settled 2nd mortgage

[nichole04]

Hi all, I just wanted to let you know that I successfully settled my 2nd mortgages. I received my chapter 7 discharge in July and contacted my mortgage servicers in August about settling. I filed my chapter 7 in April and was current on all mortgages when I filed. I then stopped paying the seconds in May. I was underwater on my first mortgage so the 2nd's were unsecured. My 2nd with Citimortgage was for $83,000 and they settled with me for $4,000 which is right under 5%. I also settled with Suntrust which I had two 2nd mortgages with. I settled $30,000 for $1500 and $37000 for $1700which were also settled for around 5% each. All liens have been released and recorded at the county courthouse on my deeds of trust. I used the money in my Roth IRA acount to settle with. I hope this helps others who are considering trying to settle their 2nd mortgages after their chapter 7 discharge!

[considering7]

Nichole04 -
Interesting. So you stopped paying your 2nd mortgages as soon as you filed. When you were discharged in July, I assume that you continued not paying your 2nds, right?

How did you go about trying to settle with the bank? Did you just pick up the phone and call the bank's 800 number and say "hey, my house value has dropped, I haven't paid you in several months, how about we settle?". Since you were in a BK, I imagine the banks were prevented from contacting you for collecting the payments you were in arrears on. Were the banks responsive to your request to settle, or did it require many, many calls to get someone in the bank to listen? Did you throw out the first offer of 5%? Or did they ask for more than that?

[HHM]

Nice work...that is seeming par for the course. 5% is a good amount, the range seems to be about 5%-10% for these sorts of junior mortgage settlements when the junior mortgages are entirely unsecured.

I too, am interested in the particulars. Who did you call first, where were you transferred, did you get anything in writing, how long did it take, how many phone calls, etc etc.

[clevelandmom]

Can someone please explain the ramifications of this? I get it, but I'm also confused. My house is currently worth around $185,000. My 1st is $185,000, second is $50,000. I would LOVE to get rid of the second, however, I do NOT, not now nor EVER, want to lose this house. Could they foreclose on me if I played this game with them? What can happen? I'd love to do this, but the amount of fear I have of losing my house prevents me. Please tell me the good, bad and ugly. THANK YOU!!

[nichole04]

I contacted the bk departments of the banks and offered to settle in August and settled in September. Not many phone calls. They had me email/fax my settlement letter proposals. I first offered $3000 to Citimortgage to settle and they counter-offered with $5000 and then I came back and said all I had was $4000 so they accepted it. They sent me a settlement letter with wire instructions as to where to send the money. Suntrust just took the offers and did not counter. It was a lot easier than I thought. I stopped paying in May on all 2nd mortgages so they were 4 months late when I made the offers and I was discharged as well. Both banks sent me letters in writing stating they would release the liens and the loans would be settled in full.
Clevelandmom-I did not want to lose my house either but my husband and I decided that if this did not work that we were willing to let the house go versus being in a chapter 13 for five years. It worked out for us but there are no guarantees. If you are current on ALL mortgages before filing chapter 7 and your first mortgage is more or equal to what the house is worth then I think you have a good chance of settling when the 2nd mortgage is unsecured. The safest thing to do is file chapter 13 and lien strip the 2nd if you 100% do not want to chance loosing your home. My attorney actually wanted me to file chapter 13 but I took my chances with the chapter 7 in order to do my own "lien-strip" by settling. I hope this helps! Also, keep in mind since your house is worth what you owe on the first that the second mortgage can't foreclose unless they pay off the first mortgage. I don't think they would do that for a $50,000 loan since they would be loosing big money.

[brokejoker]

Amazing! I'd like to know some details too. I am thinking of banking our 2nd mortgage payment and then asking them to settle. How did they handle the release of lien? Did you have an attorney and how much did that cost?

[considering7]

Congratulations on taking the initiative to do that settling with your 2nds. Did you have to get an appraisal to prove the value of your home had decreased? How long between the time you contacted the banks until the time the settlement occurred?

Do you think this will have any negative impact on your credit score? I mean I know you have a recent Chapter 7 on your credit report so i guess on the one hand I'm thinkin' why not settle the 2nds, because your credit is already marred. On the other hand, I wonder if this will be worse on one's credit score since it occurred after the discharge. I guess it will be listed on your credit report as something like "Closed - Settled - Defaulted" or something like that?

[nichole04]

They settled within a month of my offer. I did not have an attorney review it so there was no cost. I did not get a new apprasial since they do their own BPO anyway. I offered to give them the one I had done several months prior but they didn't want it. They gave me a signed letter stating that when they receive the funds they will release the lien. There is no effect on my credit score because on my credit report they had already noted that the mortgages were discharged in bankruptcy and the balances were zero. I settled with them so they would remove the lien so they cannot ever try to foreclose in the future if and when home values increase. They sent the cancellation of lien to my county recorder. I went to my county recorders office a few weeks later and got certified copies of my cancellation of liens on my security deed just in case anything ever comes up in the future.

[HHM]

Sounds good

To answer clevelandmom: after chapter 7 discharge, a mortgage holder still has a lien against your house. So, if you were in default (not making payments), the mortgage holder still has the "legal right" to foreclose. However, in this real estate market, 2nd mortgage holders rarely foreclose because they would have to pay the first, it is simply not cost effective. That is why nichole04 was able to settle, the house was way upside down and the loan was discharged in BK. There really isn't much for the 2nd mortgage to do at that point but settle. But, theoretically, they could simply sit on the loan for years and years, accumulating interest, and wait for the real estate market to rebound, or the homeowner to attempt to sell or refi.

[tcreegan]

You are awesome Nichole, simply awesome!!!

And a big THANK YOU !! for coming back and posting your experience.

Great job!



Tom in Colo

[considering7]

Sounds good
But, theoretically, they could simply sit on the loan for years and years, accumulating interest, and wait for the real estate market to rebound, or the homeowner to attempt to sell or refi.

If a bank could sit tight and wait it out they would be able to get all of their money if either:
a) the market rebounds and home value increases.
b) down the road the homeowner descides to sell and can't until the second mortgages are satisfied.

So why would the bank be so quick to settle for 5-10% when they could wait it out and get 100% plus accumulated interest?

[HHM]

If a bank could sit tight and wait it out they would be able to get all of their money if either:
a) the market rebounds and home value increases.
b) down the road the homeowner descides to sell and can't until the second mortgages are satisfied.

So why would the bank be so quick to settle for 5-10% when they could wait it out and get 100% plus accumulated interest?

The answer is actually somewhat complex. Bottom line, holding onto bad debt for years and years costs more money than liquidating it now. It has to do with accounting, record keeping, reserve requirements, etc. It is usually better to liquidate and get what you get, and write off the rest for tax purposes than to try to hold on to to the debt forever. Also, the way these things are securitized, the over all portfolio usually has a limit on the number of non-performing loans.

So, believe it or not, it is actually better for them to settle than hold

[mysticspirit25]

Really Odd, my buddy who is upside down still living at his house had his 2nd through Citimortgage, he offered to settle, and was fought every bit of the way, balance was 81k too, and they eventually denied him saying "the investor does not allow for short payoffs when it is still being resided in by defaulted borrower". He hasn't paid in 2 years. Eventually, Citi filed some sort of claim with a company called United Guaranty in North Carolina (I guess an insurance co) and they offered to settle for 50% he said no. That was a year ago, nothing since.

[scorpion35]

Hi all, I just wanted to let you know that I successfully settled my 2nd mortgages. I received my chapter 7 discharge in July and contacted my mortgage servicers in August about settling. I filed my chapter 7 in April and was current on all mortgages when I filed. I then stopped paying the seconds in May. I was underwater on my first mortgage so the 2nd's were unsecured. My 2nd with Citimortgage was for $83,000 and they settled with me for $4,000 which is right under 5%. I also settled with Suntrust which I had two 2nd mortgages with. I settled $30,000 for $1500 and $37000 for $1700which were also settled for around 5% each. All liens have been released and recorded at the county courthouse on my deeds of trust. I used the money in my Roth IRA acount to settle with. I hope this helps others who are considering trying to settle their 2nd mortgages after their chapter 7 discharge!

so u had $150000 worth of 2nd mortgages.where did all that money go?

[msm859]

I also settled my second with Citibank but I did this before I filed and after I had modified the loan on my first. They had an inside BPO who came back and said my house was worth almost $70k more then my 1st. My second was $190k they offered to settle for @$50k. I got them comps and other info to show why their BPO was not accurate. Finally, settled for $27k - 15%. Much better then trying a lien strip in a 13 -- especially since it wouldn't work if I had any equity above the first.
I dealt with the short sale department at Citi. It was a fairly easy (unlike modifying my first) transaction. I had quit paying my second about 3 months earlier.