Good points on the possibility of a second mortgage foreclosure. Although they might eventually foreclose if the homeowners get severely behind, the bank would much rather work out any kind of payment arrangement if there is little equity. They won't get anything from the auction, so it's much more profitable to work out a payment plan or modify the terms of the loan. That's also why second mortgages are so much more willing to take a reduced payoff on a short sale.

Since the second mortgage holder usually agrees to take a drastically reduced principle in the case of a short-sale (between $3,000 and $5,000), would it be reasonable to assume that the second mortgage holder would be willing to work out an analogous type of re-payment plan given a foreclosure on the first mortgage? In other words, if the first mortgage holder is stuck with the property in the event of a foreclosure, could the second mortgage holder reasonably be persuaded to consider the account settled if some type of payment plan for a drastically reduced principle were instituted, mimicking the conditions of a short-sale?

Daniel, a lot of second mortgage holders are negotiating deals with borrowers.

1. No interest is very common

2. 10 year payback period is quite common

3. Sometimes principal reductions

Thing is, the negotiating can go on and the game isn't over. You can if you have to stop paying, and open up negotiations again. The second mortgage debt is an unsecured debt at this point. Just like credit cards. And there are lots of things you can do if the payment is difficult or impossible and you need to settle for less.

regards

–Richard

My question is what if the first mortgage (fixed @30) and the second (HELOC) are from the same lender and were issued at the same time to purchase the property? It's not that we can't afford our home it is the fact that we have lost $400K in one year due to the decline in house prices. Our same floorplan down the street is now selling for $230K and ours was $650K when we bought 16 months ago. We are in CA so I know the first is non-recourse. Unsure about the HELOC when both are Wells Fargo and were issued at the same time for purchase. Thanks so much!!

Wow, that is awful, $400,000 in one year. Absolutely dreadful. But unfortunately you have liability for the HELOC. They are very unlikely to foreclose because they have no equity. So their note becomes an unsecured note and they can pursue a breach of contract collection action against you. Negotiation is a good idea here. I teach settlement of debts in my course. Same technique for credit cards also works for this type of unsecured HELOC debt.

–Richard

I live the in State of California and went through a foreclosure process two years ago. I recently received a summon for the remaining balance due from the second lien holder (105K). There was no equity in the property so the note became an unsecured note and the second lien holder is going after me. I lost about 120K in the transaction so there is no way I can repay this debt back. Is this becoming a common practice for a secondary lender to pursue a breach of contract two years after the foreclosure process and what other options do I have? Repayment, Bankruptcy, Negotiation or whatever… Thanks you.

Yes, this story will be repeated again and again, hundreds of thousands of times. By summons I assume you mean a legal complaint filed in court for collection against you.

It is very common. They have four years to come after you in California, I believe, and other states have a different statute of limitations.

I would try to negotiate. I would try to get a note for a fraction of what you owe. I would then try to drag out payment of the note and you can end up negotiating this to a much smaller amount.

–Richard

My 'second' was a hard money loan. He did a "foreclosure" and auction sale (supposedly). I never got a posting on my property of any auction. The "first" mortgage said they would not allow an 'assumption of the loan'. I'm not sure what that means exactly.

When I recieved a notice of aucton, it stated the lean holder to be a title company, not the man that made the loan. The 'first' told me that they would not release the property, and they were never informed of any auction or foreclosure proceedings. There is not enough equity in the property to pay all fees for both loans.

There was never any court hearings on any foreclosure.

The many holding the 'second' has been paying the first, and is 'requesting' I take cancel my homeowner's insurance. And is telling me I have to move.

He had the realtor hand me a note to vacate, giving me 3 days, but told me I could stay for another week. I had the house up for sale with another realtor until the supposed day of auction. The 'second' was an interest only, with a baloon payment of the loan due in one year (last March).

The 'first' told me, along with the tax assesors office, that the 'notice of aucton' sounded like a 'scare tactic' and didn't sound lagitimate. There was a noitce of Trustee's Sale recorded. The 'auction' amount was only for the amount of the 'second', not to include the amount of the 'first'. I guess my question is, can he do this? Can I just turn the house over to the 'first', giving them the property back? If I move, as the man insists, what if the 'first' doesn't get paid? What am I liable for?

You might want to contact a title company and ask them where things stand. Your Realtor will have a good title company contact who can do a "property profile" and tell you where title stands.

The second can foreclose and get the property back, and the first mortgage will still be on it.

warmly

–Richard

Here is a situation you may know something about. My now deceased mother in law, made a bad investment in a Ca. home to help a friend in 2005. It was 100% financed by Indymac ( two loans - both Indymac) who had no business loaning her over $500,000. to buy the home, as she had no income or income history. My mother in law never lived in the home nor intended to. The property was foreclosed upon for lack of payments. It was then re-sold at a much lower price. Our family now wants to know if there is any chance of recourse for this debt, or if upon foreclosing on the property the bank gave up any right to seek recourse on their losses. Any light you can shine on this is helpful. thank you, Mark

Hi Mark, isn't it incredible to think that a bank would lend that kind of money with someone with no income or income history? It's not ony incredible, it's shameful, isn't it?

You should talk to a lawyer who knows California law. From what I know, which isn't much, the first is no recourse but the second is usually recourse because they did not actually foreclose, most likely. The first foreclosed, leaving the second note holder basically in the same position as any unsecured creditor such as a credit card balance.

warmly

–Richard

I own a home that was purchased at $205, I put $30K down, have second mortgage (HELOC) of $70K, house today is worth $125K. It IS a primary residence, I pay for all mortgages, HOA, Insurance, etc.. I do NOT live there given I was laid off, and it was very difficult to find a job in Florida - I had to move out of state, so I have my FLorida expenses, and all expenses to live were i found a job ( Rent, Utilities etc) I Lost homestead due to change of address , but it is the only home I own. Almost a year has passed and I have been supporting 2 homes ( so that I dont loose the FL one ) I am considering a short sale , I can not afford both homes any more and can not make Mortgage payments… I am catching up in debt incurred while unemployed and relocating. Can lenders forgive both loans? Can my realtor negotiate this with my bank or should I call the lenders directly and tell them I cant make more payments what are my options? 1st Mortgage is different bank/lender than HELOC, I am avoiding foreclosure… PLEASE HELP!!!!!!!!!!!!!!!!!!!!!!

I hate to be self serving but I would buy my course:

http://www.MortgageReliefFormula.com/short-order-video-4_2.html

It will help you negotiate with the lenders and give you instructions as to how to do the short sale. Even if you have someone else do the actual selling of the house for you, and someone else negotiate, you need to know what they are doing so you can avoid getting ripped off or losing out.

Lenders will get something out of a short sale. More than they would if they get your property back through foreclosure. That's why they prefer a short sale. Even the second HELOC will get something out of it. The proceeds come from a buyer and will pay some of the first and a little of the HELOC.

I wouldn't count on Realtors to do the negotiation although you occasionally can find one who can. Ask how many COMPLETED short sales they negotiated in the past 6 months. If it's less than 10 or 20 COMPLETED ones I'd find a professional negotiator, or better yet, do it yourself using my material.

warmly

–Richard

I live in Florida and we own a house that worth around $250000. We have a 1st mortgage for $170000 and the 2nd mortgage for $200000. My husband has lost most of his income and we are falling behind the 2nd one which is $2000 a month but we are still making the 1st one for $1000. I have talked to 2nd one to reduce our 15 yr loan to 30 yr or for few years reduce our payment to $1000 a month, but the did not accept it . If I am still making the paymenton the 1st one can the 2nd one foreclose the house. I want to keep the house, can I file for chapter 13 before they foreclose the house to get rid of the 2nd one. Thanks,

It is not likely the second will foreclose. They would have to maintain the first, meaning they would have to make the payments on the first (if you weren't) and have to go through a foreclosure process, get the house back, market it, and pay all the costs. They have very little equity according to your numbers, so they would not want to do this. Unless they think the house is worth a lot more than you do, or unless they are prepared to write down their loan from $200,000 to $70,000 or $80,000.

If you are behind in payments, the lenders are more likely to work with you. I am NOT telling you to not make payments, it is just the reality of the situation. I wouldn't consider bankruptcy until I talked to a good lawyer who could talk you out of it and show you options. It solves problems for some but not for many people who end up with damaged credit and no better off.

warmly

–Richard

I have a rental property in St. Paul MN that I no longer can afford to keep. It has a first of 89,000 and a second with 75,000. The value of the house three years ago was 202,000. Should I be worried about the second coming after me if and when it goes into foreclosure? Or is there enough equity in it to keep them away? Thanks

It is always a concern. It is quite possible that there is insufficient equity for the second. If you are no longer going to be able or willing to keep paying on the loans, have you thought of a short sale? That way, the lenders get partially paid off, it's kinder on your credit and you can be in more of a negotiating position.

warmly

–Richard

I'm on the verge of filing bankruptcy, but I'm hesitant of including my mortgage into it because I have my other two sons on the loan. If I do keep the house, it is headed for shortsale/foreclosure anyways because my loan is already too high for the value of the home. My question is, if I decide to file for bankruptcy, can I include the HELOC (2nd mortgage) which is also from the same lender my first mortgage is? My lender bought this loan from another lender at the same time meaning lender acquired both loans at one time.

Eek. I am going out on a limb here.

I am not a lawyer.

I can't give anyone advice.

I am not qualified.

So what I will say is what I would do but isn't to be taken as what YOU should do. It is there for others to think about and read and consider.

My understanding is that in bankruptcy, you cannot get rid of secured debts. The court can discharge any debt that is left after foreclosure.

I would personally consider ways of not filing bankruptcy. You could for instance do a short sale. Then you could negotiate with the HELOC lender and sometimes they will accept a very small partial payoff, paid out in payments over many years. Everyone's credit will often (not always) come out better that way. And the liability is gone, not just for you but for your sons.

warmly

–Richard

I bought a house in CA in 2004 for 650K. I put down 200K and my loan was 450K. Later on I took 200K equity line on my house for improvements. My first mortgage payment went up because it was an adjustable. my house is worth 475k to 510K now. My income went down. What will happen if I stop making 2nd mortgage payment and continue making First mortgage payment. I can just afford first mortgage payment now? Will 2nd foreclose? I heard they will try to settle with me? What kind of settlements they usually go for? IF it's too dificult I will let my house foreclose.

I bought a house in CA and I owe more than the principal. I have two loans with the same lender. I have been trying to talk to the bank to modify the second loan either by lowering the interest and payment or by reducing the principal. I am getting nowhere. I was adviced that if I stop payment on the second, they cannot foreclose because they will lose everything. BUT, both loans are with the same lender. Will they be more motivated to work with me if I stop paying the second and just continue paying on the first? OR will they foreclose completely? I have been paying both mortgages on time and never late. I am also thinking about bankruptcy. Will that make a difference?

I am not sure what bankruptcy will do for you. Consult a bankruptcy lawyer. But in general, courts don't have jurisdiction over mortgage loans on your principal residence in bankruptcy so it won't have any affect other than stalling things for 6 or 8 weeks.

If you don't pay the second, chances are they won't do anything. They can't foreclose if they have no equity. There are two loans here, even though they are serviced through the same lender. Still two separate loans. The second has no security anymore, from what you are saying, so they won't foreclose.

I would suggest you get my course http://www.GetLoanModSecrets.org on doing loan mods for yourself or for profit. You will learn how to properly present loan mods to the banks. Principal reductions are extremely rare.

warmly

–Richard

I bought a house (Say House A) in CA. by borrowing from the same bank, HELOC for $200K to put down as down payment. That HELOC was given to me by using my other house (house B)that is paid off as collateral. I am current with both loans. However, House A has gone down a lot in value and I am thinking about letting it go into foreclosure. Will foreclosure of house A still make be liable for the HELOC on house B? Will they sell house B to pay off the HELOC?

The house that WAS paid off now has a mortgage on it. They will want to foreclose on House B. And the lender on house A will want to foreclose on house A. If you only have one loan on each house, in California you probably don't have much to worry about because if the lenders foreclose non-judicially, as is normal, they cannot pursue a judgment against you for deficiency, even on a second home.

warmly

–Richard

I'm totally upside down with a 1st (which is considering a loan modification) and a heloc which has already issued a notice of default and intent to foreclosre. I was unable to pay August, October payments and now November. The heloc of $86,000 is totally underwater; first is $242,000 and about 20,000+ underwater. Short sale would be in the $200,000 range, but I want to keep my home. Will the 2nd foreclose, even though it has no equity ? Or are they just playing hardball. I just sent off a formal application for modification or forbearance as I recently lost my main job and need knee replacement surgery. Should I pay 1 payment to Heloc just not to be 3 payments behind ? Does it make any difference in the procedures and decisions they'll make ? I'm hopeful that after the election next week, a "freeze" will be issued on all foreclosures for at least 90 days, which will give me some wiggle room and hopefully both the 1st and heloc will modify substantially. Your suggestions would be appreciated as "time is of the essence". I am contemplating filing Chapter 7 or 13 but would rather come to an agreement about the house first.

I don't think one payment one way or another will make any difference. The HELOC is under water, as you say. They won't foreclose because there is no equity to foreclose.

I wouldn't count on a general "freeze". The banks won't like it. I doubt we will see it. What we will see (and do see) is a greater inclination to do loan mods. Even principal reductions are still quite rare and may remain so.

I would consult with a bankruptcy lawyer but I don't see how bankruptcy will let you stay in your house. Bankrupcty courts don't alter mortgage loans on principal residences.

warmly

–Richard

I have a $290,000 1st mortgage and $95,000 equity line of credit that was used to purchase a condo in Florida (which was my permanent residence until I moved back up north). Both loans are with the same bank. I tried a short sale for $225,000, got approval for the first but not the 2nd and the deal fell through. I have a 2nd offer also for $225,000. My question is if the 2nd was used for the purchase of the condo and the note says "non-recourse" does that mean that the bank can still come after me with a deficiency judgment?

If a note is non recourse, it is non recourse. They can't come after me for a note that is non recourse. They have to look to the security interest they have, their equity or lack of equity.

But I am not sure that a note really says that, are you?

warmly

–Richard

Question is what is a deed in lieu ? The bank wanted us to send in the papers for that to be considered. We did and now we are waiting to here. What is the difference with Short sale vs deed in lieu ?.Will we owe anything if they cant sell for what we owe, which they wont. Can they get it from us or is there new laws out there to pretect us?.

One more big question, can you turn of the gas and elect?..I live in Minnesota, when do you get to get it out of your name..we are moving out in a few weeks

we remortgaed our house in 2004. then I became very ill and had thousands of dollars in medical bills. we checked into a 2nd mortgage. they said our house was valued at $60,000 more then the first mortgage. they paid off a car my wife had just purchased which left us with $35,000. Most of which that went to medical bills. 4 years later we are back in the same situation with medical bills but now our house is worth less then what we owe on our 1st mortgage. we just had a car repoed because I can't afford it due to becoming disabled. We are filing chapter 13. We had the house appraised and its worth $30,000 less then what we owe on the 1st mortgage. Our attorney is getting the 2nd stripped away since the 2nd inflated our house value and over extended us. So for once we get to stick it to them this time. We still have the car they paid off. At least we got somethig out of this mess.

I have a first and second mortgage on a property in Florida that used to be my primary home. I have been told a bpo on my house came in at around 200k. However I owe 169k on the first with Citi and 146k on the second with wachovia. Total payments at almost 2k a month 5.5 fix on the first and .50 under prime on the second. My renter's lease is up in January and am not going to be able to afford it with my other $1800 mortgage on my primary in NC. What should I do? I had my house for sale for almost 2 years. Nothing is moving there in Punta Gorda,FL. I am right next to Cape Coral , FL which has almost the highest foreclosure rate in the US so they are giving away homes. If I find a renter to pay the first and let the second payments go I do not believe they can foreclose on it in Fl. But what recourse will they take on me. Can they put a lien on my house that I have in NC that has equity? If so I should quit claim myself off and just leave my wife on it so they can't touch it right? Can I do a deed in luei on a first and second and would they allow it? Thanks for your help. What do you recommend .

My house in CA, bought in 2006 (485K), now worth about 250K, first 389K, second (refi - 125%) 145K, If I stop paying on my second, what can the second do? (different banks). Can they sue me for breach of contract in CA or do they have to foreclose first? Are they just going to send to collections? Can they garnish wages or take money from my bank account? What should I be worried about…besides my credit…and the time it will take to gain equity back over the cost of the first mortgage(eventual forclosure)?