First and Second Mortgages - Questions

[Godzillarama]

I've used this forum in the past and it's always informative. Thanks for the help so far. We got our 7 discharge last month. Now we need to deal with the house.

1st: Countrywide
Balance: $152K
Monthly: $1265.00

2nd: Homecomings (they bought the loan right after we got it)
Balance: $71K
Monthly: $831.00

The house is worth about $170K (we got a 125% loan).

We can let it go if we have to, we're ready for that. But what we'd really prefer is to somehow liquidate the second mortgage and stay put. So: if we stop paying the second, but keep paying the first, what are your predictions of the outcome? What are the pitfalls years from now? Is there not a five year statute of limitations, after which they can do nothing? And is it not so that without the first mortgagor's cooperation, they cannot foreclose? Or can they kick us out somehow, with or without Countrywide? The note for the second makes no mention of a timeframe for things like that.

What's going to bite us in the butt down the road if we try that?

It's Kansas. Your thoughts would be appreciated.

Godz

[BassBoy]

.......So: if we stop paying the second, but keep paying the first, what are your predictions of the outcome? What are the pitfalls years from now? Is there not a five year statute of limitations, after which they can do nothing? And is it not so that without the first mortgagor's cooperation, they cannot foreclose? Or can they kick us out somehow, with or without Countrywide? The note for the second makes no mention of a timeframe for things like that.

What's going to bite us in the butt down the road if we try that?

It's Kansas. Your thoughts would be appreciated.

Godz

More than likely, the second mortgage holder will foreclose when you default. My understanding is that when this happens, the second mortgage holder will need to work with the first mortgage holder in order to foreclose. Basically, the first mortgage holder will have to grant permission to foreclose, so to speak.

[HHM]

This would have been easier if you dealt with this through the BK. What are the status of the loans vis a vis the BK. Did you reaffirm each mortgage? Also, is the second mortgage a purchase money secuirty interest? (based on your post, the answer seems to be yes). Also, are the first and second with the same company?

The first erroneous assumption is that the 2nd mortgage holder cannot forclose without the 1st being on board. The fact is, legally, the 2nd mortgage holder can foreclose upon your default whenever they want...the real question is will they. After all, the first mortgage holder gets paid before the second. If there was equity in your home, this would be a no brainer, the 2nd mortgage holder would foreclose. But since the 2nd mortgage holder is under secured, they may not move to foreclose right away.

The other options the 2nd mortgage holder has, that is common, is to buy-out the 1st mortgage. Thus, then the 2nd mortgage holder can foreclose without any concern for the first since they now hold both mortgages.

Also, in a situation where the the LTV is in excess of 100%, the 2nd mortgage holder is generally allowed a deficiency balance. And since you have already been discharged in BK, you will have few options for dealing with the deficiency balance on the 2nd, because they will likely sue you and get a judgment against you.

[BK'd-Betty]

If both of these loans were IIB and the 1st forecloses, the 2nd could not sue for deficiency, correct?

[BassBoy]

This is where I get a little confused BK'd-Betty with respect to the new laws (and seeeing how Godzillarama was just discahrged, thus new law filer). My understanding is that a "ride through" is no longer and the filer must state their intentions to redeem, reaffirm or surrender. Well, if that's the case, then he/she must have redeemed the house (unless I'm incorrect here and filers can still do a "ride through") and eventually, the home will be foreclosed on and Godzillarama will be responsible for the deficency.

[BK'd-Betty]

Thanks BassBoy - What if it was old law - I'm actually asking this question for a co-worker who filed BK last year under old law, didn't re-affirm mortgages (has 1st & 2nd) and house is being sold at auction. She's worried about getting sued by the 2nd. She included both loans in her Chapter 7 BK. She didn't surrender the home in her BK, but allowed it to go into foreclosure just after discharge but before case was closed (case in now closed).

So, do you think she'll get sued? I told her I didn't think so because she was under old law and it is my understanding that 2nd mortgages just become unsecured if 1st forecloses and thier isn't enough money from the sale to pay the 2nd.

[BK'd-Betty]

I guess what she did was called a "ride-through".........so how does it work in a foreclosure with a 1st & 2nd on a ride through from old law?

Sorry if I'm confusing you, I'm confusing myself

[BassBoy]

Thanks BassBoy - What if it was old law - I'm actually asking this question for a co-worker who filed BK last year under old law, didn't re-affirm mortgages (has 1st & 2nd) and house is being sold at auction. She's worried about getting sued by the 2nd. She included both loans in her Chapter 7 BK. She didn't surrender the home in her BK, but allowed it to go into foreclosure just after discharge but before case was closed (case in now closed).

So, do you think she'll get sued? I told her I didn't think so because she was under old law and it is my understanding that 2nd mortgages just become unsecured if 1st forecloses and thier isn't enough money from the sale to pay the 2nd.

I guess what she did was called a "ride-through".........so how does it work in a foreclosure with a 1st & 2nd on a ride through from old law?

Sorry if I'm confusing you, I'm confusing myself

Being old law, she can walk away without further recourse. I filed old law, did not redeem my home, included the mortgages in the BK and walked away scott-free.

[BK'd-Betty]

Ohhhhhhhh - she's so happy (reading over my shoulder) she says THANKS BASSBOY! (and I thank you too for your time and response)

Being old law, she can walk away without further recourse. I filed old law, did not redeem my home, included the mortgages in the BK and walked away scott-free.

[BassBoy]

Ohhhhhhhh - she's so happy (reading over my shoulder) she says THANKS BASSBOY! (and I thank you too for your time and response)

Hopefully, she's reading this.....YOU ARE WELCOME!

[Godzillarama]

1) I don't understand the "deficiency balance" reference.

2) I don't know what a "ride through" is.

3) We stated intention to reaffirm both mortgages, but I don't understand what that means relative to my question.

Are there any Internet links confirming what you're saying? And, what are you saying, specifically? That the second can and will foreclose, without the first?

Thanks.

[BassBoy]

Yes, we are saying that that the second mortgage holder can foreclose, with or without the first.

Deficency bablance means the balance owed after the sale. For ex.: You owe $223 on your home, it's worth $170K...so....that means you would owe $53K, at the least. Now in some areas, the home will be auctioned for 2/3 of appraised value......so.......the $53K could be more.

A "ride through" was from the old BK laws. This allowed a debtor to retain the property and continue to make the payments. A re-affirmation, redemption was not necessary. My understanding is that the new laws do not allow the "ride through". The debtor(s) now have to to state what their intentions are.

That said, you state you re-affirmed the mortgages. That means that the loans were "excluded" form the BK. It also means that if you default the loan, and the home is foreclosed, you are responsible for the deficency balance after the sale of the home.

I hope this answers your question(s).

[Godzillarama]

How, exactly, are they going to actually GET that deficiency balance from us if we simply surrender the house and move on? Are you suggesting that the law allows a garnishment in those circumstances?

[BassBoy]

Basically, yes. You re-affirmed the mortgages, correct? That means they were "excluded". It's kinda like a new loan, after BK. The only way you can surrender the house and not be responsible for the deficency balance (after the foreclosure and sale), is to either state you will surrender on your BK petition (the deficency balance is discharged), or have the mortgages ride through without a re-affirmation.

[HHM]

BassBoy explained as good as anyone the answers to your question.

The problem is, no one here knows enough about your situation to say anything, with any certainty, in essence, we are speaking hypothetically.

Here is what we do know...

1. The 2nd can initiate foreclosure WITHOUT the 1st. There is no legal barrier to doing so. However, if the 2nd goes this route, they still have to pay off the 1st mortgagor before they pay themselves.

Here is the hypothetical...

1. Assuming you reaffirmed (which it sounds like you did), if the second forecloses, and they get less money at auction than what is owed...the second can "probably" come after you for the difference between what they received at auction, and what is owed. For example, let's say mortgagor gets $160K at auction, but you appear to owe $223K. Thus, that leaves a $63K deficiency balance.

2. The odds are better than 50/50 that you will be liable for that deficiency balance because (a) since you reaffirmed, the debt was not discharged in your BK, and (b) since we are talking about a 2nd mortgage on a 125% LTV, odds are your state law allows a deficiency balance. Thus, you could be on the hook for a judgment, and yes, they could garnish your wages and take any non-exempt assets you may have.

The truly unknown....

1. Many states do not allow the collection of a deficiency balance in the foreclosure arena. This rule almost universally applies to first mortgages. However, why I have a concern is that we are talking about a 2nd mortgage, and a loan that was made at 125% LTV. The rules change a little in that situation and I am not an expert (by any means) on every states foreclosure laws.

I'd recommend you consult with a real estate attorney to get more detailed information for your specific circumstances.