How To Stop A Second Mortgage Foreclosure

You might find yourself in a situation where your debt exceeds the value of your property right now, whether it be because you took out a second mortgage or lien on your house or bought a rental property that you can’t afford. This is called having “negative equity. ”.

The first mortgage on your primary residence is prohibited by law from being reduced (only second and third mortgages and liens may be reduced), but if certain conditions are met, we may be able to reduce your debt on a second mortgage or a rental property.

1. Pay the second mortgage off in full.
2. Let the second mortgage foreclose.
3. Sell the home, take your money, and run.

Refinancing and Strategic Mortgage Default

Refinancing

You might discover that you cannot get bank financing because of the appraised value of your home if you are currently in the process of refinancing your second mortgage or home equity loan or have looked into doing so. This is particularly valid if you find yourself owing more money than your second home is actually worth. Or, based on tighter requirements for mortgage loans, you no longer meet the requirements for the additional debt based on your spending plan and income. Many homeowners experience frustration as a result and feel “trapped” in their residences.

Strategic Mortgage Default

The decision to stop making payments by a borrower is known as a strategic default (i e. , default) despite having the means to make the required payments Strategic defaults are made for homeowners in the following circumstances:

Trying to force the mortgage company into a modification

May not want the home due to a valuation issue (home is worth less than what they owe on it), but is trying to figure out the best way to step away from the property. Many homeowners no longer wish to pay on a home that is worth less than what they owe, but also don’t want to damage their credit or have a potential judgment(s) from the mortgage company(s) if they decide to stop making the payments.

The homeowner has been informed by a number of mortgage companies that they must be three to four months in arrears before they will consider making any modifications to the loan. When this happens, you run the risk of going into foreclosure on your rental property or second mortgage.

A Chapter 13 Bankruptcy is Your Best Option

The repayment schedule for a Chapter 13 bankruptcy is set up by the court and lasts for 36 to 60 months. As you reorganize your debt obligations, it is intended to give you legal protection from your creditors. The program’s goal is to give you fair repayment terms so you can settle as much of your debt as possible during the payment plan. Any outstanding balances on unsecured debts (including your second mortgage or home equity loan) are legally eliminated or discharged at the end of the program, allowing you to start over financially.

Legally Remove a Second Mortgage

Rebalance home value to current market conditions

We can legally eliminate your second mortgage or home equity loan as a secured lien against your property through the Chapter 13 process if you qualify based on home valuation factors. By “lien stripping,” the secondary lien is changed into an unsecured debt obligation. Simply put, you must use your best efforts to repay the debt within a 36- to 60-month time frame. A court discharge will be used to legally remove anything that is not paid. You will only have the primary mortgage remaining after the program is over. This will reduce the mortgage load on your home.

You can still try to get your primary mortgage modified in order to get your monthly payments even lower. You might have a better chance of being approved for the modification if you have a balanced budget and improved credit.

We can lower your total mortgage obligation, which includes your primary mortgage, if you own rental property(s), to its current market value. At the conclusion of the 3 to 5 year repayment plan, you will own the property outright using your tenant’s monthly rent payments.

Your debt-to-income ratio, also known as leverage, is one of the key components of credit. This compares the amount of income you have available to pay off your debts to paying your monthly living expenses. Your payments are applied directly to the principal debt each month because the Chapter 13 establishes repayment terms at 0% interest for your unsecured debts, including the “stripped” second mortgage or home equity loan. Through the plan, you can lower your debt to income ratio each month.

All outstanding unsecured debts, including the stripped second mortgage or home equity loan, are paid off at the end of the 36- to 60-month period. Additionally, this will raise your credit score and debt-to-income ratio, giving you the chance to qualify for new credit that you might not have previously been able to.

Within 36 to 60 months, you can pay off all of your unsecured debts, such as your second mortgage or home equity loan.

You can anticipate being free of your second mortgage, home equity loan, credit card bills, medical bills, and other unsecured debts because the Chapter 13 program legally erases any outstanding balances on unsecured debts at the end of the program.

Reduce a Rental Property Mortgage

Several conditions must hold true in order to benefit from the mortgage reduction on the rental property:

The entire value (again, current market conditions) of the property must paid to the creditor over the duration of the 3 -5 year repayment plan.

• Example: A client owes $75,000 on a Detroit house that is only worth $10,000 at the moment. The $10,000 would be paid over 60 months at a rate of $166 per month, plus interest at a reasonable rate that the Court would decide. The mortgage company would be required to release their mortgage at the end of the 60-month plan, and the house would then be owned free and clear. We can assist you in estimating the home’s market value.

Interest is paid on the reduced note during the plan. The rate is based on prime lending rates plus a nominal risk factor. Currently, our clients are paying 5.25% interest.

The rental property must be generating enough income (i.e., rent payments from tenant) to exceed the expenses associated with the property:

• Modified mortgage payment ($166.00 in above example)
• Property taxes
• Homeowners Insurance
• Maintenance

Avoid Foreclosure Due to a Second Mortgage

A second mortgage or home equity loan may have contributed to your impending home foreclosure. Many homeowners used a home equity line of credit during the housing market’s expansion to finance home improvements or other expenses. Or perhaps, given the available financing options, a second mortgage or an 80/20 home loan was required to make the initial home purchase financially feasible. In any case, a lot of homeowners don’t have enough equity in their homes anymore to pay off both a primary and secondary mortgage loan.

Through the use of a Chapter 13 reorganization, we can legally stop the home foreclosure before the sale occurs. You are guaranteed court protection from the foreclosure, your mortgage company and your other creditors.

The Chapter 13 makes it possible to legally remove a second mortgage and/or home equity loan, therefore reducing your overall monthly mortgage obligation. This process is called “lien stripping”.

Similarly, we will most likely reduce your monthly budget outlay by consolidating and reducing your unsecured debts, such as credit card bills, medical bills, personal loans, prior loan deficiencies, judgments, etc.

By focusing on debt reduction throughout the course of the program, your debt-to-income ratio will improve. This factor, along with the plan’s timely payments to your creditors, will bolster your credit score. These two factors along influence 65% of your credit score according to FICO.

Surrender Your Home and Eliminate Resulting Debt Obligation

You have the option to return your property to the bank by declaring bankruptcy under Chapter 7 or Chapter 13 if you are no longer able to make mortgage and other debt payments on your home, even after doing so.

If you file for bankruptcy, all of your debts will be legally discharged or eliminated, preventing you from ever being subject to a loan deficiency judgment.

If you are eligible to file for bankruptcy under Chapter 7, all unsecured debt, including any obligations related to the house you are relinquishing, will be completely eliminated.

Reduce Your Debt. Simplify Your Life.

The plan is tailored to your individual situation and budget. We will begin by performing a thorough accounting of your debts and monthly income. We establish a single monthly payment that eliminates confusion and guesswork in bill-paying. You don’t have to stress about paying your bills on time or missing a payment any longer.

For a free consultation with one of our experienced Chapter 13 bankruptcy attorneys about your options for mortgage and debt reduction, call today at 866-261-8282. At the conclusion of the program, you are left with a mortgage debt that is in line with your home value, freedom from unsecured debts, and improved credit.

To review your individual circumstances, assess your situation, and provide you with advice on the best course of action, we provide free in-person or telephone consultations. We are experts in bankruptcy law, debt settlement, preventing foreclosures, and credit repair. Detroit, Southfield, Dearborn, Flint, Ann Arbor, Lansing, and Warren, Michigan, are the locations of our offices. Please contact us at 866-261-8282 (toll free) or click here to set up a consultation right away.

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FAQ

What happens when a 2nd mortgage forecloses?

A second mortgage’s foreclosure is significant because it eliminates the borrower’s ability to redeem the property by paying off all outstanding mortgage debts. Most state laws allow the buyer of a second mortgage at a foreclosure sale to take possession of the property and evict the borrowers.

Can a second mortgage cause a foreclosure?

Regardless of whether the mortgage is a first or second mortgage, the lender may decide to foreclose when a borrower falls behind on a mortgage loan.

How do I get rid of a second mortgage lien?

Filing for bankruptcy can eliminate your second mortgage debt. Chapter 13 lien stripping may be an option if an appraiser determines that the value of your home is less than your first mortgage or is upside down. Your second mortgage is essentially changed into an unsecured debt by the bankruptcy court.

Can a 2nd mortgage be charged off?

Then, after you stopped making payments on your second mortgage, your lender for the second mortgage eventually decided that the debt was uncollectible and decided to charge it off. Typically, a charge off occurs 180 to 240 days after the date of your last payment.