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Fritz
Fritz, Attorney
Category: Bankruptcy Law
Satisfied Customers: 302
Experience:  Florida attorney with extensive experience in Chapter 7 and Chapter 13 consumer bankruptcy cases
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I had a real estate agent ( friend) want to show my place and

Customer Question

I had a real estate agent ( friend) want to show my place and they want to buy it ... I'm in the process in dc awaiting a notice of default and then mediation .. so no default notice ... i have a second mortgage .. they've made an offer to cut it by 60% ... is it legal to pay that loan off and then sell the place ... the 2nd mortgage is unsecured ... or should i consider bankrupcy .. i have 200k in equity in my unit ... wiping out the 2nd gives me 260 ... what is the best way to handle the second mortgage legally
Submitted: 2 years ago.
Category: Bankruptcy Law
Expert:  Fritz replied 2 years ago.

Fritz :

Hi, I'd like to help you with your questions today.


 

Fritz :

What do you mean when you say the 2nd mortgage is unsecured? Was it actually a personal loan rather than a mortgage?


 

JACUSTOMER-13z0kbxa- :

great

JACUSTOMER-13z0kbxa- :

2nd mortgage but was a line of credit

JACUSTOMER-13z0kbxa- :

your right its secured

JACUSTOMER-13z0kbxa- :

im not sure why they havent issued a lien

JACUSTOMER-13z0kbxa- :

hello?

Fritz :

So it appears that you have a $60,000 2nd mortgage on your home that you'd like to pay off or strip off in bankruptcy. From the bankruptcy perspective, the real problem is that you have $200,000 equity in your home. Thus, if you were to file for bankruptcy, you would probably not be able to strip off or otherwise eliminate the 2nd mortgage. Speaking very generally, a lien strip of a 2nd mortgage (what I believe is what you had in mind) only works when there is NO equity in the property beyond the 1st mortgage. Since you have significant equity over and above even the 2nd lien amount, it is unlikely that a bankruptcy would make sense for someone in your circumstances.


 

Fritz :

The offer to cut the $60,000 mortgage by 60% (down to $24,000 or so?) seems like a good business deal on its face. Of course, there may be other considerations I'm not aware of.


 

Fritz :

But it would be completely legal to reduce the 2nd mortgage (in a written and recorded document, of course) and then list your home for sale.


 

Fritz :

The balance of the (now-reduced) 2nd mortgage would be paid from the proceeds of the sale.

Fritz :

You would want to make sure that there are no restrictions on sale or some kind of financial penalty for selling the property (i.e. "you owe the original amount of $60,000 if you sell within 2 years" or something to that effect) contained in the agreement the 2nd mortgage lender would want you to sign.

Fritz :

Honestly, this is one those things that quite literally sounds too good to be true, so it would be a good idea to have a local attorney review the proposed loan modification agreement before you sign it. Spending a few hundred dollars now on an attorney (just to make sure everything's kosher) could save you a big headache and thousands of dollars down the road.


 

Fritz :

Good luck!


 

Expert:  Fritz replied 2 years ago.
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Customer: replied 2 years ago.
the home equity loan was offered down to 54 from 108 .. i'll assume they thought i might declare bankrupcy.

they may not have understood the value of my property vs the amount owed on first ....


if the home equity loan originator will no longer take the 54 they offered ... what do suggest ... i still very well could consider chapter 7 which would involve the foreclosure of my property the expense that went with that .... they'd be behind the lien holders for taxes condo fees etc ... Is this the way you'd present that their offer was a good one especially if I pay it in full upfront instead of risking a messy expensive foreclosure maybe leaving them with nothing ... Is this thought process make sense?


As far as I can determine chapter 13 would not help me .. because the value of my property is worth more than the first mortgage and equity line .... thus the equity line could not be stripped is that correct?
Expert:  Fritz replied 2 years ago.

In a Chapter 7, you would typically either reaffirm (or simply keep paying) the full amount of BOTH mortgages, OR you would stop paying and surrender the property. Unless there are other financial factors (i.e. significant unsecured debt you can't afford to repay) that I'm not aware of, I'm not sure either option would be desirable. Reaffirmation doesn't do much for you (while you could discharge your personal liability on the mortgages, it seems like this is pretty much a non-issue since you have equity in the home). If you stop paying and surrender the property, the Trustee would likely sell your property in a forced sale for well under the market price in order to pay off your unsecured creditors. This is highly undesirable from any perspective.

 

 

"As far as I can determine chapter 13 would not help me .. because the value of my property is worth more than the first mortgage and equity line .... thus the equity line could not be stripped is that correct?"

 

Yes, according to what you've stated, you would have to continue making your regular payments or the house would be foreclosed upon. In a foreclosure sale, you would be unlikely to receive market value for the property, so you would be much better off selling it on your own or through a realtor before it falls into foreclosure.

 

Unless there are other factors in play here, you don't sound like a very good candidate for bankruptcy (which is a good thing!). Many bankruptcy attorneys offer free consultations, so you might want to contact a local bankruptcy attorney and see if he your she can give you additional insight into your options. Good luck!

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