Want to walk away - questions

[Okapi]

Here's my situation.
We have a house with a 1st ($340,000 interest only variable), and 2nd ($40,000 heloc). The house isn't worth more than $200,00 (we bought at the peak of the bubble. I'm pretty good with money ). Living in AZ. We are not behind on any payments.

We bought the house with a conventional 30 year fixed, but then a relative got into the mortgage banking industry, and convinced us to refinince with the interest only/cash out mess.

We are currently living paycheck to paycheck. The 1st will convert from interest only to a 25 year variable in 2 years. We will obviously not be able to pay the new loan payment, and will not be able to refinance (which was the original plan).

I am looking at any/all options.

A. My initial thought is to rent a new house and just walk away. But after research, I discovered that will still leave us with the 2nd mortgage.
1. Would it be possibe to stop paying the 1st, but keep paying the 2nd?
2. What happens after foreclosure - will the 2nd demand full payment? Will the original terms still apply?
3. How likely is the bank to charge off the $40K 2nd mortgage if we stop paying? Is it pretty certain this will seek a judgement in court?
4. What's the likely hood that we can settle the 2nd if we stop making payments on it?

B. We make too much money for Chapter 7 (we're borderline with the means test IF we user our current mortgage payment -but that's not allowed if you want to surrender your home right?).
1. BK isn't really an option for us if we don't qualify for CH7, is it?



Thanks for any opinions!

[mathom1]

In the same boat....curious myself. Lets hope one of the experts chime in here.

[mynextlife]

If you are planning on walking away from the 1st mortgage then do not bother paying the 2nd. The 2nd mortgage will be extinguished by the foreclosure of the 1st mtg.

[bkc]

Without our mortgage payments, we wouldn't have qualified for chapter 7. With the means test, as long as you file and say your intention is to reaffirm the loan, you can use the mortgage payment. You don't actually have to reaffirm.

[timeouts1]

Question for bkc; we are in a very similar situation, very close to meeting requirements for Chap 7 using our house payment, but it is only set for another 2 years then variable and we are having trouble making this payment and upside down on value; Chap 13 would just kill us. So if we get discharged in Chap 7 but don't actually reafirm, just say we intend to is it discharged or do we then go through foreclosure?

[hnhlvr]

Hi,
My husband and I walked from a home a year ago. We had a first and a second mortgage. Based soley on that, I can say that unless you plan to stay in the home and keep up the primary/first mortgage, there is no point in paying the second. It's the first mortgage that has control of your house and will be the one, who, if you decide to discontinue paying, will precede to put you into foreclosure. The second, barely has any control over the house and will merely send you to collections (so basically, by continuing to pay the 2nd, the only thing you're avoiding is the risk of being sent to collections).

When we quit paying our second, three months later, a letter came saying we owed X amount of dollars. A month or two later, another latter stated we had been sent to an agency for the same amount. . .months later, we were told that we could settle for 1/2 the 2nd mortgage amount. Now, a year later, nothing more than those letters have been sent. IMO, it's 100% likely that the 2nd will settle with you, but there is no reason to do so unless they send you to court AND find a way to garnish your wages.

[h0usekeeper]

Chapter 13 allows you to strip your 2nd or any junior liens.

[bkc]

Timeouts1 - Sorry for the delay in responding. Sounds like you are in a very similar situation to us. Our attorney said that we should state our intention to reaffirm at our 341 meeting, which we did. With those debts (1st and 2nd mortgage, two car loans) we passed the means test. However, it was hard to find an attorney that wanted to help us file a chapter 7. The first two we met with looked at our income, over the median, and said you don't qualify. Our minimum payment under Chapter 13 would have been $1200. The minimum payments on our credit cards was $1800, so it was frustrating to think of losing our house, renting for five years and paying $1200 a month to a 13. But, we finally met an attorney who told us that with the means test, we can file for a chapter 7 as long as we plan to reaffirm everything. He told us we would get reaffirmation agreements, and that we had 60 days to cancel them after we signed them, or we didn't even have to sign them at all.

And, honestly, we could have reaffirmed everything. I told our lenders that we were waiting to determine what our mortgage lender would do with the loan, since we owe about $50k more than the house is worth, and I didn't want to reaffirm anything until after that (especially the second mortgage). So far, a month and a half after discharge, we haven't reaffirmed anything (and actually, we can't reaffirm anything now that we have been discharged). We continue to pay on our two car loans, but we will replace those cars with cars we pay cash for here in a couple of months, so we will walk away from them. Our mortgage holder won't start the foreclosure process until they conduct an internal audit of our bankruptcy, which could take 30 to 90 days. Then, we will work with loss mitigation to negotiate a better term. However, we are prepared to walk away from the house if we don't get an amazing deal, since we still have a 2nd mortgage that we would have to continue to pay or settle.

Hopefully that helps. It's not a fun process. We haven't felt the relief we thought we would have after being discharged. Maybe once we are done with the mortgage mess, but who knows. I guess this is better than paying rent somewhere and having to pay $1200 a month to a chapter 13.

[Scooter10]

Question for bkc; we are in a very similar situation, very close to meeting requirements for Chap 7 using our house payment, but it is only set for another 2 years then variable and we are having trouble making this payment and upside down on value; Chap 13 would just kill us. So if we get discharged in Chap 7 but don't actually reafirm, just say we intend to is it discharged or do we then go through foreclosure?

You will be foreclosed upon if your not making the payments. The discahrge just menas that you are not longer liable for that debt. DO NOT REAFFIRM ANYTHING!! If you Reaffirmed and stopped making your payments, the lender would foreclose and you would be responsible for the debt. Also with re-affirmations your are giving up the plus side of a bankruptcy. There is nothing more satisfying than nowing that if i lost my job and could not make the payments that the lender could foreclose, but can not sue me for the deficient judgement. most 1st mortgage lenders will not do re-affirmations, but watcvh out for your 2nd. They will push very aggressivly to get you to sign.

[Scooter10]

Here's my situation.
We have a house with a 1st ($340,000 interest only variable), and 2nd ($40,000 heloc). The house isn't worth more than $200,00 (we bought at the peak of the bubble. I'm pretty good with money ). Living in AZ. We are not behind on any payments.

We bought the house with a conventional 30 year fixed, but then a relative got into the mortgage banking industry, and convinced us to refinince with the interest only/cash out mess.

We are currently living paycheck to paycheck. The 1st will convert from interest only to a 25 year variable in 2 years. We will obviously not be able to pay the new loan payment, and will not be able to refinance (which was the original plan).

I am looking at any/all options.



A. My initial thought is to rent a new house and just walk away. But after research, I discovered that will still leave us with the 2nd mortgage.
1. Would it be possibe to stop paying the 1st, but keep paying the 2nd?

Probably not. The first is first for a reason. If they are not paid they will foreclose., You would have a better chance, and a chance it is, of not paying the 2nd and keeping the house. If the 2nd were to foreclose they would have to buy out the first and it today declining realestate maket the equity is just not there for them to do that.

2. What happens after foreclosure - will the 2nd demand full payment? Will the original terms still apply?

If it is not discharged in a bk they can collect from you. Most lenders are just wriritng off the debt now. When you signed up for loan they had you sign a bunch of disclosures. i am sure somewhere in there gives thme the right to change anything (rate, full balance due immeditly, right to offset (Credit Union are known or this))

3. How likely is the bank to charge off the $40K 2nd mortgage if we stop paying? Is it pretty certain this will seek a judgement in court?

Just depends on your situation and if the bank feels they have an oppourtunty to coolect. If the bank then sells the dept and the debt puchaser feels your a good canidate for collected then they will come after you.


4. What's the likely hood that we can settle the 2nd if we stop making payments on it?

Depends on lender, but you haveother options. you dont want to settle for 20k when you will end up in bk a year later when you can possible discahrge the whole thing in BK. YOu may want to search for "chapter 13 lien strip". Settlibng is good, but your at a bk forum for a reason, If you are just delaying the invetable then you really need to reasearch your options.

B. We make too much money for Chapter 7 (we're borderline with the means test IF we user our current mortgage payment -but that's not allowed if you want to surrender your home right?).
1. BK isn't really an option for us if we don't qualify for CH7, is it?

I used my mortgage in the means test to pass.
Not true. I was way over median and got a chpt 7. but maybe a 13 what your may want and keep all your assets and just pay a lillte back to the trust



Thanks for any opinions!

I would schedule a few consultanations with some local bk attorneys. Most are free of charge. If you are border line most good attorneys wil be able to get you into a 7 if that is what your want. I saw 4 diffenet attorneysbefore I was even considered for a 7. The layers and courts like 13 because they will amke more money. One more tip: The lawyer is really just going to help you file the petition and let you know if you are a 7 or 13. They can not chnage the numbers. It is up to you to seek the informtion you need and verify that it is correct.

[eyeowe]

So let me see if I got this right. I can stop making payments on my mortgage, file before foreclosure and then count the mortgage as expense, say I am reaffirming and then not reafirm. Is this right?

[Houseofcards]

It is my understanding - correct me if i am wrong - that if you are keeping your home (reaffirming the mortgage) you must be current to file a chapter 7.

[Scooter10]

So let me see if I got this right. I can stop making payments on my mortgage, file before foreclosure and then count the mortgage as expense, say I am reaffirming and then not reafirm. Is this right?

I am assming this is a 7. In your bk petition you will have to select one of the follongwing options: property will be surrendered, property is claimed exempt, preoperty will be redeemed, dept will be reaffirmed. This is done on all secured claims (auto, house, home equit ies, investment properties...) You would check debt will reaffiemed, but the bank still has to sign off on it, the jusge has to approve it, and either parties can cancel the reaffirmation within the next 60 days or to discharge. Also this is just for the petiotion, I said i was reaffirm 2 vehicles and the house when i filed but never actual signed the re-affirmation. Now that the Bk is over and they payments are too much i have the option of not paying those items and also not being responsible for them. That is a great relief.

The judge will you not approve your reaffirmation if you are behind on your mortgage. Everything I read is you must be current on the property you wish to reaffirm at your petition.

[Scooter10]

It is my understanding - correct me if i am wrong - that if you are keeping your home (reaffirming the mortgage) you must be current to file a chapter 7.

Yes, that is my understanding. The judge will you not approve your reaffirmation if you are behind on your mortgage. Everything I read is you must be current on the property you wish to reaffirm at your petition.

[eyeowe]

So what do you do? what do you put on expenses if you aren't reaffirming do you still put the house payment because technically aren't paying any rent.