second mortgages

[hopeful316]

I put a thread earlier about this on the ch 13 forum. I was just wondering I read that if you have a second mortgage and you file ch 7 you are released of the liability but the lien doesn't get stripped. Does that mean if you don't continue to pay the second mortgage, the second lender can still come after and try to sue you to recoup the amount and they can foreclose on you even if you're current on the first? I would like to know the difference between the liability and the lien. Thanks

[soccerguy]

as far as i know chapter 7 will not release u from a second mortgage.u need a chapter 13 for that
but thats just a guess

[justbroke]

The 2nd (or junior) lienholder can sue you for foreclosure. They cannot attempt to collect the debt itself or do anything that would force you to pay the debt.

The junior lienholder never loses its right to foreclose. They can do so at any time that you fail to meet the terms of the mortgage and note under your States non-bankruptcy laws. The good thing with this bad economy is that most junior lienholders can't afford to foreclose when the property is so underwater that the value of the property is less than the balance of the first mortgage. This keeps them from foreclosing... for now.

[btbeme]

Simple answer - your PERSONAL liability for the second goes away in a Ch 7, but the loan is still secured by the property.

More complete answer - In other words, if the lien holder feels that the only way they will ever get paid is to foreclose on the property, they can do so. However, since they are in second place (your primary mortgage is in first place) they will not see a cent until ALL of the first mortgage gets paid. And then, they only get the leftovers.

So, let's say you have a $200,000 first mortgage and a $15,000 second mortgage. If you don't pay the second, they will eventually have the right to foreclose. However, they will only do so if they KNOW that they will be able to get their money back, at least in part, by forcing the sale of your house for well over $200,000. Since the first $200,000 has to go to the first lien holder, they won't recover a cent unless they sell for over $200,000. If your home is "underwater", say, worth about $175,000 on the market right now, no second lien holder would even consider foreclosing.

So, the strategy works like this... Are you "underwater" on your first mortgage? If so, your second is waaaay underwater. So, in a Ch 7, you do NOT reaffirm your mortgages. Your personal responsibility (lawsuits, etc) go away at discharge. Stop paying the second. In a few months, call them to see if they will offer a lien release for pennies on the dollar - say, 15-20% of the second mortgage amount. If they do not, try again in a few more months. And then again. Some day they will realize that their best bet is to negotiate with you.

If you plan to leave the house, reaffirm NOTHING and pay NOTHING after your 341. After half a year to 36 months or so, they will eventually foreclose. Until then, you live rent-free.

Stripping the lien via a Ch 13 works if you plan to stay in the house and you have equity at current market pricing.

[momofthree]

Stripping the lien via a Ch 13 works if you plan to stay in the house and you have equity at current market pricing.

Just a slight correction. A lien can only be stripped via ch.13 if you have NO equity. The 2nd lien has to be wholly unsecured (meaning not even a penny of value over the first mortgage balance) in order to be stripped.

[btbeme]

Just a slight correction. A lien can only be stripped via ch.13 if you have NO equity. The 2nd lien has to be wholly unsecured (meaning not even a penny of value over the first mortgage balance) in order to be stripped.

Thanks for the heads-up - I did mean to say NO equity. Too late last night; didn't proofread.

[2manybills]

I was able to accomplish a settlement on my 2nd mortgage HELOC about 1 year after discharge. We were not totally underwater on the 2nd, in fact there was probably about $80K in equity, but keep in mind that would be if the house sold in the foreclosure for full value (which doesn't happen).