Eliminating a Second Mortgage

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Many clients that have come to us over the years have been burdened by their monthly mortgage payments.  They simply do not have the income to make both their first and second mortgage payments on time.  We often tell these clients that in today’s economy, there are a couple of viable options for eliminating a second mortgage.

File for Chapter 13 Bankruptcy

The first option is to file a chapter 13 consumer bankruptcy petition.  In chapter 13 proceedings, individuals are given the option of discharging second liens against their homes.  These "lien strips" have become quite common and are not difficult to perform.  The primary prerequisite for a Bankruptcy Court to grant a lien strip, is for the value of the home to be less than or equal to the amount that one owes to his or her first mortgage lender. 

In such a situation, the second mortgage lender is deemed to be wholly unsecured.  Typically, the Court will want an appraisal in order to determine how much the home is worth.  If the Court is satisfied that the second mortgage is wholly unsecured, the second mortgage will be treated similarly to any other unsecured debt, such as a credit card, and will be discharged at the end of the chapter 13 case.

Settle With the Lender

Another option which does not involve the filing of a bankruptcy is to simply settle the second mortgage with the lender.  Many second mortgages were granted years ago when home values were much higher.  At that time, lenders felt secure placing second liens on borrowers’ homes, because the values on the homes were high enough to secure that loan, in addition to the first mortgage. 

However, with home values at their lowest in years, second mortgage lenders no longer feel secure that in the event that a debtor's home go to foreclosure, they will obtain any of the proceeds.  As a result, second mortgage lenders are often open to settling those second mortgages for a lump sum or installment payments that amount to significantly less than the total amount owed on the second mortgage.  While individuals can undertake to settle a second mortgage on their own, they are oftentimes more successful with the help of an attorney.  We have found that attorneys at our firm know how to facilitate a settlement much faster than the average individual and that savings tend to be much greater when negotiated by an attorney.

In today’s economy, we understand that every bit counts.  For many of our clients, saving hundreds of dollars each month on a second mortgage is tremendously beneficial to them.  As a result, we encourage individuals to look into the above options for eliminating their second mortgages.