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Roger, Attorney
Category: Bankruptcy Law
Satisfied Customers: 31781
Experience:  BV Rated by Martindale-Hubbell; SuperLawyer rating by Thompson-Reuters
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2nd Mortgae & Bankruptcy

Customer Question

I am in the mortgage industry and up until about 2.5 years ago doing quite well.. Unfortunately, with the times changed, my income is severly reduced and I believe will stay in this range. I owe $560K on a first mortgage and $350K on a 2nd mortgage for a home valued around $1MM. I would like to stay in the home and am contemplating going delinquent on my 2nd mortgage and hoping that the lender charges it off. Can I wipe off the 2nd mortgage after charge-off with a bankruptcy? The 2nd morgage is a fixed loan that I converted from a HELOC and it is not money pruchae. Please advise.

Submitted: 8 years ago.
Category: Bankruptcy Law
Expert:  Roger replied 8 years ago.
The 1st and 2nd mortgage are liens on your house, and as long as the collateral is available, neither lender is going to charge off the loan. Either lender has the right to foreclose - even if you did file bankruptcy, the lender can re-take the property.

If there is not enough money to pay off one or both of the loans from the sale, you deficiency amount could be discharged through bankruptcy. However, so long as the house is available, the secured creditors aren't going to charge anything off.
Customer: replied 8 years ago.

After 6 months of no payments, at some point, the lender will realize that it is futile to attempt to collect as I do not want to deplete all of my reserves, every month I am in the negative. Would the 2nd force foreclosure as there might not be any equity with the foreclosure. We are virtually at a no equity situation. If we factor in the foreclosure costs, there would be no equity for the 2nd. What are my options?

Expert:  Roger replied 8 years ago.
<p>The 2nd can foreclose, but the you're right that the 1st will have to be paid in full before the 2nd could collect anything. However, they will still do this in some situations!</p><p> </p><p>If the 1st forecloses, and there is not enough, the 2nd has lost its collateral, but it still has a right to collect from you - but the debt is unsecured, just like a credit card. </p><p> </p><p>You may ask the lenders to enter into a forbearance agreement, which usually extends for 8-12 months and gives you a reduced payment and gives you time to get back on your feet. Bear in mind that the lenders don't have to allow this, but it does postpone foreclosure, and maybe things will get better financially during the period, and you can pick back up and avoid a financial disaster!</p>
Customer: replied 8 years ago.

Is there any scenario in which the 2nd will charge off the debt? Same situation, the lender will attempt to collect and threaten foreclosure (1st and 2nd with Citibank) and ultimately, it has to either charge it off or foreclose? If the 2nd lienholder charges off the debt, it will go to collections or judgement? Could I not then declare bankruptcy while continuing to pay on my first mortgage?

Expert:  Roger replied 8 years ago.
<p>There is always a possibility. However, the lender won't charge off the debt until the foreclosure fails; then they'll sue you and try to obtain a judgment and garnish wages, freeze bank accounts, etc. </p><p> </p><p>Further, the judgment will be valid for several years, and if you come into any money, they'll have liens filed everywhere and try to collect. </p><p> </p><p>It is possible that they'll charge the debt off, but not likely.</p><p> </p><p>If you declare bankruptcy, the debt can be finally discharged. However, if you do this, it is likely that you'll lose your house because the lenders will be allowed to re-take it and foreclose. </p>
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Customer: replied 8 years ago.
Thank you
Expert:  Roger replied 8 years ago.
You're welcome.