After chapter 7 bankruptcy, I often advise my clients, just don’t pay the second mortgage.
Now, if you don’t file bankruptcy and stop paying the second mortgage, two things would happen. they will call you day and night; and eventually they would sue you and garnish you. Bankruptcy keeps them from doing either of those.
Will they foreclose you? That’s the big question–but the answer is clear. The second mortgage can sell your house at foreclosure only if they pay off the first mortgage. If the value of your house has dropped below what you owe on the first. that’s just a way for them to lose more money. They are not going to do that.
What are they going to do? They will wait patiently for you to keep paying the first, and hope the value comes back up (and the balance on the first drops) that at some point you have equity that they can grab.
So, if you follow this just-don’t-pay-the-second strategy, you know you will never have any equity in your house. If you go to sell five years or twenty years down the road, the second will still be sitting there. (With five or twenty years of interest and late fees.)
So when does this make sense? Suppose you have five more years before your youngest is out of high school. Once that’s done, you might want to move to a smaller place anyway. Then you can stop paying the first mortgage too, and move out. The bankruptcy still protects you from both of the mortgages. (You’d have to keep paying the HOA until the first mortgage forecloses.)
Does this strategy hurt your credit? It does and it doesn’t. It doesn’t hurt your credit score, because that second mortgage will just show bankruptcy and can’t show any late payments after that. (For my clients, we check to be sure.) But it does hurt your being able to buy again.
For loans like car loans–or interest rates on your credit cards–your credit score pretty much controls, so you’ll be able to get a care loan at a good rate. Your score will be good, if you’ve built up new, good credit.
But to get a mortgage, a different rule applies. The March 2, 2010 manual released by Fannie Mae, (link here https://www.efanniemae.com/sf/guides/ssg/sgpdf.jsp) says what you have to do to get an insured mortgage. You have to be two years after the bankruptcy (with extenuating circumstances), but you have to be three years after a foreclosure. Even though there will not be a foreclosure on your credit report, there will be one on the land records, and a mortgage lender will check there, too.
So if you follow this just-don’t-pay-the-second strategy, you keep the house for three or five or seven years; then you have to plan to rent for three years or so. Then you’d be able to buy again.
If real estate goes up a lot over the next ten years, you’d be better financially to move out of the house right after the bankruptcy, rent for three years right away, and then buy again. (If real estate stays flat, then not being able to buy for ten years doesn’t lose you anything.)
But if you want to keep your children in the same school and the same house, just-don’t-pay-the-second is a good plan.
What if you want to keep this house long term? One way to do that would be with a second mortgage relief Chapter 13. See my website on that. http://virginiasecondmortgagerelief.com/
Or, you can not pay the second for a couple years, save some money, and then offer them a cash settlement. Say you owe $75,000 on the second mortgage, file chapter 7 bankruptcy, and pay them nothing for three years. If the value of your house is still less than you owe on the first, and you offer them $7000 to call it even, they might agree. If you move out, they get nothing.
That strategy takes nerves of steel. And it only works if you go for several years of not paying them–you want them to get used to getting nothing, so your offer of 10 cents on the dollar looks good. I’ve seen it work.
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If the bank sells it after the bankruptcy, it’s still discharged. They can’t get around the bankruptcy that way, or they’d all do it.
Robert
My 1st and 2nd mortgage were discharged in my Chapter 7 BK in December 2009, along with 2 car loans, all of which I intended to continue to pay, and had hoped that by doing so would rebuild my credit. But, my attorney did not have me reaffirm these debts, so they all show as discharged and there seems to be nothing I can do. I believe the BK is removed as negative credit after 7 or 10 years (I forget). What happens to my 1st and 2nd mortgage at that time? Will they appear as outstanding balances, or still discharged? I would like to build my credit back up.
MORGAN: They will never show as anything but bankruptcy in your credit report, until they fall off your credit altogether in seven years. (I agree with your lawyer that NOT reaffirming is nearly always the best course.)
Mr. Weed
Did a chapter 7 did not bankrupt on my home, dont know exactly how that works, but did not reaffirm either. underwater of course with my first paying on time it has been nearly 2 years ago. My second mortgage bank america just sold my 2nd to green tree about 4 months ago due date on 1st have until 16th which is always payed by then except this month, just sent it in today, because they said they would take action on the 1st if it was not payed. had to buy dryer it went out(used one at that). They call me at work every month to get the payment or to see when i will pay it, are they suppose to call me. and what i really would like to know do I have to pay the second , because we are struggling and trying to get a moditfication on first been denided getting ready to try again. We were forced into bankrupty because my husband became disabled. Please help with advise. Thanks
DEBBIE: They Greentree should not be calling you. That’s a violation of the bankruptcy discharge order and, since they got the loan after your filed bankruptcy, its also a violation of the Fair Debt Collection Practices Act. you should find a lawyer who will sue them for those violation.
For sure, you should not pay GreenTree on the second mortgage before you have a loan mod on the first. Why? If you can’t get a loan mod, you can’t afford the house, so what’s the point in paying the second mortgage if you are going to end up moving anyway.
Once you get a loan mod, then should you pay the second? That’s a trickier questions. I’ve explained as best I can here that not paying for a couple years is the best course. And then, if you expect to stay for a whole lot longer, offer them a low ball cash settlement. But can I guarantee that will work? No. As long as real estate values keep falling, it should work for a lot of people in a lot of places. That’s the best I can do.
I went through a chap 7 bankruptcy 2 1/2 years ago. Im current on my first and second mortgages, and I m trying to refinance. Do the mortgage company’s report payment history during this time? Im not sure if I will be approved. However, If I stop paying on the 2nd, can they still charge intrest and penalties? If I stop paying on the 2nd, and put it towards the 1st, I can be done with the first in 8yrs, and then begin to repay the 2nd, and have it paid off in less than 2yrs. Does this make sense?
MICHELLE: They don’t report it on your credit. Another lender might be able to get them to make a report on your payment history.
If you stop paying the second, YES they will add penalty and interest. So your suggestion of stopping the second, paying just on the first, and then coming back to the second. The second will be ENORMOUS when you get back to them.
We filed bankruptcy chapter 7 in 2008 and we had 2 morgages, i think that we reaffirmed on our 2 morgages but unable now to pay both morgages but will the 2nd make you have to pay them if the 1st one forcloses on the house or can they sue you to make you pay the 2nd one if it is forcloses on and we live in tennessee
sorry had to add this that when we filed no one from the morgage companies was there when we filed bankrupcy so i don’t know if we really reaffirmed or not to keep the house but we living in it and has 2 morgages and we filed in 2008 and now we can’t make both payments and can the 2 morgage sue you if the 1st morgage forcloses on it if you move and just leave the home
THERESA You really need to check back with your lawyer and see if you reaffirmed those mortgages, because this is EXACTLY why I tell people not to. If you reaffirmed they can, and the second almost certainly will, sue you and make you pay after the foreclosure. (The first usually doesn’t.) If you didn’t reaffirm, they can’t.
I hope you didn’t reaffirm. Have you been paying both mortgages? Can you afford the first if you stop paying the second. Don’t know about the value of your house or the amount of the mortgages, but the second will be very, very slow to foreclose if you keep paying the first. Usually like years and years.
I wanted to tell you that you are my hero for all the info that you have given to your readers on this website. Thanks so much! I filed for bankruptcy chapter 7 this year due to my retirement and I did not reaffirm my 1st or 2nd mortgages. My home is worth 62,000 at this time; maybe (the house next door has been up for sale at $62,000 and no buyers as of yet, its been 1 year). I owe 82,000 on the 1st – CHASE and 36,000 on the 2nd-BOA. My first payment is 673.00 and 2nd payment is 361.00. I am having a hard time paying my 2nd with my retirement income, (DOD employee – retired after 35 years) I also have just one adult child at home, 18 year old son. I was reading that Georgia ranked fourth nationally in foreclosure filing rates which doesnt surprise me at all. There is high unemployment here as well. I have been current paying my 1st mortgage but my 2nd I am one month behind. Do you think they will foreclose on my if I do not pay my second. Its been a struggle.
thanks in advance
BEVERLY: No, I do not think they will try to foreclose on the 2nd. It gets them nothing. Also, if they did–I’ve seen this just one time–you could come back with a Chapter 13 bankruptcy and knock them completely off the house. See my webpage on that. http://robertweed-bankruptcy-and-second-mortgages.info/. But I don’t think there’s any chance they will try to foreclose the second mortgage where the first is way upside down like it is for you.
Thanks for the information, its greatly appreciated! One more question, how long after a chapter 7 can you file a Chapter 13? I have just completed my Chapter 7 bankruptcy with the courts as of November 2011. Just curious.
Hi I’m going to file for Chapter 7 this week, as I owned my own finance company that I closed during the credit crash. I’ve made very little money in the last few years. I have paid first or HOE for around 2 years. I also owe a year or so of HOA. I don’t want to reaffirm the mortgage. I would like to continue to live here until I am officially foreclosed on. Florida has an average of 1074 days or so to foreclose. I have conflicting info that this could speed up Chase(who now owns my first mortgage) to take the home. BoA had the home equity loan and recently it was sold to a secondary company. Will the same process for foreclosure apply to me as if I didn’t file Chapter 7.
Yes, the foreclosure process is the same–EXCEPT that if they want to get started during the three and a half months your Chapter 7 is open, they also need permission from the bankruptcy court. Sometimes, they promptly get permission (called “relief from the automatic stay”) and then do nothing for months, or, occasionally, years. I can’t say why.
Hi Robert, thanks for all the good info on your site. My wife and I filed for Chap 7 last week. The ideal situation for us it to settle the 2nd mortgage for a lot less than the $50K we owe on it and refi the 1st to a lower rate than the 6% we currently have. I started reading your postings because I wanted to know what would happen if I just didnt pay the 2nd mortgage. The first mortgage is probably $10-20K more than what the home is worth so with the 1st and 2nd together we are $60 – 70K under water. If we want to stay here long term should we just stop paying the 2nd and offer $.10 on the dollar in a few years with the threat of walking away from the house AND if we do choose to do that, should we wait until our Chap 7 is discharged as to not make waves with the courts? If the house doesn’t matter to us, would it make sense stop paying on the 2nd and pay just the first until we decide to walk away from both and forclose?
Kevin: Thanks for your kind words.
Either way, I wouldn’t pay the second for a couple years. Before you negotiate with them, let them have a couple of years experience of getting nothing. And, of course, if you decide in a couple years the house doesn’t mean much to you, then you can stop paying the first, too, and see how long they take to foreclose you.
Mr. Weed
I posted to you earlier last week about my bankrupty ch7 around to years ago, I’am local in your city.
My question is you either sendender or keep your home just do not reaffirm. Is there a difference in checking one or the other, and what would that be..we did not sendender nor reaffirm,does that still mean we did bankrupt on our home. I want to understand this. I stopped paying on my 1st mortgage 4 months before are bankrupty, had a court date to start process of action or forecloser something from WF which the bankrupty filing stopped that and my lawyer said if we were going to keep the house I had to pay it up before bankrupt date so I did that, so we would not lose our home according to him. Was this the correct thing to have done. As I mention to you on the other post I’am paying on time always, 1st oweing 346,000 with WF and 2nd 50,000 with GT. house is worth 246,000 . GT just took this over about 4 or 5 months ago from BA (dumb) and like I said they call me every month at work payment due on 1st I have until the 16th and I always pay before then,except Dec had dryer to go out so I bought a used one. They called and said they would start action if not payed by Dec. 31 so I payed it. My concern also is that the Guy that is on my deed of trust for the 2nd is the lawyer for my 1st mortgage. that is why Iam scare to stop paying on my second. With my husband’s disability it is getting hard to make the second and the upkeep on the home
Been denied Modification from WF getting ready to try again as are expenses have increased. This is my husbands home place we had it built on family land we do not want to give it up. and does a modification or the HARP program stop us from walking out and oweing nothing if we were to get either one of the programs. and as you said in my other post I should get a attornoy and sue GT for breaking the bankrupt laws. could that be you, or who could I see. You have handled a couple of family cases before, maybe I should have seen you.. just saying . Please help with more advice. Iam a gambler, but this is our dream home we have been here since 1997 first time we owned. we have been married since 73 unfortureate things happen to my husband that put us in this postion. Thank you much Debbie
Debbie: Thanks for your follow up questions.
I do not think you should be paying Greentree. Take notes for a month on what they say to you; and then email me robertweed@robertweed.com. We’ll see if there’s something we should do about them.
As to the first, yes you want a loan mod or HAMP or HARP. And if you do get one, you can still change your mind and move out later and not have to pay them any more. The bankruptcy still protects you.
Is their a law in place that states after so many years of not paying second after declaring bankrupcy (chapter 7) and continuing to stay current on first while home is still underwater on first that the second will just go away? Some lawyer states that will happen after 10 years of no payment? Is this true?
Not as far as I know.
Mr. Weed,
It’s wonderful to know there are people like you that don’t mind helping other people. Your information for people in our situation is enlightening and helpful. I suspect most of your readers and clients, if not all, paid bills on time and intended to pay debts in its entirety until faced with circumstances that led to filing bankruptcy. Your information is helping those of us faced with tough circumstances that simply don’t know what to do to survive the financial challenges.
Although married, I filed bankruptcy in 2009 independent of my wife to minimize any negative impact on her credit. I filed Chapter 7 in Florida and was discharged of all debts except the 1st mortgage and auto loan that were re-affirmed (which I now know that I should not have done so based on previous comments posted). A 2nd Equity line of credit mortgage was not re-affirmed and was included in the discharge also. Both mortgages are in our joint names. We are current and able to pay the 1st mortgage but have been struggling to pay the 2nd mortgage. In fact, the entire payment made each month on the 2nd mortgage ($141,000) goes solely towards interest only – not the principal. It was established in 2006 as a variable home equity loan with Countrywide (now Bank of America) to become fixed after five years, which for some reason has not occurred yet. The balance of our 1st mortgage is around $157,000 and Zestimate estimates our home selling price at $190,000, which is a surprising increase than a few months ago when the price was estimated very close to amount owed. I would like to stop paying the 2nd mortgage as suggested in previous comments posted for a year or two. However, I’m concerned they, the 2nd mortgage lender, may foreclose if I stop trying to make payments since it appears to be some equity in the home now based on the estimated selling price over 1st mortgage balance. Are they likely to foreclose in this situation or can I not pay and buy some time? Do I have any opportunity of relief from the 2nd mortgage since discharge in chapter 7 bankruptcy?
If you stop paying the second mortgage, they will sue and try to garnish your wife, since she stayed out of the Chapter 7. Like you, I’m nervous about the threat of foreclosure when the value goes above what you owe on the first. From what I read in the papers foreclosures are really backed up in Florida, but someone around there would know better than me. Once/if you decide you can’t keep paying both mortgage and the wife is ok to and ok with filing bankruptcy, then you need to take a fresh look at the whole family situation. Do you want to stay in the house long term? When do the kids, if there are any, get out of high school. If you file bankruptcy for the wife and just don’t pay either mortgage, how much cash could you save before you get booted out.
On the other hand, are values really coming back? Could you still get an appraisal now at $155,000–less than you owe on the first. But do you think in a couple years it will be at $200,000? Then you might want to do a Chapter 13 now; make a small payment to the court for three years (how small would the court approve where you are???) get the second totally off there and have equity.
You need to think about the family goals and then meet with a lawyer who will look at all the strategies.
Question…
I live in California and filed bankruptcy 2 years ago. My home was not part of the bankruptcy. I’m current on my first and second mortgage; however, my first is an interest only and is approximately $50-70,000 upside down. My second is for an additional $100,000 at a 10 percent fixed. I’ve tried a loan mod on the 2nd twice and was denied. The bank stated that due to the bk I should have no problem paying the second and denied the loan mod. I’m struggling financially and was seeking advice on whether I should stop paying the second and what are the ramifications or should I walk away from both mortgages as both loans are bad and I feel as if I’m only renting this house. I think a 10 percent fixed on my second is ridiculous. Thank you in advance.
I filed chapter 7 my second was discharged. We did not reaffirm the 1st or the 2nd. Were able to remodify the 1st mortgage. The first is underwater about 50,0000 to 75,000. We are current on the first. We stopped paying on the second. Its been about 7 months now. We recently got a call from mitigation on the second asking if we were going to get payments caught up. We replied no. They asked if we were going to surrender the home.? We said no. Long story short they were fishing to try and get us to start making payments again. The Balance on the second is 130,000. We got a call about offering a settlement. The gentlemen first tried to scare us with foreclosure we told him the loan situation and that they would have to buy out or pay off the 1st to foreclose on us. He said that banks are now starting to work together helping each other out to foreclose. I said the 1st mortgage has a good performing loan and all payments are on time…that being the case why would they lose money with you by helping you foreclose on me. Once he realized that tactic would not work he asked if I would be interested in a settlement and that they were accepting settlements between 1,000 to 5,000 on average. I said I would be. He said in order to start the process I would need to send in the amount of my second mortgage and they would send the paperwork to start the process. I told him I would not send any money to start negotiations. He emailed me a packet that consisted of writing a hardship letter and wanted to know 2 years tax returns, pay stubs, profit and loss from my business. I asked why they needed all that info. He said it was a requirement by government Freddie Mac or someone. Basically all this info would show whether or not I could afford the second. Is this part of the process to settling the second mortgage. I would rather hire an attorney fill out one form stating that they agree to take XXX amount to close the loan. I would like to hear from you. What should I do and how does the process really work?
D.R.
A couple things. First, was the call from the original second mortgage, or someone who took it cover after the BK was filed. If it was someone who took it over after the BK was filed, they are a debt collector and covered by the FDCPA. And you can sue them for making a false threat. (There is a lot of lying that’s going on over these second mortgages–the same kinds of stuff that triggered the mortgage boom and crash. I’m always looking for ways to slap them for lying, in order to do my part to hold it down.)
As to your bigger question. There is a Federal program that gives them a little money if they forgive the second. That maybe be why they want that stuff. (And of course you’d want that to get approved.) But basically, you are in a negotiation. You are not paying them; they have very limited rights. And you are negotiating. There aren’t any rules. If he’s implying they will settle $130,000 for $5000 or less, that would be a good deal. If later he comes back with something totally different, say No.
Rather than pay someone to help you (which just signals that you have money to spend), go to a book store and buy a book on negotiations. From your comments, you seem to handle the English language well. But its up to you.
In your situation, I almost always tell people don’t pay the second.
Once you stop paying the second, you are now “renting” (you hit that on the head with that word) just from the first. So, how does that compare with rents in your area? That tells you whether you should walk away from the first. Keep in mind that you are getting a tax deduction for mortgage interest–so you save a little money compared to paying the same rent to a landlord.
I filed chapter 13 a year ago in September. Since then I have decided to convert to a chapter 7. I have a 1st and a 2nd mortgage and am behind on both since I decided not to file on my house. What should I do now? I am almost 5 months behind on both? Please help me to know what to do?
Wow. I’m sorry you are lost, but I don’t know what to say. That’s way too big of a question to answer in a blog. Don’t know why you were in Chapter 13 or why you converted. You need a good lawyer.
I do have an attorney. I am trying to work it out with my mortgage company. They told me not to pay the 2nd mortgage and just pay the first. I want to set up payments out of my checking account but I can’t get no response from the mortgage company now. I have sent them 2 payments which would be August and September and told them I would pay 2 payments a month until I am caught up, but they have not returned my calls. Do you think they may be foreclosing on me? I have lived in my house for almost 16 years. It has not accumulated any equity in it. I owe 27,000 on my first and 20,000 on my second. What should I do?
I want to thank you as you are clearly giving folks confidence during a time when none of us feels very confident.
My question, I filed 7 back in Fall 08′ I did not reaffirm and have not paid my second since back then.
My problem starts with my first which from the day 1 I came out of 7 was immediately 3 months past due because I had stopped paying just prior to 7 per my lawyer (just in case they took it?). I have maintained it there and have actually brought it up to date 3-4 times over the past few years. My first is 220k my second was 80k my house is worth about 340-350k.
The issue is that my wife had huge medical bills in December 11′ plus the holiday for kids wiped me out big medical bills came after the presents were bought. I am now back at 3 months but, of course, this time instead of the usual threatening letter I got a foreclosure notice and since it’s backdated I have 2 weeks to resolve past due.
I have always wondered if they can even call me and send me invoices and send me certified letters for payment due to 7. They have refused many times to take the 3 past due months and post them to back of loan and I talk to same guy every time I call them pennymac is my company sold at 7 by citibank.
I can’t make the 6k in 2 weeks (4 months they want next months too). What direction would be my alternatives? I really need to buy myself 30-60 days as my funds will not be an issue at that point nor going forward. If you answer that my next would be how to get rid of the 2nd. you refer to a website above but it doesn’t seem to work re doing a 13 to followup 7 to rid the 2nd.
I do not currently have a lot of cash but that flow is about to ramp so I have limited time to restructure that 2nd. I guess I could settle too? What just call them and say this is so and so at. Wouldn’t that wave a red flag to research department to get me? Sadly my 2nd is a wells fargo
Well, if you can’t get them to work with you, then you could come back with a Chapter 13. That would give you three years to get caught up on the first mortgage. You’d hit a problem, right away, however. In Chapter 13, you’d also have to start paying and catching up the second mortgage. If your cash flow ramps up enough, you could do that. If not quite enough, you could use the five or six months it probably takes you to get thrown out of Chapter 13 to catch up the first with your ramped up income.
Given that there’s enough equity to cover the second mortgage–something I rarely see where I am–you are going to have to deal with that second. At some point, the second will foreclose you.
So that raises a question: What is your long term goal? Is this house your Alamo? How long until your kids are out of high school. Would your wife’s bad health be affected by a move. On the other hand, do you think values are going up where you are faster than the second is getting further behind. In other words, do you think you can sell and get cash out in the foreseeable future.
And have you applied for a loan mod with the second?
There’s no obvious answer to what you should do. Short term if your income improves you should be ok with your first–and you can use a Chapter 13, even one that it not confirmed, to buy time to catch the first up. But at some point the second is going to make you move. Are you just waiting until that time comes; otherwise you’ll want to open discussions with them once your income improves enough that you have something to bargain with.
My income doesn’t ramp fast enough to meet the 2 weeks. By Summer it will and be able to put money away in good chunks. Kids just entered schools.
You say use a 13 what does that mean? Call them and say I am working on a 13 and not do it and then pay them the past monies in 60 days? I could do that if it will work. I don’t want to threaten such a place as my history tells them I am no good so far. Is there a 4 year window to do 13 after 7? I have a few months to go then…
My wifes health was a one timer issue we have full group policy under one of my companies but hers was teeth we don’t have teeth ins. so all cash.
I really don’t care about the house mentally but you start moving and renting there are costs to all those things and no tax benefit and I just feel I am not that far off on this thing. Maybe I am nuts? In my mind once I have money I assumed anything outstanding can be negotiated for less than I owe. I have spent the past couple years paying off people that helped me in my time of need.
Value of house will not increase that much if at all. But I am probably about even on loan v value in real terms using zillow. I assume there is a cost for any bank to do a buyout foreclosure would they do it to get a house that wouldn’t sell as a foreclosure they sell for much much less. Wouldn’t the gap have to meet a metric of some kind to make it logical. I have several foreclosures for sale on local streets and they have been that way for 2-3 years. If I am about even today I might add 10 by paying my 1st all this year.
Possible they, bank 1 and 2, are in working together and that I have met the point where they work together to get their combined money? That is in my head too.
I have never heard from Wells Fargo re my second since I filed. Do they have an educated threshold at which they normally accept a buyout? Like if I resolve my near-term and then with 15k in my pocket in June call Wells Fargo and say hey I want out of this I can offer you 10k with the plan to go to 15k based on an educated guess on what level they will definitely accept?
I am sorry to be long-winded. There is no-place to get specifics on anything your comments are the most straightforward I have ever seen and you should be commended for it because in my/all of our positions we get told so much non-truths it’s crazy.
Hello Mr Weed , Thank you very much for your willingness to help, so I hope you can help on this. I filed a chapter 7 in 2009 and did not send reaffirmation on the second ones. However, as my lawyer then didn’t advise me well enough, so I started making 2nd mortgage after the so many calls and threatening that they would take my property. However, my spouse has been out of job and I am having difficulty paying 2nd mortgage. After reading some of the comments here, if I default on my 2nd mortgage, would it impact my credit score? I am assuming that it should be all under “chapter 7″. Also, my house is worth about 280,000 and I owe about 210K on the first one and 60K on 2nd one. Without 2nd mortgage, I have some equity that they can take for 2nd. I have been making 1st mortgage on time though and plan on continue to pay. If I default on my 2nd mortgage, given that I am making the 1st payment on-time, would the second lender still have right to take my property if they want given I have about 70K equity after the 1st one ? Or what kind of risk am I taking if I starting defaulting on 2nd mortgage? Your response on this will be very helpful!
Your comment shows you’ve been following the discussion here closely. You are right that paying or not paying the second will have no impact on your credit score. The credit report just shows bankruptcy either way. You are also right to be concerned that if you don’t pay the second, they would have the right to foreclose you. Based on what you are saying, they might get a little money out of a second mortgage foreclosure, but I doubt they would get a lot. Some people who have commented on this blog have more equity for the second than you do, have not paid, and so far nothing has happened. So its hard to say how much the risk is.
I wonder who is the second and what kind of interest rate do they have? It looks like both you and the second would be better off if they would come down on the interest rate and payment and put you in a payment you can afford. Whether they would agree to that? Don’t know. That’s what I say about needing nerves of steel. When they panicked you into paying (the full?) payment, you weakened your bargaining position. But now you can tell them truthfully with the wife out of work they can agree to a lower payment or get nothing. See what happens.
Thank you so much for your response to me (Sera Smith above). My second lender is Green Tree. Originally it was Irwin, but they sold it to Green Tree prior to my BK filing. My second mortgage is on 12% interest, very high, so I tried to refinance, but they wouldn’t work with me, but I have been up to date on the payment since the chapter 7 until now. Just can’t afford anymore. Forgot to mention this..back in 2009, besides the threatening, they called my neighbor to see if I still leave in the house and ask them to tell me that I need to call them back for important messages. Can they do that at all? I am not happy that my lawyer didn’t advise me on 2nd mortgage situation given I asked him about it. And I didn’t know that it is against the law to call me and threaten me to pay after the BK filing at all. I wish I had known that then.
Thanks again for your help!!
In 2009 a more aggressive bankruptcy lawyer would have sued them for calling the neighbor. At least to make them cut out that stuff a little.
Mr. Weed, my wife and I completed a chapter 7 discharge in November 2010. This included our house which my wife purchased before we were married and thus, was the only one on the mortgage. We did not reaffirm the mortgage after bankruptcy. Our house is now worth much, much less than what we currently owe on it. If we decide to stop paying and let the bank foreclose on it, will I be able to get a mortgage in my name only after reaching the 2 year mark from bankruptcy discharge? We are worried that the foreclosure on my wife’s credit will affect my ability to get a new mortgage. BTW, we are in Illinois. Thanks!
BILL: Ask a lender! I think you should only be covered by the waiting period after the bankruptcy. Since in your case there’s no foreclosure. But that may mean that they consider only your income to see if you qualify for the loan. Is your income–without your wife–enough? And have you been carefully rebuilding your credit.
You are doing what I’d tell my clients to do. But I don’t know if it will work.
Hi Robert
I’m writing after reading your BLOG
We went bankrupt in 2009 and house was included in the chap.7 in Oregon and we did not reaffirm. We have a first and 2nd, and both were with Bank of America. The first is 160K and the 2nd is 49K but the house is worth 150K, and the homes here don’t sell. Then in February 7, 2011 the 2nd was transferred to greentree servicing? Every month they send me a statement saying this is not a bill and you are not obligated to pay but if you don’t!!!!
To make a long story short we decided that on January 1,2012 we stop paying on both mortgage and save up some money to be able to get into a Rental. But they called and pressured me into paying January’s payment. I was worried that by the way they were talking to me that they would start foreclosure proceeding, so I gave in partly because I do not want them to go ahead of my first. This was before I read your BLOG.
I wish I could do something GT? And how can bank of America transfer my 2nd to greentree two years after my bankruptcy.
Should I tell them that I will be recording their phone call and that I will not be paying them anymore. My wife and I wanted to stop paying the first and see how long they take to foreclose. Thanks Robert H
Greentree probably violated both the bankruptcy discharge and also the Fair Debt Collection Practices Act. By contacting you directly; and making a threat (to foreclose) that they did not intend to carry out. I always sue on those for my clients. Don’t get much money–judges here are very conservative–but enough that its worth the trouble and keeps them within the law for the next twenty minutes or so. Maybe your bankruptcy lawyer would go after them–or knows someone around there who would.
I have a question about my 2nd mortgage & it’s a little different than most of the others on here because we have not filed bankruptcy. I am in my last 9 months of a debt management plan that is getting rid of all my credit card debt. I’m been in this for four years. I do have a 1st & 2nd mortgage. My 1st was modified a year ago and my 2nd, which is through Green Tree, has had a lower interest rate for the past year but goes back up this month. I am trying to get an extension because I can not make that full payment. We have not had a raise in our income for 5 years (been with our employers for over 25 years) and our insurance premiums of course just almost doubled. My question is this. Green Tree is giving us a very hard time on the extension but also, if I only mail in half, they don’t accept it. I’m in a condo which is worth $75,000 (down from $105,000). I owe $75,000 on the first and $51,000 on the 2nd. We’ve been trying to do the responsible thing but feel like we are just throwing money down the drain. I did look in to Bankruptcy before the debt management plan but was told we only qualifed for the one where you have to pay everything pack anyway. I felt the debt mgt. plan would somewhat save my credit. Now I’m not so sure I can. I’ve thought about just finding a home to rent and walking away from the condo but still, just very unsure what is the right thing to do. Any advice??? Thanks. Love all of your information and the way you have helped others on here.
I wish you had gotten a lawyer who would have worked harder at qualifying you for a Chapter 7 bankruptcy. Which is not to say that it is always possible–but you are an example of why I hate the alternative. (I do agree, however, that a debt management plan is better for your credit than a 100% Chapter 13. But a chapter 7 is you can pull it off is so much better. Unfair as that is.) If you walk away you can count on getting sued by the second mortgage. And if you could not get approved for a Chapter 7 bankruptcy while you were in the condo, for sure you can’t after its gone.
Your best choice–getting approved for a Chapter 7 bankruptcy is so much better than all your other choices, you really need to talk to a lawyer again and see if you can qualify. Otherwise you are going to be paying Greentree for a really long time. The fact that payment is increasing may help you get qualified.
Hi,
Wow I am so very glad to have found your site. My husband and I live in Indiana and filed for a chapter 13 in Novemver (our attorney advised us to even though we really could not afford it). We have both a 1st and 2nd mortgage. The first mortgage has agreed to work with us and we just signed papers to do a trial mod yesterday. The 1st is with Midland Mortgage (MidFirst Bank) and is for 134000.00 the 2nd is a HELOC with Beneficial and is about 21000. A house like ours recently sold in our neighbor for 92000.00.
I told the attorney from the beginning that we wanted to do a chapter 7 and not reaffirm either and only pay the 1st for awhile. He stated we could not do that because the 2nd would sue us or foreclose (so at his urging we did a chapter 13). I then negotiated and arranged my own mortgage mod on the 1st. I also called the 1st a few days ago and asked them if we changed to a chapter 7 would it affect our mod. They said no it would remain the same. Yestereday we went to our attorneys office to sign the trial mod papers and also informed them we wanted to convert to a 7 and not reaffirm either loan.
The original attorney did not meet with us as scheduled and instead put us in with another attorney. He said are you sure this is what you want and we said yes. He then stated that after our bankruptcy is finalized the second mortgage (if we don’t pay it) can be sold to a debt collector who can then sue us and garnish our wages. I said I don’t believe that to be the case and this is what we want.
Was I correct?
Also forgot to metion I do plan to wait several months and try to settle the 2nd if they don’t send an offer first. I have went as long as six months without paying them before and all they did was send a letter saying it looks like you are have a difficult time paying so we have reset your payment and added the past due to the end of your loan.
You are correct. I’d be interested if you would email me personally the name of your lawyer. Email me robertweed@robertweed.com I’m just curious.
This is Bob again. The lawyer she used in Indianapolis is NOT a member of NACBA–the National Association of Consumer Bankruptcy Attorneys. If you are looking for a personal bankruptcy lawyer, you should always check for NACBA membership. nacba.org.
Second, he has six google reviews and at least two of them look fake. Reviews have more weight with google if they are from people who review a lot. You can check on the person’s name and see. But if they are reviewing stuff all around the country, then they are probably fake.
I think you may want to wait longer than several months.
Hello Robert,
My wife and I have completed a chapter 7 discharge back in Oct 2011. This is after we converted over from a 13. I just found out that my 2nd Mortgage was charged off. We are still paying on our first after a Modification. We owe 25000 on the first or so more than what the house would sell for . Is this why they charged it off? I was told because it was a chapter 7 its normal procedure. Should we stop paying 2nd. We do not plan on leaving anytime soon…Thanks for the help Robert, Tom
“Charge off” is an accounting term. It means the bank doesn’t expect your payment will get mailed in time for them to pay their electric bill with it. I try to explain that here. http://robertweed.com/blog/general-bankruptcy-law/bankruptcy-discharge-or-charge-off-whats-the-difference/.
My general recommendation is that you stop paying the second, which you’ve done. After a couple years of helping them get used to getting nothing, see if they will agree to a low ball settlement. Also, after a loan modification on your first, the Obama Administration provided some incentives (money) for the FHA Second Lien Program. http://www.makinghomeaffordable.gov/programs/lower-rates/Pages/fha2lp.aspx. In other words, there’s some chance, if you don’t, the second will just forgive the loan. (They will ask you to sign a Dodd Frank certification that you haven’t defrauded the United States.)
there’s no guarantee that this will work. As I say in my blog, it takes nerves of steel.
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