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 worse alternative.
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 lender forecloses.
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.
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 in Southern California 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.