what to do about my 2nd mortgage?

[RedLight]

Having cash set aside to bring the loan current is pointless unless you are able to completely pay off the loan in full. After 120 days of non-payment they will charge off the account and will not be able to accept any money from you unless you settle or short sale.

[LadyInTheRed]

So all companies will settle and just to confirm, it won't affect my credit to stop making payments, correct?

There is no guaranty that the company will settle. That's why if you stop making payments, you should set the cash aside so you are ready to bring the loan current if they are unwilling to settle and instead foreclose. You will also have to pay late penalties to bring the loan current.

They should not report late payments on your credit report. If they do, you should file an objection with the credit reporting agency saying that the debt was discharged in BK.

Also what would be the typical time period of not making payments before considering a settlement and will they contact me?

When you save enough to offer to settle for 10% of the outstanding balance, you should call and make an offer. But, start by offering 5%. They may or may not make a settlement offer before you contact them. They will definitely contact you before they start foreclosure in which case you should make an offer.

[Medport]

I see what your saying. If I were to add the 2nd and do a refinance it would almost be like starting over. Although I was quoted maybe a $100 a less payment with the current rates (but that is assuming I qualify and when I'm about 4 years post bk). So all companies will settle and just to confirm, it won't affect my credit to stop making payments, correct? Also what would be the typical time period of not making payments before considering a settlement and will they contact me?

[IBroke]

I'm still thinking of refinancing in the near future too if possible. If I decide to try that route, than I'm assuming I would have to include the 2nd in that too? If that were the case I would probably want to continue to pay on it.

No, not even in that scenario.

If you want to refinance in the future, you would have the option to either consolidate both mortgages into a new one (if there is sufficient equity) or you could simply refinance the first mortgage after the second is paid and gone through a settlement. THIS is what you want - not the first option with an (obviously) higher payment.

Now, especially when aiming at a long term solution like refinancing, you should focus on getting rid of the second rather than keeping it on your back through re-financing. If you want to go for a settlement, you should do it ASAP as long as the property-values are relatively low. The higher the property-values get, the lower your chances will be to settle with them. So stop making payments now and try to settle while the value is lower and refi your first mortgage once the property-value is higher.

Sorry if I sound like a broken record but the best scenario is a settlement on the second mortgage and if you decide to keep on making payments, that ain't gonna happen.

[Medport]

Ok, that clears it up a bit. I'm not underwater on my first. But it is a fairly low-value house and with the repairs it needs, would be pretty close to even right now. I just don't want them to come along in a few years when the equity starts to build up and I'm close to paying it off and then try to foreclose. It sounds like they could be willing to negotiate at that point too by offering a settlement or refinance. I'm still thinking of refinancing in the near future too if possible. If I decide to try that route, than I'm assuming I would have to include the 2nd in that too? If that were the case I would probably want to continue to pay on it.

[IBroke]

So I still don't know if I should continue paying or not? (...) I don't think stopping paying to set money aside will work either as the past couple months I haven't even broke even

Well, If you are saying that you are not sure if you should continue to pay, I don't understand why putting the money aside instead is not an option. The money for making payments has to come from somewhere, too, right?

So instead of paying the mortgage which won't get you anywhere in the near future, you should try something different by aiming at a settlement.

I don't know what you mean by asking if the 2nd is underwater? Its actually a home equity loan that was for around 13k when first taken out, I'm not sure what the balance is, but probably a little over 11k now. Last month was the first time I didn't make a payment. The interest only payment is around $38 and I usually paid anywhere from $50-100 so if I continue those payment it will probably take over 20 years to pay it off! (and I only have about 14 years left on the 1st) and I can't afford to pay any more right now. So if I understand, if I miss a payment here or there it won't affect my credit score or interest rate, most likely just add to the principle? I'm thinking that's the case because she didn't mention that my payment was past due or anything.

"Underwater on your second mortgage" means that the current balance of your first mortgage is higher than the current value of your home. If that's the case, the second mortgage wouldn't get any money from a foreclosure-sale and therefore, making it unlikely that they initiate a foreclosure.

As I suggested, stop making the payments on your second mortgage and put that money on a savings-account instead. Making payments on this second mortgage probably won't change the current status and you will be paying this mortgage for many, many years to come.

And since it doesn't affect your credit, there is no reason NOT to stop payments if you are indeed underwater with this mortgage. I think your chances of getting a settlement by doing what I suggested are quite good. It's a discharged mortgage with a low balance. They probably wouldn't even foreclose if there would be equity because it's not worth it due to the low mortgage-amount.

Maybe I should call back and try to get more answers? What questions should I ask?

I don't know. The most important thing is that it is discharged and non-reaffirmed. As long as you are making timely payments, they certainly won't give you any advice on who to get rid of this loan. Sad - but that's how it works.

[Medport]

So I still don't know if I should continue paying or not? btw, I don't know what you mean by asking if the 2nd is underwater? Its actually a home equity loan that was for around 13k when first taken out, I'm not sure what the balance is, but probably a little over 11k now. Last month was the first time I didn't make a payment. The interest only payment is around $38 and I usually paid anywhere from $50-100 so if I continue those payment it will probably take over 20 years to pay it off! (and I only have about 14 years left on the 1st) and I can't afford to pay any more right now. So if I understand, if I miss a payment here or there it won't affect my credit score or interest rate, most likely just add to the principle? I'm thinking that's the case because she didn't mention that my payment was past due or anything.

Maybe I should call back and try to get more answers? What questions should I ask? I don't think stopping paying to set money aside will work either as the past couple months I haven't even broke even. I did just get a 2nd job so I should start to do better, but still will have to watch what I spend as things always come up like home repairs and tires which I desperately need for my car right now.

[IBroke]

I just called the 2nd mortgage company and asks the status of my loan and they said my obligation is discharged! I asked her to clarify that and they said they still have a lien on my property. So I asked if I didn't send in payments would they try to foreclose and she said she couldn't answer that and I could continue to make payments if I wanted to. So I'm thinking this means I don't have to and have been making payments for the past 2+ years for nothing, correct?

Not "for nothing". Again, you have to keep in mind that a mortgage exists of a lien and the debt itself. The lien is the lender's "security" and no matter if your mortgage was discharged or not, usually requires payment(s) to get rid off. This is what you did by paying your second mortgage after your bankruptcy. Each payment brings you closer to that goal.

Now, if a mortgage was discharged, it means that your personal obligation to pay this debt was erased. This means that they can't come after you personally if you fail to pay. However, their lien on your property assures them that they can still foreclose if they want to if you fail to make the payments.

It might also help you to understand this scenario by pointing out that filing for bankruptcy and getting a discharge on the debts involved doesn't mean that the debt is gone. It only means that lenders can't come after you for those debts anymore. This makes it a bit easier to understand why there is still a debt on a non-reaffirmed account (in this case, your second mortgage) in the first place.

On unsecured debts like credit cards, it certainly doesn't make any sense to pay after your discharge. On the other hand, if we are talking about secured debts like real estate or vehicles the debtor (in this case, you) wants to keep, continuing payments makes totally sense. The ultimate goal of a debtor on secured loans is to own free and clear - no matter if it's a house or a car. And this is usually achieved by paying off the debt associated with it (either a mortgage or an auto-loan). So if you want to keep a home or car after a bankruptcy, you keep on paying.

Now, if your second mortgage is completely underwater, I would suggest you stop making payments on the second mortgage and put the money aside. By doing so, you will ultimately be able to offer the second mortgage the usual 5-10% of your balance in order to settle and get rid of it. And if they don't agree and actually try to foreclose, you still have the money to get current again.

As others pointed out, you don't have to worry about credit-reporting on discharged and non-reaffirmed debts. They are not allowed to report anything derogatory on your second mortgage post filing.

[Medport]

I just called the 2nd mortgage company and asks the status of my loan and they said my obligation is discharged! I asked her to clarify that and they said they still have a lien on my property. So I asked if I didn't send in payments would they try to foreclose and she said she couldn't answer that and I could continue to make payments if I wanted to. So I'm thinking this means I don't have to and have been making payments for the past 2+ years for nothing, correct?

[LadyInTheRed]

I don't know, I'm pretty sure the 2nd wasn't discharged or my attorney would have told me to stop paying on it.

Not if you wanted to stay in the house which I assume you do since you reaffirmed the first. People continue to make payments on discharged mortages all of the time.

I wonder if I should try to contact the attorney I used at the time to see if they still have any records or advice?

You could. But you could also check your discharge order to see if the 2nd is listed as excepted from discharge.

Did you sign a reaffirmation agreement? Did the creditor file an objection to your discharge? You would know if they did. If the answer to both of these questions is "no" and you listed the mortgage on your list of creditors, then the mortgage was discharged.

[Medport]

I don't know, I'm pretty sure the 2nd wasn't discharged or my attorney would have told me to stop paying on it. I wonder if I should try to contact the attorney I used at the time to see if they still have any records or advice?

[LadyInTheRed]

This is confusing. The 1st was reaffirmed and I'm continuing to pay it. The 2nd I believe was not reaffirmed, but not discharged either (because its a lien on the 1st?). I believe they said it should have been reaffirmed after the fact when I called them after the bk because I didn't get any more statements. I guess I should call them again to figure out whats going on, although I'm sure they will say to send payments in. I just don't know why I haven't been contacted saying my draw period was over or something.

It makes complete sense that the 2nd mortgage was discharged if it wasn't reaffirmed. That is how it normally works. But, there are other reasons besides a reaffirmation that might cause a debt to not be discharged. I don't make any assumptions because I don't know the details of your case. If you did not reaffirm the second and the second did not file an objection to dischargeability and win, the loan would have been discharged.

I see now that my phrasing was confusing. I should have said "if you stop paying on a debt that was not reaffirmed and that was discharged..."

[Medport]

This is confusing. The 1st was reaffirmed and I'm continuing to pay it. The 2nd I believe was not reaffirmed, but not discharged either (because its a lien on the 1st?). I believe they said it should have been reaffirmed after the fact when I called them after the bk because I didn't get any more statements. I guess I should call them again to figure out whats going on, although I'm sure they will say to send payments in. I just don't know why I haven't been contacted saying my draw period was over or something.

[LadyInTheRed]

I'm still debating what to do. I have a little money now and could send in the min., but was thinking of holding off and seeing about a payoff or what they may do. On the other hand, I'm assuming my credit will take a hit if I stop making payments correct? I'm thinking of trading my car in in the spring and don't want my credit scores to take a plunge now.

If you stop paying on the reaffirmed 1st, the late payments can be reported on your credit report. If you stop paying on a debt that was not reaffirmed and discharged, then the creditor cannot report the late payments on your credit report.

[Medport]

I'm still debating what to do. I have a little money now and could send in the min., but was thinking of holding off and seeing about a payoff or what they may do. On the other hand, I'm assuming my credit will take a hit if I stop making payments correct? I'm thinking of trading my car in in the spring and don't want my credit scores to take a plunge now.