to go about fixing this.

    • http://www.credit.com/ Credit.com Credit Experts

      Amy – If you settled the debt, the account should show “settled for less than agreed” or something to that effect, and there should no longer be a balance showing on the account.

      It sounds like the account wasn’t updated after you settled and you’ll want to file a dispute with the credit reporting agencies to have it corrected. Here are two resources that will help you through the disputing process:

      A Step-by-Step Guide to Disputing Credit Report Errors
      8 Rules of an Effective Credit Report Dispute Letter

  • http://www.Credit.com/ Gerri Detweiler

    Marsha – I am so sorry to hear what you’ve been through and you have our condolences for the loss of your mother.

    Unfortunately, you really need to talk with an attorney to find out what your rights and responsibilities are here. It would have been ideal for you to have done that at the outset before you put money into the house, but you definitely should now. I don’t know whether you will be able to get back the money you put into it, but it really sounds like you need legal advice to determine that. If you can’t afford it, you may want to contact your local legal aid office and/or your local bar association to find out what services are available.

  • http://www.Credit.com/ Gerri Detweiler

    I’d suggest you consult a consumer law attorney for help. First, didn’t your short sale absolve you of liability for the deficiency? If not, then I am not sure why you went the short sale route instead of bankruptcy.

    But at any rate, it sounds like this is not going to just go away on its own, and even if you can manage to get this lawsuit stopped you may be faced with another. I’d suggest you talk with the attorney to find out what the statute of limitations is for this debt and to determine how to respond.

  • http://www.Credit.com/ Gerri Detweiler

    There are so many factors that would be involved here it’s impossible to say. One would be whether you are completely underwater (a Zillow estimate probably isn’t enough – ask a real estate professional to give you an estimate of the value,) Next would be who owns the loan and what they are doing with properties in your area.

    I’d suggest you talk with a bankruptcy attorney who also has expertise in foreclosures. You can find out if you can strip the second by filing for bankruptcy. If not, you may need to file anyway to get rid of the debt if you decide to let the home go. But given that you are four months behind, you should be getting legal advice. (Don’t forget to take into account possible taxes on forgiven debt.)

  • http://www.Credit.com/ Gerri Detweiler

    Sean – my best advice is to get legal advice about your options. As long as you are paying I doubt they will do anything, unfortunately. And since you are so deeply underwater refinancing probably isn’t an option either. But if you are able to file Chapter 13 you may be able to rid yourself of the second or at least renegotiate it.

  • Ken

    Dear Gerri,

    My house foreclosed in 2010 and I had a 2nd mortgage with GMAC that they “charged off.” Debt was sold to Ocwen loan and it appeared on my credit report as a 30k delinquent balance. I haven’t made a payment since 2008 and called to attempt a settlement. The customer service rep from India arrange me an appointment with a negotiator to discuss. What is the best strategy to approach this discussion? My goal is to get it removed from my credit report.

    Thanks!
    Ken

    • http://www.Credit.com/ Gerri Detweiler

      Ken – There are a couple of issues here. First, you should find out what the statute of limitations is for this debt in your state. This will significantly affect your negotiations. If they know they can still sue you for a couple more years, for example, they may be more aggressive in trying to settle it. And if that time period has elapsed it may give you more negotiating leverage.

      Secondly, I don’t think it would hurt to consult with an expert in this area. You’re talking about a lot of money here, so getting some advice with someone who can make sure you take the the right steps to protect yourself would be wise. You can see some of my suggestions in this article: Underwater Homeowners Ask: Should I Stay or Should I Go?

      Finally, getting this off your credit reports – since it sounds like it is accurate – is going to be tough. I honestly don’t know what your likelihood of success is with that lender. They aren’t supposed to do “pay for deletion” deals, though it’s possible they may be willing to work with you.

      Keep in mind the clock starts ticking 7 years from the date the loan was charged off (assuming it’s listed as a charge off on your credit reports).That means you only have roughly two years to go before it won’t be reported, if your last payment was indeed in 2008.

  • http://www.Credit.com/ Gerri Detweiler

    It is possible that they have you in a hardship plan at 0% interest though quite honestly, I wouldn’t believe anything I didn’t have in writing. I would insist they send you something in writing detailing this arrangement.

  • Becky

    Hello, I am current on my first loan modification. However, I have a second loan with a credit union. During the time of my negotiations with the first loan bank (2010) I contacted the credit union to see how we can settle my loan with them, however they told me that once I have a final settlement with the first bank they will contact me. I followed up with them and left a couple of messages with no reply. This was in 2010. However, today I received a call from them indicating that they filed lien and ask me to start making payments if possible. This is the first time since 2010, that I hear from them, did not copied me with their lien or advised me of their intentions of filing. Was this legal?

    I would not be able to pay their lien due to my limited income. How can I solve this problem? Please help! Thanks

    • http://www.Credit.com/ Gerri Detweiler

      Becky – What do you mean they filed a lien? Typically a home equity loan does create a lien on the property. Do you mean they got a court judgment against you and filed a lien as a result? At any rate, I would recommend you meet with a consumer bankruptcy attorney. It sounds like you are at risk of losing your home, and the bankruptcy attorney should be able to help you understand what can happen here and what your options are. The NACBA website has an attorney locator service you can use to find one in your area.

  • G.Rose

    My situation is a bit complicated. I have two mortgages I am current on my 1st with Citimortgage, however I have not paid on my 2nd mtg. for a few years (due to being on disibility SSI limited income). I attempted to get a loan mod. on 2nd however was denied the mod. Chase (my 2nd mtg) said I could not get a mod. with them until my loan mod. on my 1st mtg. was approved. Well my 1st loan modification after 1 year and 3 months was denied (for no good reason). I have tried to make an agreement with Chase (2nd mtg.) on a few occasions and they will not work with me condsidering my limited income. On top of all this my 1921 home is literally falling apart. Need new roof and the foundation of my home is shifting and deteorating. I tried to obtain a grant to help preserve my home and for reasons of unhealthy and unsafe living conditions, and was unsuccessful to be eligible for any assitance because I cannot get a Grant if im behind in mortgage payments. GO FIGURE???? I would appreciate any assistane in regards to my situation as I am currently and have been living with mold under my entire home and some in my home due to my roof and foundations issues. Thank you in advance for any advice you may provide me. God Bless.

    • http://www.Credit.com/ Gerri Detweiler

      Have you met with a local HUD approved housing counseling agency? They may know of programs that can help.

  • http://www.Credit.com/ Gerri Detweiler

    Have you talked with a consumer law attorney at all throughout this? You need to find a reputable one who can help you understand your rights and options here. Visit NACA.net.

  • http://www.Credit.com/ Gerri Detweiler

    I am sorry but I don’t understand your question.

  • Patti

    You may also want to mention that the settlement of a second – especially where there is a delinquency on that second – may make it harder to obtain a new loan. In fact, a settlement will be treated as a foreclosure for the purposes of underwriting a new loan and can force you to wait between two and three years after the settlement before you can obtain a new mortgage. This is especially bad for couples going through a divorce where one party needs to buy a new home.

  • http://www.Credit.com/ Gerri Detweiler

    If it is settled and you can get clear title I see no reason why you can’t sell it if you can find an all cash buyer. (My guess is you would have trouble finding a buyer who can get a loan given the work the house needs.)

    Keep in mind you may get a 1099-c for the settled amount and you’ll need to find out whether you can avoid paying taxes on that. Learn more here: What is a 1099-C? Your Top 11 Questions Answered

  • http://www.Credit.com/ Gerri Detweiler

    Cindy, I wish I could tell you but there are still numerous problems with the foreclosure/modification process in many states. My best advice is to get a reputable qualified attorney with knowledge of the local area involved.

  • http://www.Credit.com/ Gerri Detweiler

    I can’t even begin to hazard a guess as to what they will settle for. It depends on a lot of factors, including who actually owns the debt, your finances etc. I would really encourage you to get professional advice. And don’t forget to figure out whether you may owe taxes on the forgiven debt. If you will and can’t afford them bankruptcy may be your better option. I’ve described some resources that may help here:
    Underwater Homeowners Ask: Should I Stay or Should I Go?

  • http://www.Credit.com/ Gerri Detweiler

    While you could use the cash i doubt the mortgage company is going to be thrilled about you pocketing cash while they accept less. I don’t know how these things are enforced but you do run a risk by not abiding by the terms of the written settlement.

  • http://www.Credit.com/ Gerri Detweiler

    Willow – I would strongly encourage you to talk with an experienced attorney. It is not easy to negotiate settlements on second mortgages. Also keep in mind that unless Congress extends the Mortgage Debt Forgiveness Tax Relief Act you will may owe taxes on any forgiven debt. We wrote about that here: 1099-C In the Mail? How to Avoid Taxes on Cancelled Debt

    My suggestion is you talk with a consumer bankruptcy attorney. You may be able to wipe out the second in bankruptcy and, if so, you would not have to pay taxes on the cancelled debt.

  • http://batman-news.com mommarea

    HI,
    We bought our house just before the bubble burst. We paid $278. We are being told it would now appraise for somewhere around $210 – $230. We owe $228 on a first mortgage and $43,000 on a second mortgage. We are current on both mortgages but due to unexpected medical expenses (my husband has cancer) we are sinking fast and I don’t know how long we will be able to keep up. We would love to sell and just rent for a while so we can did ourselves out. Any suggestions?

    • http://www.Credit.com/ Gerri Detweiler

      I am so sorry to hear of your husband’s cancer. I am sure the financial stress isn’t helping.

      I would really encourage you to talk with a consumer bankruptcy attorney asap. It may be possible to get rid of the second in bankruptcy since it is completely underwater. Even if it isn’t, you may need to protect yourself in the case of a short sale so that you don’t owe taxes on any cancelled amount. The attorney can help you understand your options. Visit NACBA if you need a referral.

  • http://www.Credit.com/ Gerri Detweiler

    Vicky –

    As far as the debt you are asking about, if the statute of limitations has expired (I believe it’s four years but you should double check) and it is going to come off your credit reports in a few months I don’t see any reason to open that can of worms, but that is your decision. Settling it won’t help it come off your credit reports faster nor will it affect your credit scores.

    Do you know if the statute of limitations has expired on these debts? Did you receive 1099-Cs for any of them? You said you sold 2 of 8 and 2 went to foreclosure in 2008. What about the other four? What is the status of them? I only raise this because it may make sense for you to talk with a consumer bankruptcy attorney familiar with foreclosures to see if you need to take other steps to protect yourself against potential lawsuits and/or tax bills resulting from this mess.

  • http://www.Credit.com/ Gerri Detweiler

    The statute of limitations is different than the time period that negative information can be reported. Statute of limitations is a matter of state law and the time period for negative information is based on the Fair Credit Reporting Act, a federal law. We wrote more about that here: Does Your Old Debt Have an Expiration Date?

    • Vicky Bao

      Gerri,
      Knowledge is power, I feel much better after I read your response and your post. I live is California,statutes of limitation is 4 years, Nevada is 6 years, question is which state’s limitation is apply to my case?

      Thank you

      • http://www.Credit.com/ Gerri Detweiler

        It is my understanding that it depends on the venue where they decide to pursue legal action – if they do. If you signed the contract in NV I believe they could try to pursue it there. It doesn’t sound like they would try CA since the SOL is shorter. Again, you may want to check with a consumer law attorney. Also be sure to monitor your credit. If you’ve moved it is possible they could try to contact you at an old address. Here’s how to monitor your credit score for free.

  • Mats

    Hi Gerri, I am in a bit of a spot here. I have two mortgages on my condo. I am in the process of refinancing my first mortgage down from a 5.875 to a 4.625 fixed. I will owe 149,875 on that new mortgage. I have a second mortgage on the condo for owing about 45,000 with a high interest rate of 13.991 % The condo just got an appraised value of 137,500. I don’t have any equity and can’t afford the second payment of 617.00 each month as my room mate is moving out. Both of my mortgages are current and I am hoping that once I close on the new first I can work out something with the second company to reduce the interest rate. Is this realistic? Any advice for me? I declared bankruptcy a little over seven years ago this was discharged five years ago but don’t what to do now.

    • http://www.Credit.com/ Gerri Detweiler

      I am sorry to hear about the tough spot you are in. I don’t quite understand though. You said you discharged the debt five years ago? Did you get the second mortgage stripped or…? I am afraid I don’t have any simple answer for you either way though. It depends so much on the lender’s willingness to work with you – and they are sometimes hampered there because loans have been packaged and sold to investors. Does your bankruptcy attorney have advice for you? Is it possible to strip the second in a new Chapter 13 case?

      • mats

        When I went through the Chapter 13 I affirmed both Mortgages. This appears to have been a mistake. I have paid faithfully thought the five years of bankruptcy and the two years since I have been discharged. I may have to consult another attorney and go through it again to rid myself of this mortgage. I will call the lender after I close on my new mortgage and see what they say.

        • http://www.Credit.com/ Gerri Detweiler

          I’d suggest you also get some legal advice to see if there is any way to strip the second. (I wouldn’t rely just on what the lender tells you. Sometimes consumers didn’t get correct advice from mortgage servicers.)

  • mary

    Dear Gerri,
    My husband and I purchased a single family house in Fl for $163,000 this is my primary house and the only property we own. We moved to the north east 3 1/2 years ago. We are current on our two mortgages, the 1st one is with bank A and the balance is 112,000 and the 2nd one is a Home Equity Loan for $64,000 with another bank B and the maturity date was seven months ago. We have this 2nd mortgage for ten years and we were paying only interest .We have the issue with the second mortgage because the bank B now is asking for the whole 64,000 and they put it in their collection dept. already. We do not have this amount of money to paid it off but we are still paying the interest. We tried to refinance with the bank B but it did not work neither the renewal of this account. I have the property rented. The property now has some value and is selling for 230,000 to 245,000 regular price and it is in great condition. The real estate agent told us he will put it in the market for 250,000. Between the two mortgages we own $176,000.
    Gerri we worked very hard to buy this house and all our life savings went into this. We are planning to move back in approximately six months from now (July 2015) if it is necessary to save our home because this will be our retirement place as well.Today bank B contacted me over the phone. I told them that I would like to work it out with them and I am still paying the interest but the lady who called said that I don’t have to because my payments now aren’t making a much of a difference because the account is closed and maybe the money I am sending may be applied to some interest it will accrued because this account is already closed so she suggested and provided me the phone number of their loan modification dept. and loss mitigation. At this point we are even thinking of chapter 13 (but we do not know if this could be done since we are not living at the property right now) if this is the way to save our house. Please Gerri help us we do not want to lose something we sacrificed for. Thank you so so much.

    • http://www.Credit.com/ Gerri Detweiler

      Mary – Please talk with a bankruptcy attorney in Florida asap. Right now this is not your primary residence – it is a rental property. You may have options that will allow you to keep the home and catch up on the delinquent payments but you need to consult with a bankruptcy attorney. Start with one in the state where you are a resident. They may advise you to consult a Florida bankruptcy attorney.

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