Second Mortgage Settlement
Debt Settlement Attorneys Serving Southern California
Much like credit card settlement, settling a second mortgage involves an
agreement between the mortgage holder and you that it will accept less
money than you currently owe. In return for this lump sum partial payment,
the holder agrees to reconvey the deed of trust (lien) and to fully release
any claim they may have against you regarding that debt, which bars them
from coming after you for the unpaid portion in the future. This allows
you to have the mortgage released for only a small percentage of what
you owe on the note.
Why Would a Lender Agree?
A lender wants to maximize the amount of profit it can make on any loan.
This is why lenders charge interest on loans. Similarly, lenders offer
mortgages, which have a security interest in the home, because, if you
fail to pay, they can foreclose and take the home. This security interest
in the home is enough protection to justify the large amount of money
they are willing to lend you to purchase a home. A lender will only agree
to accept less than the full amount owed on the loan if there is an even
Underwater Homes / Negative Equity
These days, many homes are "underwater" or have "negative
equity." This means that the fair market of the home (what a reasonable
buyer is willing to pay for it) is less than outstanding balance owed
on the home (the balances). In other words, the home is worth less than
the amount still owed on it. Depending on how much negative equity exists,
your lender could risk losing its security interest if the first mortgage
A study done by CoreLogic showed that, in California, "an estimated
1.7 million homes were underwater" at the end of 2012.* This comes
out to about one-fourth of all homes with a mortgage on them.* The study
showed that, in the Riverside-San Bernardino-Ontario metropolitan area,
35.7% of homes with a mortgage were underwater.* This was the fifth highest
in the country.* Many of our clients come from towns in the region such
as Rancho Cucamonga, West Covina, Chino, Mira Loma, etc.
Interestingly, home prices are on the rise so the time to settle is now.
Another study done by CoreLogic in June 2013 indicated that approximately
850,000 homes that were underwater in 2012 moved to positive equity by
March 2013.** Please call our office today to begin the process.
Khouri, Andrew. 'Underwater’ homes decline nationwide, report
says. Los Angeles Times. March 19, 2013.
Lazo, Alejandro. Rising home prices lift more homeowners out of negative
equity. Los Angeles Times. June 12, 2013.
If you are no longer paying, your lender can force a foreclosure sale even
if your home is underwater. However, because it is underwater, there will
no longer be a security interest for the amount owed that is higher than
the fair market value of the home. Thus, a sale of your home would not
even generate funds sufficient to pay off your first mortgage holder,
which would leave the junior lienholder with nothing.
In Chapter 13 bankruptcy, we can strip the junior lien off of your home
if it wholly underwater. In order to do this, we must file and motion
with the Court and provide various documents to the Court to prove that
the amount owed on first mortgage is more than the fair market value of
the home. After this motion is successfully granted, the loan balance
will be treated the same as the other unsecured creditors and, thus, will
be paid the same percentage as the other unsecured creditors (for example,
credit cards or medical bills). Therefore, the debtor could wind up paying
back none or only a small percentage of what was owed.
Why is this important? The prospect of the borrower (you) filing for Chapter
13 bankruptcy is worse to the lender than the prospect of settling with
you. Lenders are mindful they could receive nothing if you file bankruptcy
and are would often rather accept just a fraction of what you owe. Thus,
the lender is often willing to work out a settlement agreement with our firm.
Is Settlement Right For Me?
If your home is currently underwater and you are delinquent on your second
mortgage, then settlement might be a good option for you. Because you
can also have this loan removed in a
Chapter 13 bankruptcy filing, it is important to consult an attorney who will examine your whole financial
situation to advise you as to what path is best for you. Other factors
that may affect our recommendation include your other debts and your household income.
Please call our office for a free consultation so one of our experienced
attorneys can guide you as to what avenue is appropriate for you. Many
debt settlement firms do not offer both options, thus our leverage is
higher than most other firms when negotiating. We have offices all over
Southern California and have the ability to handle your entire settlement
by phone and email if that is more convenient for you.
Second Mortgage Settlement: More Information