Posts Tagged ‘2nd mortgage settlement’

Home Equity Line of Credit Questions

April 4th, 2012 by Jarad

Question:  I am married live in New York we own 2 houses. I live in one house and my wife lives in the other house (long story). We bought house #1 for $600,000 5 years ago. We have $350,000 left on mortgage one and $175,000 on a home equity line of credit. The house today is worth around $350,000, we have two different mortgage companies on this house. American Home Mortgage owns the primary mortgage $350,000 and Chase Bank owns the home equity line of credit $175,000. I have a couple of questions;
1. What happens to the HELOC and first mortgage if we go into foreclosure?
2. Do I have to pay back my HELOC if my house is foreclosed on?
3. Can either bank come after my other residence or garnish my wages or sue me?
4. We are currently up to date with both mortgages, but we are paying the mortgage with our creidt card. what would I do to get out of this situation? Foreclose, talk to both banks, short sale, etc.

Answer:  – These are some great questions… And most in this situation would even consider a strategic default because you are so upside down. Let me share with you a few ideas.

1. If your home goes through the foreclosure process, the winning bidder will end up with the home. In many cases when there are no bids, the mortgage company in first position that initiates the foreclosure will take back the property and try to sell it on their own. The 2nd mortgage, in this case your HELOC, will be wiped out if they don’t protect their position by bidding on the property.

2. If the 2nd lien holder or heloc gets wiped out, they still have options which a lot of homeowners don’t understand. Their options are to do nothing, write the whole thing off by sending you a 1099, or they can sue you for the difference, which is called a deficiency judgment and require you to pay back the amount that was lost. A deficiency judgment was something that very rarely happened to homeowners, but more and more I am seeing it’s a more common procedure with banks and I’m guessing it’s because of the volume of foreclosures that are happening right now.

3. If the 2nd decides to file a judgment against you, you will either have to pay the loan in full, work out a payment plan, a settlement or file bankruptcy. And yes, if you do nothing they can garnish your wages so they will get paid. They can’t force you to sell your other properties or assets, but the judgment requires you to pay them back which means you’ve got to come up with the money somehow. So no, they can’t come after your other asset directly, unless they were also pledged as collateral for the loan, however in many cases you will be forced to sell assets to pay off the judgment. This is why most homeowners simply file bk.

4. There are ways to avoid the judgment. One would be to do a short sale that would satisfy the loan. The short sale process has been taking a very long time lately, but is a better option than doing nothing. Benefits would be that you walk away without a foreclosure on your record and the mortgage(s) being satisfied so worst case you get a 1099 for the difference. But even this can be negated with the current laws in place. The only problem with a short sale is that you have to move out. Sometimes this might be a good thing if you are over-extended as it is.

Another option is a loan modification, although these can be very frustrating and very rarely do they ever go through. You can call you lender, let them know your hardship and ability to pay to see if they will lower your payments. This is usually a temporary solution. In your specific case where you have negative equity, a note settlement would be a great option.

A note settlement is when you settle or eliminate the 2nd mortgage completely. By eliminating your 2nd mortgage or heloc, you’ll at least get rid of the negative equity and have a better chance of selling it or keeping it. This option allows you to stay in your home and it doesn’t affect your credit because you are paying the bank off in full. No judgments, no 1099, no more 2nd mortgage because you paid it off. It will cost you anywhere from 10% to 15% of the original note amount in order to pay if off so in this case $20K – $30K. Even if you don’t have the money saved up to pay this amount, there are note investor networks that will pay it off and basically become the 2nd lien holder and you would make payments to them. I guarantee the payment on a 30K note would be a lot less than the payments on a $175K note.

Here is more information on homeowner options as well. Good Luck, I hope this has helped.

Rental home foreclosed in California

March 21st, 2012 by Jarad

Question:  I have/had a rental home in California. The bank (Chase) held the 1st and 2nd on the home. They foreclosed on the home and have since sold/auctioned it off. However, they (via a debt collector) are continuing to contact me in an effort to get me to pay off the 2nd/equity line ($32,000). I do not have that kind money and am struggling to hang on to my primary residence. What can they do to me and what are my options?

Answer:  – Your best option is to work with them and try to reach some sort of agreement, pay plan, settlement or payoff. If you can’t work something out, most people will file bk. In many cases, if you let the bank know you are serious about filing bk, they will work something out with you. We’ve been very successful in settling 2nd mortgages before they go to auction but you can still do the same after the auction to avoid the deficiency judgment.

Can my 2nd mortgage (heloc) foreclose on me?

March 20th, 2012 by Jarad

Question:  I have done a loan modification with my first mortgage and have been making the monthly payments every month with no problems. We have a Home Equity with another back which we have not been making the payments for that for over a year now. That bank is now sending us Notices Of Intent To Accelerate. Can they foreclose on our home even though they are not the first mortgage and we are current with the first mortgage company. what can this bank do to us?

Answer:  – This question comes up all the time. For some reason, many homeowners don’t believe the 2nd mortgage can force the sale of their home. In most cases, your home is collateral for the loan. That’s why when you get a 2nd mortgage, they want to make sure there is equity in the home so they can get paid if they have to foreclose. Even if you are current on your first mortgage, doesn’t matter. The 2nd mortgage can still foreclose and force the sale of your home. Although they would prefer not to because very likely they won’t be able to sell it for what they are into it.

So they will incur both foreclosure costs and lose out if the home is upside down. This is why they are so willing to work with us and other investors in settling those 2nd mortgages because they would prefer to have something rather than nothing. In any case, you will eventually lose your house if you continue on this path so it makes no sense if you are not paying your second, might as well not pay your first either. A better solution if you want to keep paying your first, is to work out something with the 2nd… basically a settlement. You’ll agree to pay them x amount to satisfy the loan.

If the 2nd forecloses, more than likely they will issue you a 1099 or they will file a judgment against you for the difference. When this happens, you can either choose to pay the judgment or the loss that was incurred from the sale or you can file bk. Hope this helps.

Can 2nd mortgage foreclose on me?

February 22nd, 2012 by Jarad

Question:  I have a 1st and 2nd mortgage with one bank in Florida. Then another bank came and offered to pay my 2nd mortgage with that bank. My heloc was not closed with the first bank and i had an emergency got some money out of it. My 5 yr term with the 2nd bank expired. They have been calling me and offering 8% interest rate on my heloc. I have been negotiating for a lower interest. they wont approved. Bank is threatening to foreclose my property. Can they do it? Property value is way too low..there is no equity on the house in this current market. Please advise. Can the 2nd bank foreclose my property?

Answer:   Absolutely, the 2nd mortgage can foreclose on your property. When you signed on the dotted lines for the HELOC, you gave them the right to force the sale of the property, which was collateral for the loan, in the event you did not keep up your end of the deal. Unfortunately, banks don’t like to negotiate with homeowners very much. They have this assumption that homeowners have no clue what they are doing. So they don’t give you very good deals that seem very reasonable based on current market conditions. Yet when a 3rd party (attorney or real estate investor) negotiates with them, the bank will usually lose more money because the offer is even lower then what the homeowner proposed. Bottom line, banks flat out don’t make sense.

So you best bet is to have someone else, like an attorney, negotiate the terms with them and try to get them to reason with you. Unfortunately, they cost money, but they should be able to help.

Another option is to have someone settle that 2nd mortgage and wipe it out completely…

Let the bank know you are interested in settling, tell them your home is upside down by $50,000 or whatever the amount is, there is a first mortgage in front of them and they will end up paying more than what the property is worth. Let them know your attorney has advised you to file bankruptcy but you don’t want to go that route. (This will just by you some time, they will eventually foreclose.) Then you or preferable someone else, needs to go settle that note for pennies and that way you don’t lose your home.

We settle 2nd mortgages and have been very successful in doing so for homeowners with large 2nds. The great part is that it doesn’t cost you anything upfront.

Good luck, hope everything works out for you.

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