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.
*
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.
Will I Still Face Foreclosure?
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 a Second Mortgage 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 Southern California 2nd mortgage settlement lawyer
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 Southern
California 2nd mortgage settlement 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.
