Does 2nd mortgage become unsecured?

[dovette7]

Surrendering our house in Ch 13. The Stay has been lifted for 1st mortgage. Hearing for 2nd mortgage is the first of next month. I expect foreclosure process to start this week on 1st mortgage. An agent has a short sale offer to present to Wells Fargo (1st) and Wachovia (2nd)

If no sale happens, 1st mortgage forecloses. What happens to 2nd mortgage in regards to us? If they get no money at auction, can they take what we owed them and make it an unsecured claim in our Ch 13?

[SinkingFast]

When the house sells at Foreclosure, the 1st gets paid. If there's anything left, that money goes toward what you owe on the 2nd. The remainder of the 2nd, if they don't get paid in full, becomes an Unsecured. Just like a CC or any other Unsecured debt.

Keep in mind that if the 1st forced the Sale, there will be additional costs tacked on. The pay-off won't simply be your principal balance. There's the cost of the Foreclosure, plus all lates, penalties, interest, and fees that have accrued since you made your last payment. The 1st also might have to cure tax debts, HOA dues arrears, and a variety of other expenses associated with obtaining a clean title to the property.

[dovette7]

short sale?

ok. I understand that part. There is an agent trying to do a short sell on the property. They are presenting an offer of: 1st Mort: 80% loan 2nd Mort: 20% loan. If both lenders agree to this, then they don't come after me for the difference at all do they? I am assuming if they agree to this, that it is b/c it would save them money from having to do the foreclosure at all and b/c the 2nd would get SOMETHING... instead of possibly nothing.
Does that sound right?

[SinkingFast]

Generally speaking, it's tough to get both Lenders on board with a Short Sale. Not impossible. Just difficult. Most Short Sales are done when there's only 1 Lender involved.

You'll probably get a 1099C for the difference between the fair market value and what you actually sold for. Not a big deal if you can prove insolvency. At tax time, you'd file Form 982 to show you're Insolvent. Basically that you owed more than what your Estate is worth.

Here's a link for some general info:

http://www.nolo.com/article.cfm/Obje...3/208/212/ART/

[dovette7]

Would I get a 1099 if I'm in Chapter 13? This is so confusing!
This agent who I know very well was bringing an offer.... I was submitting it to my attorney b/c I filed Ch 13. The offer was very low and didn't pay off either lender. Trustee dosen't want house. Now stay is lifted on 1st mort. Foreclosure will start. Agent is trying to do a short sale but it's so jumbled and they don't even have concrete contact info at either lender.

If I can get them to come up to an offer of the payoff amounts plus her commission..... do I still have to get trustee approval since he does not want house or can I just sell it for the payoffs?

[SinkingFast]

Since you've already filed, the house is an asset of your BK Estate. You have to get permission from the Trustee to sell it.