Question: I have a first and a home equity line of credit. Payments stopped being made on both of them almost one year ago. However, I applied for a loan modification on both, and due to a bank error, only the first was modified. The equity line was sent to a collections agency. I am in the final stages of modification on the first. If my first is modified, what happens to the equity line of credit? Can they still foreclose?
Answer: – The answer is Yes. Your second mortgage can still foreclose if you don’t make your payments. The first mortgage has nothing to do with the 2nd mortgage unless it’s with the same bank. For some reason, it seems as though some homeowners think that if they don’t pay the 2nd it will just disappear. So they keep paying the first mortgage and forget the 2nd. Well eventually they will foreclose.
So if I were you, you need to try and negotiate something with the 2nd. At least let them know you are trying to make payments or work out a solution. I’ve found that they are much more negotiable when a 3rd party talks to them. You might even have a good case for a settlement depending on your situation and the value of the property. But if they do settle for a fraction of the amount, you need to be in a position to pay it off. Or you can borrow the money from someone you know and let them become the 2nd lien holder and make payments to them.
Also understand that modifications are only temporary solutions just to give you time to better your financial situation. So make sure you don’t outlay a bunch of cash to modify only to find yourself in a worse situation or a situation where the 2nd won’t do anything and you’re forced to sell anyway. Then you’ve just lost money that you probably couldn’t afford to lose anyway.
Keep in mind too, the good modifications will cost you little if any upfront. They just add what you owe onto the back of the loan and re-calculate your payment.