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  1. #1

    Default Are You Responsible for a Second Mortgage After a Chapter 7 Discharge

    My question involves bankruptcy in the state of: Washington


    Quick rundown of the issue:

    2012: Successful chapter 7, that involved 1st and 2nd mortgage.
    Did not reaffirm either mortgage
    1st Mortgage is current (200k)
    2nd Mortgage is current (93k)

    At the time of the bankruptcy, I made a deal with the 2nd mortgage company. They would receive $200 per month (interest only payment) for 5 years, and then the payment would go up to $650. I made this deal to prevent a possible foreclosure. At the time, there was no equity to support a foreclosure, however once the equity was there - they would have the option to foreclose. Now that the payment is going to triple, I either need to stop making payment and allow a foreclosure, or try to settle with the 2nd mortgage company for a lesser amount than whats owed. Current value is around $347,000 according to Zillow.

    Am I liable for the 2nd mortgage because I have been making payments toward it?
    I have no credit
    I absolutely want to keep the house if possible
    I do not want to pay $650 a month for 15 years on the second mortgage.
    I do not want to do a chapter 13.
    Should I hire a lawyer?
    What are my options?
    Whats the best way to settle with the 2nd?
    I spent 2 hours today calling lawyers, and got no where. Everyone says they don't deal worth that stuff, or they refer me to someone else.
    How do I find a layer that will help negotiate, or that can at least explain the laws and options to me?

    Perhaps I should have never made a deal with the 2nd mortgage company. Maybe they would have just written it off. Too late to look back, I can only look forward. Please give advise on where to start.

    Thanks for reading this. Any advise or help would be greatly appreciated.

  2. #2
    Join Date
    Sep 2010
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    Default Re: Second Mortgage Issue, After a Chapter 7

    What do you mean you made a deal? During a chapter 7, you're not supposed to be making deals with creditors. If you made a deal after discharge, it's probably the case that you the "deal" did involve you reaffirming the mortgage. However, reaffirmed or not, if the loan isn't paid, the lender that still has a security interest can foreclose.

    What makes you think the lender is inclined to make a deal?
    What makes you think they would have written anything off?
    It's possible that the second lien could have been extinguished during the first bankruptcy, but since it appears that it didn't happen, it's too late to worry about that now.

    You can certainly try to negotiate with the lender, but there's no particularly reason why they should. $650/mo for $93,000 on a 15 year note is about 3.25%. That's a pretty good rate.
    Sounds like you got a pretty good deal. It's not clear why you think you're entitled to screw your creditors more than you already did. It's not even clear that a Chapter 13 (which you don't want) would work out for you, but sure, talk to a lawyer about it.

  3. #3

    Default Re: Second Mortgage Issue, After a Chapter 7

    Fly, thank you for the reply.

    The negotiation with the 2nd was made after the discharge, to temporarily postpone a possible foreclosure. So far the lender has received around $15,000 in payments since then. Perhaps the bank would prefer to receive another $20K lump sum payment in exchange for releasing interest in the property, as opposed to them foreclosing on it and having to pay off the 1st, and then have to sell the house that is in need of significant repairs. That would give them a repayment of about $45,000 as opposed to $0, like if I had just walked away from the house at the bankruptcy. Maybe I don't have any options, maybe I do. That's what I'm trying to find out. Has anyone ever dealt with this situation, or have any tips/pointers, or anything that can send me in the right direction?

  4. #4
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    Default Re: Are You Responsible for a Second Mortgage After a Chapter 7 Discharge

    Chapter 7 bankruptcy has no cramdown. You agreed to a payment plan that allowed you to avoid bankruptcy, but you don't indicate that there was any deal to reduce your principal balance which is secured by a lien on your home. Even after bankruptcy, if you fail to make your payments your lenders can foreclose on their liens.

    You have a considerable amount of equity in the home, so the lender has little cause to want to negotiate away its lien; perhaps it will be again willing to negotiate the payment schedule.

  5. #5

    Default Re: Are You Responsible for a Second Mortgage After a Chapter 7 Discharge

    Hi Mr. Know,

    Thank you for the reply.

    You said "You agreed to a payment plan that allowed you to avoid bankruptcy". I'm not sure what you mean. I filed chapter 7 and it was successful. After that, I contacted the 2nd mortgage company and they said they would not pursue foreclosure if I paid them a few hundred a month for 5 years, then the payment would go up. I agreed to this, but not to avoid bankruptcy. Did you mean foreclosure? I understand that they have interest in the house, and that If I don't pay, they may foreclose. My payments to them was to delay the foreclosure, but now that time has come to deal with this situation. If I had not agreed to payments, they would have foreclosed by now I would assume. The longer I made payments, the more equity grew just by the passage of time, giving them more leverage - so it was a catch 22. Although I would not have done anything different, the fact still remains that this is a problem.

    So after reading the comments, I guess my question has refined a little:

    What is the most effective way to negotiate a settlement on a second mortgage? For example, should I:

    Hire a lawyer and try to settle for X number of dollars?
    Get a bunch of estimates for home repairs to lower the actual equity figures on paper? For example, Needs new roof, siding, carpet, etc.
    Stop paying for 6 months, and then try to offer a settlement amount?
    Should I email, send letters, call, or go into the bank in person, any advantages to any of these?
    Etc.


    I have read in forums that people have successfully settled a $150k 2nd mortgage debt for $20k with this specific bank. They just wrote a letter and said: "I can give you $20K now to settle, or I walk away". The bank settled. I'm assume equity was a factor.


    Anyway, please send any and all info you can.

    Thanks.

  6. #6
    Join Date
    Jan 2006
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    38,867

    Default Re: Are You Responsible for a Second Mortgage After a Chapter 7 Discharge

    Even if the repairs drop the value $50k from your Zillow value both creditors would still get paid in full.

    Heckk, if the value dropped $100k the second would still get more than you want to offer.

  7. #7

    Default Re: Are You Responsible for a Second Mortgage After a Chapter 7 Discharge

    Hi JK,

    Thanks for the reply.

    I am not sure how accurate the Zillow website is, but I assume it cant be that far off. If the estimate is correct, I may have to leverage at all. I currently have no obligation to stay in the house, and the debt is no longer mine. However, I would prefer not to move. I'm trying to explore every option and every angle. Perhaps someone has been in a similar situation and has some ideas. Maybe selling the house and walking away with some cash would be the way to go. Start fresh somewhere else. Maybe the bank would extend the low payments another 5 years. Keep 'em coming guys, any ideas? Any thought?

  8. #8
    Join Date
    Jan 2006
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    38,867

    Default Re: Are You Responsible for a Second Mortgage After a Chapter 7 Discharge

    if you want the home the debt is yours.

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